The Best Source for Penny Stock Insight
Employees at some of the following institutions have been reading my blog in November. In parentheses is the number of visits (not hits) from each.
CIBC World Markets (26)
Raiffesen Pension Fund Management (20)
Stifel Nicolaus (9)
Visual Trading Systems LLC (9)
Google Inc (5)
JP Morgan (5)
Wachovia (3)
Singapore General Hospital (3)
Deutche Bank (3)
Forbes (2)
Morgan Stanley (2)
In November I had visitors from 68 countries and every state in the US except for Alaska.
I have not written much for this blog recently. The primary reason for this is that I have been suffering from RSI on my wrists. This has made using the computer difficult and painful; I’ve tried to minimize my use of the computer. Using voice control software for my has helped. However, I am also looking into getting touch screen monitors to replace the four normal monitors on my computer. That way I will not have to use the mouse (the source of my wrist problems) at all.
I’m looking at monitors from Planar Systems and Elo Touch Systems. If you have any recommendations for a brand of touchscreen monitor or for a type of touch screen monitor (resistive, capacitive, SAW, etc.), I would be much obliged.
I just thought I would highlight my comments on a Seeking Alpha article praising PhotoChannel Networks (OTC BB: PNWIF) from four months ago. Since I wrote my bearish comment on the article the stock has fallen over 50% and the company has continued to report significant losses.
Unfortunately, while I had been short PNWIF back in June, I covered my short before the stock fell.
Disclosure: I have no position in PNWIF.
Many companies borrowed money to buy back stock when their stock prices were high. Now that stock prices have fallen they are conserving cash. That is backwards. One tiny little company did the opposite. That company is TSR, Inc. [[tsri]]. I have previously written about TSR, recommending it when its stock price was about twice as high as it is now (oops), and then writing about my attempt to get the company to spend its cash hoard. The company instituted a buyback plan but bought few shares. Then today it announced that it had just bought back over 10% of the outstanding shares at a price of $2.30 per share. At this price the company bought its stock for 80% of its net cash + receivables + Treasury bonds. This will be accretive to book value per share and will not harm the company’s liquidity. That is how companies should use buybacks.
From the press release:
TSR, Inc., (NASDAQ:TSRI – News) a provider of computer programming consulting services, announced today that it had repurchased 456,523 shares of its Common Stock in a private transaction at a purchase price of $2.30 per share. The repurchase is in addition to repurchases that may be effected from time to time pursuant to the Company’s previously announced stock repurchase program. Pursuant to the stock repurchase program, the Company’s Board of Directors has authorized repurchase of up to 300,000 shares, of which approximately 61,000 have been repurchased. There were approximately 4,500,000 shares outstanding prior to the purchase.
At current prices I believe TSR to be an excellent investment. By my calculation, the company’ recent buyback increased the per-share net quick assets (net cash plus marketable securities and receivables, including non-current treasury bonds) to $2.97 per share from $2.90 per share. At $2.30 per share it is at under 80% of net cash plus marketable securities and it trades at a P/E of 11. The stock is illiquid, so anyone buying it should use limit orders.
Disclosure: I am long TSRI.
See my new post on my Motley Fool CAPS blog. As I write this Thursday, October 9, 2008, Japan’s, S. Korea’s, and Australia’s stock markets are all down over 7% for tomorrow. Whether the bottom is here or not, stocks and bonds have fallen enough for me to encourage you to buy, though not indiscriminantly.
I first heard about Timothy Sykes at the beginning of this year. I was skeptical of his claims of making lots of money trading and even more skeptical about his ability to teach others to trade successfully. My article, “Timothy Sykes is Full of Bullship,” started a dialogue between Tim and myself. I started reading his blog and following his trades. I read every single blog post he had ever written. I became convinced that he was a talented and profitable trader and that his trading system worked. I then decided to subscribe to his TimAlerts trade service, where he sends out pre-market watchlists and alerts of his trades via email, to see if I could profitably follow his trades.
