Disposal Stock Investment Guide: A Comprehensive Overview from Trading Restrictions to Profit Opportunities

Although restricted trading limits the liquidity of disposal stocks, they are not worthless. What investors truly need to focus on is how to identify genuine investment opportunities under trading constraints.

Core Mechanism of Disposal Stocks: Why Are They “Locked Up”

When a stock exhibits abnormal trading activity in the short term—such as excessive price swings, surging trading volume, or abnormal turnover rates—the Taiwan Stock Exchange will place it on a special supervision list. These stocks are known as disposal stocks. Essentially, disposal stocks are a temporary regulatory measure to curb excessive speculation and protect investors.

Once a stock is designated as a disposal stock, significant changes occur in its trading methods. The most direct restrictions include: matching frequency changing from continuous trading to once every 5 or 20 minutes, payment methods shifting from T+2 to full deposit transactions, and suspension of margin trading and short selling. These measures are designed to reduce the stock’s liquidity, encouraging market participants to make more rational decisions.

Graded Management System for Disposal Stocks

Disposal stocks are not permanently restricted. Regulatory authorities classify them into two levels based on the degree of abnormality.

First-level disposal involves entering manual matching mode, with trades matched every 5 minutes. When a single buy or sell order exceeds 10 lots or accumulates over 30 lots, investors must perform deposit transactions—meaning they must confirm sufficient cash in their accounts before buying, without the convenience of T+2 deferred payments. This phase typically lasts for 10 trading days.

If the stock triggers abnormality standards again within 30 days, it escalates to second-level disposal. At this stage, matching frequency drops to once every 20 minutes, and all trades are conducted via deposit transactions regardless of quantity. This often causes trading volume to plummet sharply, making transactions much more difficult.

It’s important to note that the concept of split trading becomes particularly relevant during disposal periods. Due to artificially extended matching times, the trading prices of the same stock at different times may differ significantly, which impacts short-term traders who rely on quick entry and exit.

The Advanced Tiers of Disposal Stocks, Attention Stocks, and Warning Stocks

Normal stocks have no trading restrictions and are the best choice for investors. However, once a stock triggers abnormality indicators, it enters a graded regulatory process.

Attention stocks serve as the first line of defense. Indicators such as a rise of over 100% in 30 trading days, daily turnover rate exceeding 10%, or abnormal trading volume in the past 6 days may trigger this status. However, stocks designated as attention stocks can still be traded without restrictions, just like normal stocks.

If abnormality persists, the stock is upgraded to Warning stock and simultaneously enters disposal stock status. At this point, trading restrictions truly come into effect, having the most direct impact on liquidity.

Do Disposal Stocks Really Rise? Case Study Analysis

There is a market saying that “disposal stocks tend to surge more the more they are restricted,” which is not unfounded. For example, Wavetech Electronics (6756) was designated as a disposal stock in June 2021. After going through the first and second disposal phases, its stock price ultimately increased by 24%. This case proves that disposal stocks are not necessarily a negative signal.

However, negative cases also exist. Yang Ming (2609) was similarly designated as a disposal stock due to a large increase in price, then re-designated after a 6-day cumulative decline. Its stock price continued to perform poorly afterward.

These contrasting cases reveal an important principle: The subsequent performance of disposal stocks ultimately depends on the company’s fundamentals. Trading restrictions are superficial; the company’s quality is the decisive factor.

How to Judge Whether Disposal Stocks Are Worth Buying

When facing disposal stocks, investors should evaluate from two dimensions:

Fundamental Analysis: Deeply understand the core business, competitive advantages, and financial health of the company. Focus on trends in revenue growth, gross profit margin, net profit, and other indicators to assess profitability. If the company is operating steadily, temporary abnormal trading does not alter the long-term investment logic.

Chip (Ownership) Analysis: Observe the movement of major funds. During disposal periods, since margin trading and short selling are suspended, large capital flows are more transparent. After market close, you can see the scale of institutional buying or selling, and the number of consecutive trading days, to infer the true intentions of institutional investors.

Additionally, investors need to confirm whether the stock price during the disposal period is within a reasonable valuation range. If the stock is consolidating, it may be an opportunity to buy at a low price due to low liquidity; but if it is already falling sharply, it’s better to avoid risks.

Is Long-term Holding Suitable for Disposal Stocks?

There is no absolute answer to this question; it requires a comprehensive assessment:

Company quality and risk tolerance: Disposal stocks tend to carry higher risks, and abnormal trading may hide poor management or significant negative events. Investors with limited risk appetite should be cautious. However, if the company’s fundamentals are solid and investor confidence is high, long-term holding is possible.

Market environment and timing: In a rising market cycle and favorable macroeconomic conditions, disposal stocks may present more opportunities; during economic downturns, they face additional pressure.

Investor style differences: Short-term traders are more affected by trading restrictions since they cannot day trade; long-term investors are less impacted by trading limits. In fact, regulatory requirements for more frequent financial disclosures during disposal periods can provide long-term holders with more information.

Practical Recommendations

1. Pre-entry check: Confirm whether the stock price is in a sideways or upward trend, avoiding chasing highs.
2. Valuation assessment: Determine if the current price is undervalued and worth waiting for potential gains after restrictions are lifted.
3. Capital management: Due to limited liquidity, reserve sufficient holding time and avoid rushing to cut losses.
4. Continuous monitoring: Keep an eye on the latest financial reports and assess whether the company’s fundamentals are changing.

The essence of disposal stocks is an abnormal trading state, not a judgment of company quality. Truly savvy investors will not give up on a good company just because of trading restrictions, nor will they blindly jump into troubled companies after a short-term rebound. Fundamentals remain king, and this principle applies equally to disposal stocks.