From Trading Anomalies to Investment Opportunities: A Deep Dive into the Risks and Mechanisms of Disposed Stocks

Warning of Trading Abnormalities: Understanding the Origin of Disposed Stocks

In the stock market, there is a category of stocks exhibiting abnormal behavior, with sharp price fluctuations in a short period—sometimes exceeding 100% monthly gains—yet they cannot be traded smoothly like regular stocks, and margin trading functions are also restricted. These stocks are included in the Taiwan Stock Exchange’s Disposal Stock List, becoming a focus of investor attention.

The appearance of disposal stocks is not arbitrary. When a stock shows abnormal trading characteristics within a specific period—such as excessive short-term price swings, soaring turnover rates, or sudden increases in trading volume—the exchange activates a warning mechanism. Initially, the stock is classified as a Watch Stock, with investors receiving alerts but no trading restrictions; if abnormality persists, it escalates to a Warning Stock; ultimately, it may enter the Disposal Stock stage, at which point trading methods are substantially limited.

Based on data from December 2023, ten stocks including Evergrande, Lishan, Hongguang, Huangchang, Rongchuang, Yingguang, Pola-KY, Medtronic-DR, and others were simultaneously listed as disposal stocks, indicating the widespread nature of such situations.

Trading Restrictions Mechanism for Disposal Stocks: Differences Between First and Second Disposals

Once a stock enters the disposal list, it is not completely untradeable but faces progressive trading restrictions. This restriction framework has two levels.

First Disposition Stage: Trading is manually controlled, with trades only matching every five minutes, significantly reducing trading frequency. When a single buy or sell order exceeds ten lots or multiple orders total thirty lots, investors must perform a “circle deposit” transaction— the system first freezes the funds in transit for the sell order; if insufficient, it freezes funds in the bank account to ensure the buyer has enough cash to complete the transaction. Compared to regular stocks with a T+2 payment grace period, this is more restrictive. Margin trading functions are also suspended.

If the stock’s price remains highly volatile and the first-stage measures fail to contain the abnormality, and if the criteria are met again within thirty days, the stock escalates to Second Disposition. In this stage, matching time extends to every twenty minutes, and all buy and sell orders, regardless of size, adopt the circle deposit mode, further deteriorating liquidity.

Generally, the disposal period lasts ten trading days, but if the intraday closing volume exceeds 60% of total trading volume, the period extends to twelve trading days. After this period, the stock automatically exits the disposal list.

From Watch Stocks to Disposal Stocks: The Complete Abnormality Level System

Investors should understand the full classification of abnormal stock behaviors, which is crucial for risk assessment.

Watch Stocks are triggered when, within thirty trading days, the stock’s price increases over 100%, the daily turnover rate exceeds 10%, or trading volume has been abnormally high over the past six days. Notably, trading in watch stocks is completely unrestricted, similar to normal stocks.

Warning Stocks are an upgraded version of watch stocks, activated when abnormal trading features persist. At this stage, the exchange begins stricter supervision, but specific trading restrictions are the same as for disposal stocks.

Disposal Stocks are triggered when a stock meets the watch stock criteria for three to five consecutive trading days or satisfies any warning stock conditions. At this point, the stock is subject to the aforementioned matching time and circle deposit trading restrictions.

Understanding this tiered escalation system allows investors to detect abnormal signals earlier and plan their trading strategies accordingly.

Investment Value Judgment of Disposal Stocks: Fundamental and Chip Analysis

Whether disposal stocks are worth investing in depends on whether investors can conduct in-depth research and judgment. Disposal stocks are merely temporary abnormal trading states and do not reflect the company’s intrinsic quality.

Fundamental Analysis should focus on the company’s core competitiveness. Investors need to understand the main business, products, and services’ market position, assessing whether its competitive advantages can be sustained. Additionally, analyzing financial statements—such as revenue growth rate, gross profit margin, net profit—helps evaluate profitability; observing financial trends confirms whether the company maintains stable performance.

Chip Analysis concentrates on capital flows. Since margin trading is restricted during disposal periods and trading difficulty increases, the movement of major funds becomes relatively transparent. Investors can observe institutional buying and selling behaviors through closing data, providing a relatively clean view of capital flows.

Practical Advice: Before entering disposal stocks, confirm whether the stock price is in a sideways consolidation to avoid large declines after entry. Also, review the current valuation level; if undervaluation opportunities are perceived, consider positioning during the disposal period, waiting for the potential rise after restrictions are lifted.

Lessons from Historical Cases: Different Outcomes of Stocks

In reality, disposal stocks show significant performance differences. For example, V-Flow Electronics (6756) was included in the disposal stock list in June 2021. After experiencing first and second disposals, its stock price accumulated a 24% increase, validating the market adage—“The more it’s restricted, the bigger the tail”—meaning that during disposal, the chips stabilize, and after lifting restrictions, a new rally may occur.

Conversely, Yang Ming (2609) tells a different story. It was also classified as a disposal stock due to excessive gains and high turnover, then re-listed as a disposal stock after a significant decline over six days. Since then, its stock price has remained sluggish. This illustrates that disposal stocks do not necessarily rise; the company’s fundamental changes often determine the final trend.

Volume contraction is common among disposal stocks. Reduced liquidity hampers short-term trading, increasing transaction costs. In a generally bullish market with good-performing quality stocks, actively choosing illiquid disposal stocks is usually not recommended. However, if investors are optimistic about the company’s medium- to long-term prospects, the low liquidity during disposal may present buying opportunities.

Disposal Stocks and Long-term Holding: Risks and Opportunities

Whether disposal stocks are suitable for long-term holding depends on a comprehensive assessment of multiple factors.

First, compared to normal stocks, disposal stocks carry higher risk levels. Abnormal trading behaviors often signal underlying issues, such as poor management, financial distress, or major negative events. Without in-depth research, blindly holding long-term may lead to significant losses.

Second, macroeconomic conditions have a significant impact. During bear markets or economic downturns, disposal stocks are more likely to be sold off; conversely, in bullish markets or economic recovery phases, they may perform better.

Third, an investor’s risk tolerance is crucial. Investors with high risk capacity may consider stable fundamental disposal stocks for long-term allocation; risk-averse investors should avoid them.

It is important to note that short-term traders are most affected by trading restrictions due to inability to perform day trading, whereas long-term holders are less sensitive to trading limits. Moreover, regulations require disposal stocks to periodically disclose financial reports, which can help investors stay informed about corporate developments. If investors have confidence in the company’s long-term prospects, temporary disposal status should not alter their long-term holding decisions.

Conclusion: From Risk Awareness to Decision Execution

The core value of disposal stocks lies in revealing market abnormalities, prompting investors to conduct deeper research. They are neither guaranteed to rise nor necessarily to be avoided; instead, they serve as a test of investors’ analytical skills and decision-making levels. Mastering the mechanisms of disposal stocks, understanding the differences between watch stocks and other abnormal stocks, and integrating fundamental and chip analysis enable investors to find their own investment logic within these opportunities.