In the chart below you can see my profits from trading Tim’s system. Sometimes I followed his trades, sometimes I didn’t, and sometimes I traded stocks he did not even find. I started out trading small and increased the size of my trades over time (the red and fuchsia dots indicate where I increased my max position size).
(note: while the blue squares represent trades, many of them are me just adding to or gradually closing positions in what is essentially the same trade)
As you can see from the chart, I have done well. In just over 3 months I have made $40,000 trading his system. In one trade yesterday I made $19,000 in two days. But the amount of money I have made is not nearly as impressive as the lack of drawdowns that I have had. The one large (percentage-wise) drawdown I had (on 7/29) was my first trade after increasing my position size and it was an accidental trade that I did not even mean to make! Otherwise, my maximum drawdown was 15%, and even that was due to making a dumb mistake–getting too large of a position in an illiquid stock.
After my success trading Sykes’ system, I became the first lifetime subscriber to TimAlerts and wrote a blog post, “Why I Paid Timothy Sykes $2,000.” So, if you ever consider trading stocks (and not just buying and holding index funds as an investment, which everyone should do), then why not learn from Tim Sykes, one of the few people who makes money trading and has demonstrated an ability to teach others how to profitably trade. I recommend reading his blog, buying his book, and signing up for TimAlerts.
If you doubt my performance of Sykes’ performance, I suggest visiting Covestor, where all of Sykes’ trades and some of mine have been verified directly from our brokerage accounts.
Disclosure: I am a customer of Timothy Sykes and am the first TimAlerts for Life member. I am an affiliate of his and make a 25% commission on any sales he makes through the links on this article.
It is always nice to be right. It is even better when I am right after being heckled and threatened by fans of a junky little penny stock. I first criticized Cytocore last autumn for making inadequate disclosures of a reverse share split (I should note that the company did apparently fulfill its legal duty to report the split in its 10k, but for four months there was no way for a visitor to EDGAR or to the company’s website to ascertain the true number of shares outstanding).
I then reported on some of the vitriol I received in response to the first article (which surprised me, because that first article was rather tame in its criticisms). Most recently (back in mid-February) I criticized the management of Cytocore for painting an overly rosy picture of the company.
I am happy to report that so far this year Cytocore (OTC BB: CYOE) stock is down 60% to $0.75. Despite having touted its many distribution agreements (including in Italy, Spain, Portugal, and the USA) for its cervical cell collecting device (for use in pap smears) over the last year, the company’s most recent 10Q reports a negligible $82,000 in revenue for the first half of this year.
While I wish the company luck in its endeavors, Cytocore’s business performance and disclosures leave much to be desired. Investment in the company would be foolhardy.
Disclosure: I have no position in Cytocore. I have a disclosure policy.
While I wish I were referring to myself, I refer to Andrew Left of Citron Research (see my other articles referencing him). Once again today his bold assertions of fraud were vindicated when a court ruled that Conversion Solutions Holding Company & Rufus Harris did bad things. The SEC’s press release on the matter is hilarious. Here is an excerpt:
On the basis of the evidence presented at the hearing, the Court found that Conversion never had any business-related revenue, and that its only source of funds was an ongoing offering of convertible notes and/or stock that began before the time period charged in the Complaint. The Court also found that Conversion had not paid any money for any of the purported assets carried on its books, which consisted of various series of bonds, uncollected interest due on the purported bonds, and a document called the UCC-1 Note. The Court found that the UCC-1 Note is not a standard piece of commercial paper, but an eight-page document signed by an individual named David Hawkins, which purports to be an “Affidavit of Obligation” in favor of Mad Dog Builders, Inc. and Mr. Hawkins, and which contains references to purported legal concepts including the “individual energy protection maxim,” the “social cooperation protection maxim,” and the “Hebrew/Jewish Commercial Code.”
