Author: Michael Goode

SEC Suspends trading in FinestPennyStock pump Broke Out $BRKO

Today, less than two minutes prior to the market open, the SEC suspended trader in Broke Out (BRKO), the current FinestPennystock.com pump that has squeezed shorts like crazy the last two days. The stock will resume trading on April 1st. Likely among those shorts getting squeezed the last couple days is Hunter Adams of The Street Sweeper, which had two negative reports on BRKO and reported being short BRKO in those reports.

I think it likely that this suspension will kill or at least greatly reduce the efficacy of FinestPennystock. AwesomePennystocks was forced to ‘retire’ by SEC trading suspensions on two consecutive pumps and Stocktips.com became much less effective after the May 2014 trading suspension of PGFY. FinestPennyStocks has connections to Awesomepennystocks so this SEC trading suspension is surprising to me only in how long it took since FinestPennystocks started pumping successfully 18 months ago.

 

SEC suspension press release (PDF)
SEC suspension order (PDF)

 

From the SEC press release:

The Commission temporarily suspended trading in the securities of BRKO because of concerns regarding the accuracy and adequacy of information in the marketplace and potentially manipulative transactions in BRKO’s common stock.

 

BRKO

2016-3-17 BRKO 1m

Below are the FinestPennyStocks websites from which I have received BRKO pump emails:

PennyStocksWinner.com
FinestPennyStocks.com
SmartStockChoices.com
Pennystocksforme.com
BestAmericanStocks.com
SmartStockWinners.com
PennyPros.net
SmartstockWinners.com

The prior FinestPennyStocks pump was CLOW which was preceded by EURI.

Disclaimer No position in any stock stock mentioned above. I have no relationship with any parties mentioned above. This blog has a terms of use that is incorporated by reference into this post; you can find all my disclaimers and disclosures there as well.

Great new technologies, horrid investments: Does this describe Editas $EDIT?

One thing growth investors and stock promoters love is a brand new industry that is growing quickly and revolutionizing our lives. The problem is most of the time much of the companies end up losing money and even going bankrupt even as the new industry blossoms because of fierce competition. This happened with railroad companies in Britain in the mid 1800s, electronics companies in the US in the 1960s, computer companies in the 1980s, internet companies during the tech bubble in 1999, and has happened over the last few years in LEDs and solar panels. In most of these cases most companies did poorly and there were only a few companies that came to dominate the industry or if there were no good barriers to entry or many competing technologies, cutthroat competition has continued. Most of these stories have been told before and better than I could tell. So I will concentrate on the LED industry which is one I know well and has not been well followed by most people.

Light emitting diodes (LEDs) have been around for decades but only in the last decade have there been improvements in the technology such that they could be used in normal lighting situations rather than just as indicator lights. The first LED light bulb I bought back in 2008 produced 200 lumens of bluish-white light (~7000k). For comparison, 800 lumens is what a standard 60-watt incandescent bulb produces. That bulb was made by Lighting Science Group Corp (LSCG) and cost about $50. The most recent LED bulbs I bought (made by GE and sold at Home Depot) cost $3.13 each and produce 760 lumens or warm white light (2700k).

I just finished converting my house entirely to LEDs. The light quality is as good as incandescent bulbs, they use much less electricity, and they stay cool (which means less chance of fires and lower air conditioner usage). They also on average last far longer. The problem for manufacturers of LEDs is that no manufacturers have technology that is vastly superior to the others or patents on essential technologies. So while LEDs are high-tech, producing them is a brutal business. There are a handful of large manufacturers of the actual LEDs (e.g., Seoul Semiconductor, Epistar, Cree, Philips, Osram, and others) while there are thousands of companies putting those LEDs together with the electronics to drive them in bulbs. The large producers make a normal profit but most of the producers of LED bulbs make little.

Here is a chart of CREE, one of the ‘winners’:

cree

Cree has done well but the company’s stock is where it was essentially a decade ago.

Here is the chart of one of the losers, Lighting Science Group (LSCG):

lscg

Lighting Science of course was my most profitable short ever back in 2008. Even though the company did go on to successfully market its products, they have not been profitable because of lower-cost competition.

