Recently, I’ve noticed that many people are asking about a stock market phenomenon: certain stocks surge by astonishing amounts in a short period, yet buying them is especially difficult. After taking a closer look, I found out that these stocks are usually already added to the so-called “disposal stock” list.

Put simply, disposal stocks are stocks that the stock exchange flags after abnormal trading conditions occur. For example, stocks with excessive short-term price fluctuations, abnormally high turnover rates, or a sudden spike in trading volume will be added to the list. I checked, and back in December 2023 alone, companies such as Evergrande, Lishan, and Hongguang were listed as disposal stocks—there were quite a number of them.

What happens after a stock is added to the disposal stock list? Trading methods become restricted. The most obvious difference is that matching is no longer carried out at all times; instead, it happens only once every 5 minutes or every 20 minutes. In addition, margin trading and securities lending are directly suspended. If the buy or sell quantity exceeds a certain threshold, investors must pay the full amount up front and cannot delay payment like regular stocks using T+2. That’s also why some people joke that disposal stocks are “like sitting in jail.”

Disposal stocks are divided into two stages. In the first disposal stage, matching happens once every 5 minutes, and only when the volume exceeds a certain amount is escrow trading required. If the stock’s volatility remains high and the conditions are triggered again within 30 days, it enters the second disposal stage, where matching occurs once every 20 minutes and all trades must be escrowed. The entire disposal period usually lasts 10 business days; however, if the intraday cancellations and buy-sell transactions are too high on that day, it may be extended to 12 business days.

Can disposal stocks still rise after that? I’ve seen two comparison cases that are quite interesting. Weifeng Electronics was listed as a disposal stock in June 2021 and even entered the second disposal stage, yet during that period the share price still accumulated a 24% increase. But Yangming is different: after being listed as a disposal stock during the same period, not long afterward it entered disposal status again due to a further decline that was too large, and its stock performance then remained sluggish.

So, the subsequent price trend of disposal stocks really depends on the specific situation. Worsening liquidity is certain—trading volume often shrinks, and short-term trading can increase transaction costs. But there’s also a market saying: “The more restrictions, the bigger the tail.” It means that some popular stocks that surged earlier, once they enter disposal status, tend to have relatively stable chips/positions; after the release of restrictions, they may even rise again.

To judge whether a disposal stock is worth buying, I don’t think you should only look at the label of being listed as a disposal stock—you still need to go back to the company itself. From a fundamentals perspective, you should understand the company’s core business, competitiveness, and financial indicators. From a chips/positioning perspective, you can observe the movements of the leading funds. Interestingly, during the disposal period, margin trading and securities lending are not available, so the inflow and outflow of the main funds can be relatively clearer, making it easier to see the intentions of institutional capital.

Before buying a disposal stock, my advice is to first confirm whether the stock price is moving sideways and consolidating during the disposal period. If it starts to fall sharply, it’s best to avoid it. At the same time, assess whether the current price is at a reasonable valuation. If you believe it’s undervalued, then you really can take advantage of the disposal period to enter and wait for future opportunities.

As for holding disposal stocks long term, it depends on several factors. First, the risk of disposal stocks is usually higher than that of normal stocks; abnormal trading activity behind it may reflect problems in the company’s operations. Second, the overall market environment matters a lot—holding disposal stocks in a bear market carries more risk, while there may be more opportunities in a bull market. Finally, it also depends on the individual investor’s risk tolerance and investment goals. Short-term traders may be more constrained because they can’t do intraday trading, but long-term investors are less affected. Moreover, regulators require disposal stocks to disclose financial reports on a regular basis, so information can be more transparent.

In the end, disposal stocks are only a temporary abnormal trading situation and do not necessarily indicate whether the company is good or bad. If you do solid research and believe the company still has investment value, then the label of “disposal stock” isn’t the issue.