This leaves me to say but one thing: Evidently Rufus Harris was not quite as cool as THE Rufus from Bill & Ted’s Excellent Adventure:
Left’s articles on Conversion Solutions
Original report on Fronthaul Group (July 26, 2006)
Update on Conversion / Fronthaul (August 2, 2006)
Final report on Conversion (August 9, 2006)
I should also point out that as always, the penalty exacted upon Rufus Harris is utterly inadequate to deter future penny stock hucksters. Again according to the SEC press release: “The Court did not find a basis for disgorgement of any ill-gotten gains by Harris or Conversion.”
Disclosure: I have no connection to anyone mentioned above. I am not Andrew Left. I am not Rufus Harris. I cannot play the guitar. I have yet to meet a securities regulator who is neither stupid nor evil.
Some people thought I was crazy with my prediction back at the beginning of this year that we would see a crisis that would look like financial armageddon. But if you take a look at that article, my predictions (while not great) do capture the essence of what has happened. While I was wrong in predicting the demise of all the bond insurers and not the broker/dealers, I did make a couple good predictions:
June: Several regional banks based in California are paralyzed by bank runs. They declare bankruptcy. The FDIC estimates that the bailout of their depositors will cost $30 billion.
…
September: A large insurer reveals write downs due to mortgage-backed security losses equal to its book value. Its stock drops 90% in one day, leading the S&P 500 down 8%.
It is pretty eerie that my prediction of an insurer’s troubles corresponds closely to what has happened to AIG [[aig]]. These are scary times, but the worst is not over. Expect more bank troubles, including the failure of Wamu [[wm]] and maybe National City [[ncc]].
Bert & Ernie sing “Ante Up” by M.O.P.
Disclosure: I have no position in any company mentioned. I do have a friend who works at AIG. I have bank accounts and a mortgage at National City.
I previously wrote about Timothy Sykes and his attempts to teach stock trading to the masses. That post is now my most commented-upon post on this blog and one of the most frequently viewed. Since writing that post I have changed my views on Timothy Sykes.
First, I have concluded that at least at the present time Sykes’ trading system works quite well. This does not mean that it will necessarily continue to work, and anyone using his system should not put blind faith in it. That being said, the basic premise of short-selling hyped-up stocks should continue to be successful far in the future, although the details of how best to do that will certainly change. I believe in Sykes’ system enough to trade a decent amount of money with it, and so far I have made quite a bit of money trading his system. You can see some of my successful trades on Covestor (on which I am currently ranked 13th).
I have become so convinced of the benefits of Sykes system that I bought his DVD, subscribed to a year of his TimAlerts service (whereby he sends his followers alerts every time he makes a trade, and I even recently bought the first Lifetime TimAlerts subscription (for which I paid him $2,000). I even signed up to be an affiliate to sell his products.
Normally a trading system will either produce a good probability of a profit (i.e., a high percentage of trades will be profitable) or a good ratio of average profit to average loss. Sykes’ system generates both a high percentage of profitable trades and profitable trades that make far more money than unprofitable trades lose. In this sense it is the Holy Grail of trading. The system’s major limitation is that it generates very few trading opportunities where more than a few thousand dollars can be easily deployed, although there are occasional trading opportunities where hundreds of thousands of dollars can be easily used. Also, there are relatively few trading opportunities. This limits the amount of money that can be made with this system to maybe a couple hundred thousand dollars a year at best. However, this limitation of the system also minimizes the chances that hedge funds will exploit the same inefficiencies that the trading system exploits and thus render the system ineffective.
The other problem with a trading system that produces few trading signals is that it is hard to keep from over-trading. The hardest thing to do is sit and wait, as evidenced by Sykes’ own history of impulsive, forced trades. While he was still able to reap huge profits, others may be less disciplined. I have already seen evidence of followers of Sykes’ TimAlerts service trading way too much (and Sykes himself has criticized his followers for this numerous times). I think it likely that some of them will trade away all their profits by forcing trades when the risk/reward ratio is poor.