 

LED lights are pretty awesome and within a decade 90% of new fixtures will use them. In two decades’ time LEDs will have 99%+ market share in general lighting for home and industry. Besides their aforementioned advantages, their unique properties also have made it possible for many of the poorest in the world to use a small solar cell and battery to power LED lights and charge phones, reducing the use of kerosene lamps and resulting in cleaner air and better health.

Why bring this up now? I am really excited about CRISPR-Cas9 and have publicly said that I would love to invest in any company in that space. Editas (EDIT) just filed an S-1 prospectus to go public. Anyone who is in awe of the possibilities of this gene editing technique including myself would do well to consider the similarities to past highly-hyped new industries. That is not even considering the legal morass that CRISPR is in right now with multiple groups having filed competing patents.

 

Disclaimer: No positions in any stocks mentioned. I have no relationship with any other parties mentioned above. This blog has a terms of use that is incorporated by reference into this post; you can find all my disclaimers and disclosures there as well.

 

(By the way, if you are looking to get a large number of non-standard LED lights (such as T-8 lights), I recommend Chong Ming LED — I found them through Alibaba and purchased 180 T-8 tube lights for an LED retrofit at the daycare run by my church. I also highly recommend Hyperikon, which has a large selection of bulbs available on Amazon.)

 

How to be dead wrong about Kalobios Pharmaceuticals $KBIO

Needless to say, my previous post on KaloBios Pharmaceuticals was dead wrong. Martin Shkreli and friends bought up the majority of the company over the past couple days (at under $2 per share on average) and their SEC Form 4s after the close yesterday caused a massive short squeeze that sent the stock up to $24 in premarket today. The one thing I did not account for was the possibility that someone would see value in the company’s drugs and rescue the company. That is essentially what Shkreli is doing, as he explained to Fierce Biotech. In the future I will avoid any such overnight shorts on companies with substantial intellectual property even if I think it has little value, particularly if the market cap of the stock is low. Even a small risk of a catastrophic loss on a trade is too much.

I apologize for completely failing in my analysis. Luckily I had set up an alert for SEC filings on KBIO so I was able to cover my short for a small loss (around $4,000 net) at $2.0833. Hopefully my readers also avoided catastrophic losses. If you look at my trades on Profit.ly you will see a large loss at IB but a slightly smaller large gain at CenterPoint Securities. It is quicker for me to trade at CenterPoint so I just bought there at first to get flat.

Below is a screenshot of my posts in TimAlerts chat mentioning my cover and the news:

KBIO_chat

See all my posts here.

Disclaimer: I have no position in KBIO but I will likely trade it after posting this article. I have a close business relationship with Tim Sykes (see Terms of Use for details). I have no relationship with any other parties mentioned above. This blog has a terms of use that is incorporated by reference into this post; you can find all my disclaimers and disclosures there as well.

A short analysis of Kalobios Pharmaceuticals $KBIO liquidation value

Disclosure: I am short KBIO and I intend to actively trade the stock after this post is published. See full disclaimer below.

Here is my back of the envelope calculation of the value of Kalobios Pharmaceuticals (KBIO). This was first posted in the TimAlerts chat, where I am and have been a moderator for years.

Nov 16, 2:37 PM MichaelGoode okay here is my analysis of KBIO — using very optimistic assumptions (as a short, to make the analysis more conservative for shorting): $10m in net quick assets as of June 30th. Assume cash [burn] until today equal to same rate as last quarter. […] They burned $5.8m in Q2. So that is $1.93m per month. Four full months since then and one half month so estimated cash burn of $8.7m. Even assuming no extra shutdown expenses that would leave them with $1.3m to distribute to shareholder

Nov 16, 2:37 PM MichaelGoode KBIO With 4.12m shares outstanding that equates to a liquidation value per share of $0.32 per share

Nov 16, 2:39 PM MichaelGoode KBIO caveats — this assumes no costs after today, no fees to the liquidator and no severance fees to employees. However, this also assumes the same compensation expense each month up until now and the company has laid off workers prior to today

Nov 16, 2:43 PM MichaelGoode KBIO and another caveat (this is negative for the stock) – the PR Friday mentions “As a part of its wind down and handing over management of the wind down to The Brenner Group, the company expects to phase out the remaining employees over the next thirty to sixty days.” — so there will be significant compensation expense over the next two months (no clue how large).

