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October 04, 2006

Why It's Time to Speculate in China Technology Development Group Corp.

posted by MR WAVETHEORY at 10/04/2006 01:26:00 PM
The difference between speculators and investors is this: speculators care about returns that can generate 5-10x their money, investors care about preserving their capital. Venture capitalists are speculators, because they bet on ideas that have a 1 in 10 chance of succeeding. Speculation makes sense when the odds are good. Mutual fund managers want to make 5% with 80% certainty - and even at that, alot of them fail. I wrote about how to invest in China stocks and the difference between speculating in small China companies and investing in large ones. I will dive into speculation today. Why then is it time to buy China Technology Development (Nasdaq CTDC) also known as China Development Group Corp? Two reasons: China is hot and technology is in vogue again.

China is Hot
Just yesterday, Morgan Stanley (NYSE MS) bought out a small commercial lender in China called Nan Tung Bank, which was an affiliate branch of Bank of China (HKY 3988). You won't find big banks making small acquisitions like Nan Tung (who's heard of Nan Tung?) unless there is big opportunity. It has 30 employees and 1 branch. Morgan Stanley, shall I say, is speculating. When China is that hot, you have to buy.

Technology is in Vogue Again
When tech is hot, you know it. Just look at the Nasdaq which gained 47 points today or 2.11% to close the day at 2290.95. The Nasdaq hasn't seen this level since a long time. The previous high was April 20, 2006 when it hit 2375.54. When Google gains more than 10 points in a day, I smell speculators and investors and big money jumping in.

China Technology Development Group Corp Is a Speculative China Tech Play
When you combine the two hottest concepts, China and technology, you have a winner. I say that somewhat facetiously, but never underestimate the power of a runaway bull market. I am wearing my speculator / venture capitalist hat, when I say that China Development Group Corp is a great play. Why? Consider the following:

Market Cap
- $40 million
Cash - $3.7 million
Float - 1.95 million
Today's Trading volume - 4.06 million
Total Shares outstanding - 6.89 million

Why A Small Market Cap is Good
When you are speculating, you are betting on supply and demand. When a company is small like $40 million, then you have a small supply of dollars you are dealing. When you have big money behind a small company, that is good. Consider that there are only 1.95 million shares of CTDC outstanding, this means its shares are limited. You want to find scarce stocks to buy when you speculate. Scarcity creates value.

The Math Makes Sense
China Development has a float 1.95 million shares. Considering today's
volume of 4.06 million, that means almost every share turned over 2 times. That's alot of demand for a small company. When you have 2 trades for every trade available, you know it is in demand. I would also add that most of the shares in this company are not available for trading which is good if you are a speculator. After all, who wants to be the victim of a pump and dump.

The Risks are Great But Potentially the Rewards as Well
You can read my previous post on why I think China Technology Is Poised for a Rise when the stock was trading at $3.15. The timing looks good now because not only has the stock confirmed the view which is crucial as a speculator. It closed today above two previous highs - $5.62.
That means there is little overhead. So, consider putting your speculator hat on. There just maybe a chance it will go to $20!

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