My Original Criticisms Still Stand
In my original article on Timothy Sykes, I laid out three criticisms of his plan to teach trading to the masses. These criticisms still stand, although these criticisms point out the limits of an otherwise powerful system, rather than revealing the ineffectiveness of the system as I argued in my original article. Anyone considering following Sykes should consider the following:
1. While Sykes’ system will degrade gracefully (meaning that if it stops working it will gradually generate smaller profits, not change quickly from generating profits to generating large losses), I have already noticed cases where he and his followers’ actions have changed the chart patterns his analysis relies upon. He has enough TimAlerts subscribers that they can easily move the market in certain illiquid stocks. This makes using his system more dangerous than if he did not have so many followers.
2. Trading takes time. For many of Tim’s followers, with tiny $5,000 accounts, the amount of time they spend trading the system (especially if they do not follow his advice and ignore non-ideal trades) can be disproportionate to their gains. While I am a full-time trader (I utilize a few strategies, not just Sykes’ strategy), many of his followers have other, full-time jobs. Those people would be wise to concentrate only on the most ideal trades, lest they ruin their careers in a vain attempt to get rich trading.
3. Most people do not have the emotional restraint to be successful traders, no matter how simple and effective the trading system they use. This is my most important criticism. As even Timothy Sykes points out, over 95% of stock traders lose money. Those who cannot handle the emotional demands of trading will likely lose money even if they try to trade a system as simple and profitable as Timothy Sykes’ trading system.
As an illustration of my third point, I bring you the following example.
Nothing is Foolproof: The Case of Ross
As a subscriber to Sykes’ TimAlerts I get to see the comments made by other subscribers; they often share their trades and thus I can get a feel for how Tim’s followers are doing. The problem with any kind of stock trading, no matter how good the system, is that it requires a human to trade it. Human emotions seem almost designed to prevent successful stock trading.
I present here the case of “Ross”, a subscriber to Sykes’ TimAlerts service. Ross should serve as an example that an an emotional, undisciplined person can lose money trading a good trading system. I should point out that while he subscribes to Sykes’ alert service, Ross has not bought Sykes’ DVD. He also appears to be the exception among TimAlerts subscribers — most who post their trades appear to make money.
Sykes bought 4C Controls (OTC: FOUR) at $2.85 on August 18th. At 12:20pm Ross posted [subscribers-only link] “I am in with 300 @ 3.00”. Sykes sold the stock around 12:55pm after it failed to go up as he had predicted. Ross posted that he was holding FOUR, saying “It looks like it is trying to work it’s way back up.” Sykes responded, saying “ross, in time, u’ll learn to cut lsoses quickly and not risk disasters.”
At 2:02pm, Ross wrote, “FOUR looks like it is going the right direction now.” Sykes castigated him, writing, “haha ross, looks like u got lucky, bad lesson.” Ross continued to hold FOUR overnight; the next morning he wrote, “Well I learned the hard way and lost more then half my money on FOUR this morning. I got in @ 3. and just sold for 1.35 That hurt. All my other trades I have done have tanked on me as well. Pretty much lost most of my money. Looks like I am out of the game for a while.”
While trading FOUR lost Sykes money too, Ross also managed to mess up easily profitable trades by letting his emotions get in the way. He said, “I messed up on USS and ZYXI and EVSO as well. I also made some other trades a friend suggested as well and they went the wrong way.” This was despite Tim having profitably traded those stocks. I myself had a profit margin of over 20% on USS.
Conclusion
If you want to try trading stocks, try following Tim Sykes’ system (I suggest just reading his website and analyzing his trades for a few months, although you can go ahead and directly buy his DVD or TimAlerts trade alerts service if you are rash); it is the best stock-trading system I have seen, as evidenced by Sykes’ top rating on Covestor and his multi-year performance record. However, most stock traders will lose money because they let their emotions rule them; using a profitable system will not prevent them from losing money. Recognize your limits and do not try to trade if you do not have the requisite emotional control. Don’t be like Ross.