I looked up the company’s restructuring / termination expenses and at least for the first series of layoffs:

The Company expects to substantially complete the restructuring efforts in, and related charges will be incurred through, the fourth quarter of 2015. The Company estimates that it will incur total restructuring charges consisting of cash expenses for one-time termination benefits of between $400,000 and $500,000.

The above is from the November 9th 8-K filing. It would be reasonable to estimate another $300,000 in one-time payments to the remainder of the workforce.

I welcome feedback on my analysis. The relevant news can be found here:

Kalobios to wind down operations (November 13)
KaloBios to Reduce Workforce, Explore Strategic Alternatives (November 5)
10-Q for quarter ended June 30th

 

Disclaimer: I am short KBIO and I intend to trade this stock frequently after this is posted. I have a close business relationship with Tim Sykes (see Terms of Use for details). I have no relationship with any other parties mentioned above. This blog has a terms of use that is incorporated by reference into this post; you can find all my disclaimers and disclosures there as well.

 

 

 

 

 

Fraudulent market-moving tweets net $97 in profits and a criminal indictment

The SEC yesterday announced a lawsuit against Scottish trader James Craig for imitating Muddy Waters and Citron Research twitter accounts and in those fake accounts alleging fraud at public companies that caused stock declines.  For details, see the SEC complaint (PDF).

The SEC’s complaint alleges that Craig’s first false tweets caused one company’s share price to fall 28 percent before Nasdaq temporarily halted trading.  The next day, Craig’s false tweets about a different company caused a 16 percent decline in that company’s share price.  On each occasion, Craig bought and sold shares of the target companies in a largely unsuccessful effort to profit from the sharp price swings.

The tweets at the center of the allegations can be seen below:

Capture2 Capture

 

The Financial Times has a witty take on the absurdity of this case. What is the moral of the story? Don’t try to impersonate people and then use false info to manipulate stocks — it doesn’t matter how little money you make, the SEC will come gunning for you.

 

Disclaimer: No position in any stock mentioned. I have no relationship with any parties mentioned above. This blog has a terms of use that is incorporated by reference into this post; you can find all my disclaimers and disclosures there as well.

2016 Chicago Michelin Guide Bib Gourmand Restaurants (Map)

So I put this together just because I hadn’t seen anyone else map the list this year. See the list at the Chicago Tribune.

The Bib Gourmand recognizes restaurants with very good food and good value (two courses and a glass of wine for $40 or less), a noteworthy distinction for budget-minded diners.


Disclaimer: I have no relationship with any parties mentioned above. This blog has a terms of use that is incorporated by reference into this post; you can find all my disclaimers and disclosures there as well.

Anavex Life Sciences $AVXL and the Lincoln Park ATM

Notice: This post has been corrected as of 7pm 2015-10-28 — originally I averaged the past 20 trading day closing prices, rather than the past 10 days. I am sorry for the error.

There is a lot of confusion about how the $50 million funding commitment from Lincoln Park Capital Fund LLC to Anavex Life Scienes (AVXL), and whether this funding is good or bad. To see all the details on the funding, look at the S-3 filing by AVXL to register the shares they will issue. The most important part of the agreement is below:

Under the Purchase Agreement, on any business day selected by us, we may direct Lincoln Park to purchase 50,000 shares of our Common Stock on any such business day. On any day that the closing sale price of our common stock is not below $7.00 the purchase amount may be increased, at our sole discretion, to up to75,000 shares of our common stock per purchase; on any day that the closing sale price of our common stock is not below $9.00 the purchase amount may be increased, at our sole discretion, to up to 100,000 shares of our common stock per purchase and on any day that the closing sale price of our common stock is not below $11.00 the purchase amount may be increased, at our sole discretion, to up to 125,000 shares of our common stock per purchase and on any day that the closing sale price of our common stock is not below $13.00 the purchase amount may be increased, at our sole discretion, to up to 150,000 shares of our common stock per purchase. Such purchases are hereinafter referred to as “Regular Purchases”. In no event shall Lincoln Park purchase more than $2,000,000 worth of our common stock pursuant to a Regular Purchase on any single business day. The purchase price per share for each such Regular Purchase will be equal to the lower of:

  • the lowest sale price for our common stock on the purchase date of such shares; or
  • the arithmetic average of the three lowest closing sale prices for our common stock during the 10 consecutive business days ending on the business day immediately preceding the purchase date of such shares.

