KTOV - What just happened?

A big part of the reason I write this blog is in an effort to help retail investors garner a better understanding of how the markets function and about the forces at play.  I would argue that a lot of those forces are employed to entice retailers into buying high those stocks that the smart money is selling high.  That or to sell low when the smart money crowd is looking to load up.

That's the way the market has to be.  For one group to sell high there has to be another group willing to pay the high price, and the same dynamic in reverse when stocks are low.  Obviously everyone can't be buying and selling at the same time, otherwise the markets would look like a football game with both teams lining up on the same side of the ball, both teams wanting to play offence and defence at the same time.

When it comes to the public markets I divide the players into two broad based teams.  On one side you have the industry players, and on the other its the retail herd.  

And when you look at the tools available to the smart money industry players, it shouldn't come as a surprise that its retail investors who so often end up on the wrong side of the trade.  Especially when it comes to the stocks for highly speculative money losing companies.  

Big house investment banks underwrite the offerings and secondary issues, with analysts working for these same firms.  Media outlets too many to name, investor relationship firms, email blasting chop shops.  And who is the target of this multi-billion dollar industry?  Retail investors like myself.

So now onto KTOV.  I'm not going to write anything about the fundamentals, because as I've noted so many times, all fundamental data is old information and thus already priced in as far as I am concerned.  

I wrote about KTOV on May 17th, 2016 in a post about Ziopharm that noted how an email blasting outfit called Stockreversals had touted ZIOP last year when it was a high flyer and that now their promotional chops were being used to hype KTOV. 

http://www.avoidthebag.com/2016/05/ziopharm-no-short-squeeze-and-no-buyout.html

In that post I wrote that KTOV was just the latest in a long list of stocks hyped Stockreversals.  I also posted a chart that showed KTOV climbing from around $2.50 as recently as February and closing at $6.68.  

• "Can I say with certainty that KTOV will follow the same pattern that LEJU, ZIOP, CLDN, SBOT and all the others did?  Nope, I can't.....but I would not bet against it either.  I have no doubt that those promoting KTOV will say, ''this one is different'', it always is.

That was then, holders and watchers know where it is now.  KTOV closed at $4.75 on Monday May 23rd.  That's a drop of over 25% from when I first wrote about it.  

Am I writing this to pat myself on the back?  Yeah, a little....sure.  I'm human and as prone to the sin of pride as anyone.  But I also know that a good call can be temporary, KTOV could have a big rally tomorrow and the pumpers will jump all over a guy like me saying that $4.75 was a big buying opportunity.  

In fact I expect KTOV to have some big rallies.  If the smart money is dumping, its hard to get retail investors buying and holding a stock that falls big and keeps falling.  

Long term though?  

My expectation is that KTOV will follow the same pattern as LEJU, CLDN, SBOT, MOBI and ZIOP to name just a few of the stocks that stockreversals has pounded the table about.  Go ahead and check the charts for those issues, but don't bother with CLDN.  After a 1:15 reverse split it merged with another bio tech called Eiger.  

The more important question is why do email blasting chop shops like stockreversals hype so many stocks that soar and tank?

Take a second and consider the possibility that you find out about a stock that's going to fly, one that's going to go from somewhere around $5 up to $15.  The market is all about supply and demand, you know that already of course.  So are you going to start telling anyone with a pulse and a trading account about this incredible company?  Or are you going to buy all you can and maybe let a few very close friends and family members know?  

After all, that $5 price is going to disappear pretty quickly if too many people find out about it.  If you start pumping out emails and then screaming all over sites like Twitter and SeekingAlpha the price is gonna go from $5 to $6 and keep climbing.  You'll have missed out on the chance to really load up on it.

Unless of course so much dumping happens that the climb halts and then reverses trend.  Its a zero sum game boys and girls, some get cash while others get shares.  

You've heard the old saw: "If a tree falls in the forest and nobody is around, does it make any sound"?

Well if a public company puts out good news and nobody has it on a watch list, who's going to strom in and pay the high price?  Shops like stockreversals with followers numbering in the tens of thousands can get a stock on the radar screen with lots of retail investors.  Then all you need is some good news and a climbing share price and its show time.  

I should point out that stockreversals will often mention a dozen or more stocks in their email blasts and commentary, and sometimes the stocks they include are suitable as long term investments in my opinion.  But when I see this outfit on Twitter, Stocktwits and SeekingAlpha banging their fist on the table about one particular company, that's when my Spidey Sense starts tingling.

Full disclosure, I have no position in KTOV long or short, and no intention of ever initiating one.  I also have no positions in any of the other stocks mentioned except for ZIOP.  I hold some put options on Ziopharm.  Having an opinion is great but its also fun to have some skin in the game.

Later I intend to be writing about the difference between what I consider to be investment grade stocks and those that are what I'll call "speculative grade".  For my purposes I consider those companies that have achieved positive earnings as "investment grade" because they're profitable. Companies that are burning cash and using their stock as capital to finance operations, those I consider "speculative grade".  

Retail investors love speculative stocks, because it is these stocks that typically see the biggest gains in the shortest periods of time.  But they're also the stocks that often experience the biggest drops, with retail investors all too often coming late to the dinner table and buying high before the big drop.  

Until next time.