The situation unfolded differently than we had anticipated.
In the span of two days, the stock price of Seosung Electronics not only did not fall but actually rose by 8%. The reasons were complex.
The global stock market atmosphere was favorable, exchange rates were supportive, and DRAM prices were on the rise.
Since short-selling returns are inversely proportional to stock prices, it was a loss of approximately 8%.
The problem was with the put options.
As the stock price of Seosung Electronics and the KOSPI index rose, the likelihood of exercising the put options decreased even further. Consequently, the value of the options plummeted.
Hundreds of millions had already been lost.
Looking at the account filled with blue indicators, I was sweating profusely. Taek-gyu also looked flustered, even if he didn't say anything.
Despite the rising stock price, the L6 model continued to explode, with over ten confirmed incidents so far. Seosung Electronics announced they would provide a statement regarding the incidents tomorrow.
Rumor had it they were leaning towards a battery replacement.
Discontent erupted online.
"If they replace the battery, they have to take the back cover off."
"Doesn't that compromise the waterproof feature? Are they going to take responsibility if it leaks?"
"How can I disassemble a phone that cost over a million won right after buying it?"
"I bought it at full price right after its release, and now I feel completely cheated."
"What kind of beta tester is the consumer?"
"I'll just return the L6 and never use Seosung Electronics products again."
Taek-gyu asked me, "Do you think they'll discontinue it during the announcement tomorrow?"
I nodded my head. "They probably will."
If what Oracle Eye showed was correct, that was likely to be the case.
A press conference regarding the L6 explosion incidents was held at Seosung Electronics' Gangnam headquarters.
Seosung Electronics is one of the top global IT manufacturers, and as such, the press conference was filled with domestic media and foreign journalists.
The press conference featured Jo Dong-jun, the head of the IM division.
With a serious expression, he stood in front of the microphone and began to speak.
"Thank you deeply for the unwavering support of our customers who cherish and love Seosung Electronics products. We have received reports of battery malfunctions in some of our L6 products. We sincerely apologize for the inconvenience and concern this has caused."
As if they were stenographers, the journalists quickly transcribed Jo Dong-jun's words and filed their articles.
Jo Dong-jun continued his announcement, surrounded by dozens of cameras and over a hundred reporters.
"After an internal analysis of the cause, we have confirmed it to be an issue with the battery cell itself. We anticipate that the problematic battery-equipped products will be only one out of hundreds of thousands, but prioritizing consumer safety, we have decided to temporarily suspend sales and exchange all sold L6 units for new products. We expect it will take about a week to prepare the products. We plan to exchange them for new products as quickly as possible, and even before the new products are ready, customers can visit our service centers for inspections and necessary measures."
The unexpected announcement startled the journalists who were writing articles.
They eagerly raised their hands to ask questions.
"Are you saying you will recall the product itself instead of just replacing the battery?"
"Yes."
"What issue did the battery cell have?"
"There was a slight manufacturing error in the battery cells supplied by Seosung SB. The upper right corner was compressed, damaging the separator, causing the anode and cathode to meet, which we confirmed resulted in the malfunction."
"What is the difference between the new product and the existing product?"
Questions poured in, but Jo Dong-jun calmly answered each one.
"Due to supply issues, the initial launch country models were equipped with Seosung SB batteries, and the models for the second launch country were to be equipped with BTL batteries. We will delay the launch schedule for the second launch countries and allocate all currently produced units to the recall. I expect the recall to be carried out in stages starting a week from now."
"How will you handle the consumer inconvenience caused by a manufacturer's recall?"
"That is currently under discussion with the mobile carriers. We will strive to ensure adequate compensation is provided."
"What is the estimated cost of the losses due to the recall?"
Jo Dong-jun pretended to look troubled as he spoke.
"It's a considerable amount that's painful to mention. However, we believe that ensuring consumer safety is paramount, which is why we made this decision."