So while Anavex can decide when and how many shares to force Lincoln Park to buy (up to certain maximum amounts depending on the stock price), the shares come at a price determined by a preexisting formula. What would happen if Anavex were to sell shares to Lincoln Park today? The first price would be $8.72 (today’s low). The closing price for AVXL over the past 10 trading days are as follows:

9.10
8.37
7.65
7.87
8.94
9.02
9.14
8.98
8.40
8.49

The three lowest closing prices are $7.65, $7.87, and $8.37. The average of these prices is $7.96. This is lower than today’s low so Lincoln Park would get the shares $7.96, a 20.4% discount to the current price of $10.00. In other words, Lincoln Park would easily make lots of money selling these shares the next day with essentially no risk.

But what if the stock price is not rising? Let’s assume that the last 10 trading days were all the same and that today had the lowest prices of all of the last 10 days. So I look up the prices on October 23rd and see the low was $6.51. Assuming that day happened today, Lincoln Park would get the shares at $6.51 (and the stock closed that day at $7.65). This is a 14.9% discount to the close and would allow Lincoln Park to again make easy, low risk money by selling the next day. The worst case scenario would be for AVXL stock to slowly fall with little range, in which case Lincoln Park would be able to purchase shares at a small discount to the closing price and likely break even. If the stock has been going up or been going sideways while having a wide range they get stock at such a discount as to almost guarantee a profit.

Disclaimer: No position in any stock mentioned although I will likely trade AVXL after this post is published and I will not update this disclaimer when I do that. I have no relationship with any parties mentioned above. This blog has a terms of use that is incorporated by reference into this post; you can find all my disclaimers and disclosures there as well.

A Short blog post of much importance

If you come across a bear and decide to run, what matters is that you run faster than the slowest person you are with, not that you be able to outrun everyone you are with or outrun the bear. This same sort of logic applies to trading, too. You don’t need to be the smartest (or fastest) trader around, just smarter (of faster) than enough people with enough buying power to move stocks.

 

Disclosure: This blog has a terms of use that is incorporated by reference into this post; you can find all my disclaimers and disclosures there as well.

What is your edge: Real estate edition

As a hobby I dabble in real estate. It is quite different than day-trading stocks in many respects but it shares some important characteristics, the most important of which is that to consistently make money you need to have some edge. I wrote about the importance of having an edge in my classic blog post So You want to be a trader? The potential edges you can have in real estate are similar to the potential edges in trading. Here are the most important:

  1. Be able to buy when others are not able or willing to buy.
  2. Know what others don’t know
  3. Have some special skill or combination of skills that others don’t have

The key to making money in real estate is to buy low — every other way you can make money in real estate is a lot harder. Over the last 8 years it has been possible to buy lots of houses / condos at distressed prices from banks that just wanted to get rid of the properties. To buy many of these properties, you need to be able to act fast and often you need to be able to pay cash. Also, a bank may not want to deal with the hassle of evicting the borrower they foreclosed upon so the buyer needs to be willing to evict that person if necessary. Also, buying a property that is occupied means not being able to inspect the property, which increases risk. There may be title issues with the property. Many bank-owned properties are auctioned on websites such as Auction.com or Homesearch.com.

The first house I bought for speculative purposes I purchased last May. The house had had only one owner and the former owner was still living in the house. The house was sold in a cash-only auction. The bank selling the house was not a local bank so it did not know the local market. Furthermore, the auction incorrectly listed the square footage of the house and omitted the completely finished daylight basement which easily added $15,000 to the value of the house. Everything went right with the house, including the bank paying the former owner to leave just days before I closed on the purchase. The interior was in great shape except for worn-out carpets. I ended up renting out the house for most of a year, having it fixed up (with me doing some of the simple work and paying contractors to replace all the carpet, install a granite countertop in the kitchen, and do some landscaping).

After everything went right, I ended up selling the house just over a year after I purchased it for a profit of about $15,000 to $20,000. That is not bad but the house also sucked up a good chunk of my free time and I probably could have made more money just spending the time working on improving my trading.

