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How to Read the News about Companies

Saturday the 26th of November, 2011, a large bridge that crosses the Mahakam River in Kutai Kartanegara (Kukar) Regency, East Kalimantan Province, suddenly collapsed, and killed at least 40 people. But for investors in the stock market, it is not the number of victim that matters, or who are the incompetent developer that responsible for the bridge construction. But, which companies that had its operations disrupted due to the incident? Because as we all know, Kukar is a working area of many coal mining and oil palm plantation companies, and some of which are listed on the Indonesia Stock Exchange (IDX).

For investors who have memorized the way of working of natural resources companies, especially coal company, the collapse of the bridge could mean that the shipment of coal from the location of mine to the harbor through Mahakam river will be blocked by the wreckage, and that means a negative sentiment for the related stock.

And maybe that is what was captured by journalists from a local news company, Detik Finance. So on Monday, November 28, 2011, they wrote an article entitled 'The Bridge of Kukar Collapsed, Three Coal Mining Stocks Under Pressure.' The article is based on the fact that there are at least three coal companies that operating in Kukar, namely Indo Tambangraya (ITMG), Harum Energy (HRUM), and Bayan Resources (BYAN). And indeed, when the news was published, the stocks of ITMG and HRUM were dropped by 5.44% and 1.67% respectively, and BYAN unchanged, while in fact the Jakarta Composite Index (IDX) was in green at the day. If you hold one of the three stocks above, then you might panic after reading the news, and immediatley sell off your holdings in a loss position.

In the news article, it was said, ‘The collapse of the bridge has made the coal shipment of the three companies became halted'. The question, is it so? Is the journalist have confirmed that story to the three companies concerned?

Unfortunately, it is likely that the sentence is written without any confirmation. The statement that the collapse has disrupted the delivery of coal, is more like an assumption than a fact. Yup, of course, anyone can easily conclude that if the Kukar bridge had collapsed and the wreckage blocking the coal shipping lanes of the three coal companies above, then the shipping would be disrupted. Moreover, the local government is prohibiting the coal barge ships to cross the bridge location until an undetermined time. But is that exactly what is happen? Not necessarily. There should be a confirmation from the companies in question, so the journalist (or investors) could enhance the status of those assumptions to be facts.

One of the companies, ie HRUM, immediately released its confirmation on the same day of the news (Monday, November 28). The company confirmed that the collapse of the bridge would interfere with the shipment of coal for a while, so they will reschedule several coal deliveries. This confirmation is possibly the one that causes the stock quite fell in that day. While ITMG, in its confirmation, they said that the collapse of the bridge would not interfere with their coal delivery, at least until the next two weeks, as the company had enough coal stockpile in the harbor. If after the two weeks, the shipping lane is still cannot be used, that’s when the company will reschedule some of its coal deliveries. Although at a glance, the confirmation of ITMG is more optimistic than HRUM’s, but it still contains the possibility of coal delivery rescheduling, so as a result, the stock of ITMG was also dropped.

Another company is BYAN, until this article was written, has not been released its confirmation. Maybe the management assumes that they do not need to release any confirmation, because the stock is illiquid. If compared to HRUM and ITMG, the stock price of BYAN was relatively unchanged in the last three days.

Okay then, what lessons can we take from this issue?

If you are often read the company’s announcements in the website of IDX, you will often read an announcement with the title, 'The Company’s Confirmation over the Coverage in Mass Media'. Yup, it is not just once or twice, the PR of listed companies on the Stock Exchange must release an announcement that confirmed or denied the reports in the media about their company. The point is, most of the reports in the media only took a secondary source, which is the flavored by certain assumptions so that be exciting. Or worse yet, there is no source whatsoever. So as an investor, you are advised to read any corporate news carefully. The most accurate information is the which that came from the company itself, and it can be obtained through the website of IDX (

But in releasing some information, the company was not necessarily honest about the information, was not it? Yup, that wasn’t. But it is unlikely to happen (the company has lied), because if they do that, they will be sanctioned by the IDX as the stock exchange authority. What often happens is, the company 'packaged' their information in an attractive form, so even though the information is actually a bad news which could have a negative impact for the company, but the ‘rhythm’ will still sounding positive. So in this case you are required to be able to 'translate' the information, to interpret it accurately. If you read the released information of HRUM related to the collapse of bridge of Kukar, the company said that its shipments of coal in the month of November 2011 will not be disturbed (good news!), because the ships that are scheduled to pass through the bridge has done its job. If you are read it carefully, the 'good news' is actually not that good, because what time is now? It is already the end of November! Then what about the coal delivery in the month of December? Well, the company did not explain it.

Luckily, the news written by Detik Finance is actually based on facts, where the rumored companies did not deny the reports. But there are some cases that the company denied the reports in the media. For example, some days ago there was a rumor that XL Axiata (EXCL) will sell some of its base transceiver station (BTS) towers, including the news that EXCL has reached an agreement with a company to buy the tower. EXCLs PR then reacts with the released information, that until now, there has not been any developments related to the sale of the company BTS towers.

So if in this case the media was wrong? Not really, they only did not complete the sentence in the news they released. When Detik Finance stated that ‘The collapse of the bridge has blocked the shipping lanes of the three coal companies', then the sentence is incomplete. This is the complete one: 'The collapse of the bridge is estimated to block the shipping lanes of the three coal companies'. Unless the news is written based on the confirmation that has been obtained before, then the word 'estimated' could be removed, to ensure the news.

If you read various article on this blog, you will often find the word of ‘estimated’ or similar, such as 'likely', 'predicted', 'may be', and so on. The point is, if there is an information or opinion of my own that is still an assumption, I used to use the above words to explain that such information may be wrong, so that you may had different information or opinion. I only use the phrase without the words ‘estimated' or the like, if the information is sourced directly from the company or other credible sources.

In the end, all the media have freedom of the press about what they write. So in this case you are expected to be able to filter out any information that you earn (including from this blog). Fortunately, the news of media often helps investors to 'force' the company to describe the actual event, about the collapse of the bridge or anything else. If Detik Finance did not released the news related to ITMG, HRUM, and BYAN, then it is not impossible that these three companies will not releasing any confirmation to investors, about their operations.

Original article was written at November 30, 2011

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