Watching the news, Taek-gyu dropped the chicken he was eating.
"Not a discontinuation, but a recall? What does that mean?"
I was equally shocked.
I was left speechless in my surprise.
"..."
This meant complete disaster.
They're not just changing the battery; they're replacing the entire product?
They're changing it without any questions?
Even if the screen is damaged, they'll replace it as long as you bring in the main unit?
I'll just keep using it until then and switch it out.
Seosung Electronics is totally generous.
This is a completely different level from Enphon's after-sales service policy.
Enphon phones didn't even explode in the first place; what are you talking about?
Online reactions generally welcomed Seosung Electronics' recall decision.
According to a survey conducted by a polling agency, 95% of L6 users expressed trust in Seosung Electronics and said they would continue using the L6. Approximately 6 million units had been sold so far.
If all these products were exchanged for new ones, it would nominally result in a loss of 6 trillion won. However, this figure was based on sales prices, while the manufacturing cost was estimated at around 300,000 won.
As a result, the actual loss would be about 2 trillion won.
It was forecasted that selling the recalled phones as refurbished devices in emerging markets could minimize the loss.
Even though there were projections of losses in the trillions, the market evaluated it as a manageable one-time loss, thus not something to be overly concerned about.
Moreover, reports indicated that this incident could help Seosung Electronics gain consumer trust, ultimately benefiting the company in the long run.
After the recall announcement, the declining stock price rebounded slightly and ended up with only a 1.5% drop.
The next day, Seosung Electronics announced a shareholder return policy that included quarterly dividends. The unexpectedly strong announcement delighted the market, and the stock price rose by 3.4%.
My account was filled with blue indicators.
The losses from short-selling exceeded 10%. This was a loss I could easily bear. However, the situation with the put options was different.
The losses from the put options were over 30%. Some even recorded losses of 80%.
When combined with the short-selling losses, the total losses approached half of my initial investment.
Taek-gyu checked the account balance, his expression half in disbelief.
Just a few days ago, when we bought the put options, I never imagined a situation like this would arise.
I widened my eyes, staring at the balance.
Out of the 13 billion won invested in purchases, 6 billion won had vanished. I had already lost several billion of my own money, and Taek-gyu had lost several tens of billions.
We had agreed to share profits, but most of the losses would fall on Taek-kyyu. I couldn't just pay back several tens of billions.
"..."
What am I supposed to do now?
I lay there with my eyes closed, but sleep wouldn't come.
My mind was consumed with a single thought.
Why was it a recall instead of a discontinuation? Did I miss something?
Had I overlooked something?
What am I supposed to do now...?
The figure of 6 billion won kept flashing before my eyes.
"6 billion..."
I couldn't grasp how much that amount really was.
It was enough to live a lifetime without working, enough to spend 100 million a year from now on and still have money left.
Yet, I had lost that money in just a few days.
It was just a number recorded in my account as a negative, never even touched.
Warren Buffett, regarded as an investment genius, said that there are only two principles to follow when investing.
First, don't lose your principal.
Second, always follow the first principle.
He adhered to these two principles faithfully, while other investors did not. That's why he achieved great success while they failed.
...Which is nonsense.
What kind of crazy person wants to lose their principal? People invest thinking they can make money and end up losing it.
Regardless of what is possible or impossible, that statement holds some truth.
If you incur a 50% loss on your principal, you need to make a 100% return to recover it.
Thus, once you incur a loss on your principal, recovery is nearly impossible.
But we had already lost 6 billion from the start.
The bigger problem was that this was not the end.
The value of options decreases over time. Options that can be exercised become similar in expected return and option price, but options that cannot be exercised converge to zero, regardless of what you paid for them.
If the expiration date of the options passes like this, we would incur tens of billions in additional losses..
What are we supposed to do?.
Should we pull out now to avoid further losses?
If it ends like this, recovering the principal would be virtually impossible.
It felt as if a fear was tightening around my throat.