One good thing about buying such distressed bank-owned properties is that there is minimal due diligence possible and it can easily be done online — so there is little cost to investigate and put in lowball bids on many properties. And while lowball bids will fail most of the time, they will occasionally work, especially if the person in charge of selling the property is motivated to just sell the property as quickly as possible. In fact, my winning bid on the house I flipped was below the reserve price in the auction.

The same thing that can lead to getting a good price can also lead to large losses — just like in trading those without skills or who take too much risk will lose money.I came upon a few interesting condos in Chicago that are being auctioned off this weekend so I started my due diligence. One property I came across was

1221 N Dearborn St # 1408 Chicago, IL 60610. I thought it might make for a nice little pied-a-terre in the Windy City so I decided to bid. It is listed as being bank-owned on the auction page, but oddly enough there is no bank in the chain of title. Rather, the condo was sold just three months ago in a standard private party sale (with warranty deed). If the property was listed incorrectly due to a typo and I could see which unit was actually being sold in the legal description (ideally a larger unit) then this would be a great opportunity to buy cheap by knowing what no one else knows. Unfortunately, Auction.com doesn’t disclose that (or even the identify of the seller) and the ‘agent’ listed is a property management company that has not been kind enough to reply to my inquiry. Furthermore, a deed search revealed numerous foreclosed properties in the building. So if a bank is trying to auction off something they don’t own (I’ve seen that happen before) then it would just be a waste of my time to bid and potentially a waste of money.

 

8/13/2015 17-04-224-047-1173 WARRANTY DEED 1522541027 SEGURA ROBERT FLANDERS JODI S
10/19/2011 17-04-224-047-1173 LIS PENDENS 1129241025 CHICAGO THE TOWERS CONDOMINIUM ASSOCIATION
9/28/2007 17-04-224-047-1173 CORRECTION 0727144006 TOWERS CONDO ASSN PUBLIC 071422072
12/13/2006 17-04-224-047-1173 AMENDMENT CONDO DECLARATION 0634731033 TOWERS CONDO ASSN PUBLIC
5/11/1998 17-04-224-047-1173 ASSIGNMENT 98387365 TOWERS CONDO ASSN OAK BRK BK 25169127
8/10/1994 17-04-224-047-1173 WARRANTY DEED 94709841 SEGURA JULIE GAL-SEGURA JULIE
6/21/1991 17-04-224-047-1173 LIEN 91303438 MUELLER PAINTING & DECOR GANZ ROBERT
5/29/1991 17-04-224-047-1173 RELEASE 91254064 IMPERIAL FED SAV ASN MALEY MICHAEL P 86443648
10/18/1989 17-04-224-047-1173 ASSIGNMENT 89493921 ICA MTG CORP IMPERIAL SAV ASN 86443648
5/2/1988 17-04-224-047-1173 WARRANTY DEED 88184221 MALEY ELLEN S SEGURA JULIE
1/27/1987 17-04-224-047-1173 RELEASE 87052828 CONTINENTAL IL NATL B&T MALEY MICHAEL P 26899033
9/29/1986 17-04-224-047-1173 ASSIGNMENT 86443649 MIDWEST FUNDG CORP ICA MTG CORP 86443648
9/29/1986 17-04-224-047-1173 MORTGAGE 86443648 MALEY MICHAEL P MIDWEST FUNDG CORP 91254064

Disclosure: I have used both websites mentioned in this blog post and I may bid on the property described in this blog post. I have no relationship with any parties mentioned above. This blog has a terms of use that is incorporated by reference into this post; you can find all my disclaimers and disclosures there as well.

New Wall Street Report pump and dump: Petroterra Corp $PTRA

Starting after the market close last Friday, WallStreetReport.org started sending emails promoting Petroterra Corp (PTRA). The emails continues yesterday (Monday) and today. The emails linked to a video at http://wallstreetreport.org/wrp1/ptsv34332.php and to a landing page promoting PTRA here: http://wallstreetreport.org/wrp1/ptsw34332.php

WallStreetReport.org is a relatively new stock promotion website and I have only been subscribed to them since August. The only other stock they have promoted to me was BLKG, starting on August 11th and continuing off and on until September 3rd.

Petroterra was previously pumped via a different online landing page back in late March of this year. That first landing page is still online and it looks like the new landing page copies many of the elements of the first one. The volume so far this time is much higher than the volume back in March. In July PTRA shares had a 1 for 2.5 reverse split, so the current price of 1.20 is equivalent to a price back in March of $0.48.

Disclosed budget: $150,000
Promoter:  WallStreetReports.org / Herwick Ltd.
Paying party: Mass Peak Ltd.
Shares outstanding: 26,888,850
Previous closing price: $1.12
Market capitalization: $30 million

ptra_header_graphic

 

Excerpt from disclaimer:

The Wall Street Report is published by Herwick Ltd. In an effort to enhance public awareness of PetroTerra Corp. (“PTRA”) and its securities through the distribution of this advertisement, Mass Peak Ltd. has provided the publisher with a weekly budget of approximately $150,000 to cover the costs associated with creating, printing and distribution of this advertisement. The publisher will retain any excess sums after expenses as its compensation. The publisher has not undertaken to determine if Mass Peak Ltd. is, or intends to be in the future, directly or indirectly, a PTRA shareholder as it has no meaningful way to verify such facts. Readers should take this into consideration in evaluating bias. The name Chris Porter is a pseudonym for the writer who was paid $5,000 for his/her contributions to the report.

Full disclaimer:

IMPORTANT NOTICE AND DISCLAIMER: This stock profile should be viewed as a paid advertisement. The Wall Street Report is published by Herwick Ltd. In an effort to enhance public awareness of PetroTerra Corp. (“PTRA”) and its securities through the distribution of this advertisement, Mass Peak Ltd. has provided the publisher with a weekly budget of approximately $150,000 to cover the costs associated with creating, printing and distribution of this advertisement. The publisher will retain any excess sums after expenses as its compensation. The publisher has not undertaken to determine if Mass Peak Ltd. is, or intends to be in the future, directly or indirectly, a PTRA shareholder as it has no meaningful way to verify such facts. Readers should take this into consideration in evaluating bias. The name Chris Porter is a pseudonym for the writer who was paid $5,000 for his/her contributions to the report. If successful, this advertisement will increase investor and market awareness, which may result in increased numbers of shareholders owning and trading the common stock of PTRA, increased trading volumes, and possibly increased share price of PTRA’s common stock. This publication is not, and should not be construed to be, an offer to sell or a solicitation of an offer to buy any security. This publication, its publisher, and its editor do not purport to provide a complete analysis of any company’s financial position. The publisher and editor are not, and do not purport to be, broker-dealers or registered investment advisors. This publication is not, and should not be construed to be, personalized investment advice directed to or appropriate for any particular investor. Any investment should be made only after consulting a professional investment advisor and only after reviewing the financial statements and other pertinent corporate information about the company. Further, readers are advised to read and carefully consider the Risk Factors identified and discussed in the advertised company’s SEC filings. Investing in securities, particularly micro cap securities such as PTRA, is speculative and carries a high degree of risk. Past performance does not guarantee future results. This publication is based exclusively on information generally available to the public and does not contain any material, non-public information. The information on which it is based is believed to be reliable. Nevertheless, the publisher cannot guarantee the accuracy or completeness of the information. This publication contains forward-looking statements, including statements regarding expected continual growth of the featured company and/or industry. The publisher notes that statements contained herein that look forward in time, which include everything other than historical information, involve risks and uncertainties that may affect the company’s actual results of operations. Factors that could cause actual results to differ include the size and growth of the market for the company’s products and services, the ultimate degree of success in the company’s drilling excursions, the company’s ability to fund its capital requirements in the near term and long term, pricing pressures, etc. The Wall Street Report is the publisher’s trademark. All other trademarks used in this publication are the property of their respective trademark holders. The publisher is not affiliated, connected, or associated with, and is not sponsored, approved, or originated by, the trademark holders unless otherwise stated. No claim is made by the publisher to any rights in any third-party trademarks.

PDF copy of pump page

ptra_chart

 

Disclaimer: I am short PTRA and may look to short more in the near future. I may also cover my short. I will not update this disclaimer after trading the stock. I have no relationship with any parties mentioned above. This blog has a terms of use that is incorporated by reference into this post; you can find all my disclaimers and disclosures there as well.