The lure of speculative money losing companies - Big risks big rewards

It doesn't matter whether you're looking at an OTC penny stock or one that is listed on a more prominent exchange like the NASDAQ or Canada's big board TSX, the public markets are full of companies promising a bright future, combined with a history of losses and dilution.

When it comes to looking for monster gains, 100% or more in a matter of a year, a few months or in some cases just a matter of days....the bests bets are with speculative companies.  You could do very well over the long haul with a company that's included on a major index like the S&P 500, or the NASDAQ 100, but history tells us you're not going to double your money in one year or even in three.

But if you get into a bio tech that all of a sudden catches the attention of investors, or a Jr. Mining company in a hot sector like Lithium right now, or a company with a new technology...then sometimes it can seem like the sky is the limit.  That is unless or until the bag closes, and all too often its just a matter of when, not if.

So why does this happen?  Why do companies with the worst histories so often fly and then tank?  I am going to offer up my opinions on the matter, you can decide whether they have merit yourself.

Let's say there's a company that's been around 10 or more years, its never made a dime in profits and yet its paying big money with some directors and officers pulling in millions per year.  The only problem is the company is running low on funds.  So what happens?  

A firm providing investment banking services might be engaged and perhaps they will underwrite a secondary offering, buying 10 million shares at say $10 per share.  Great, now the company has just raised $100,000,000 less fees and has enough cash to keep the lights on and pay checks going out for another few years.  

But now there's an investment bank with 10,000,000 shares of some money losing company that they paid $100,000,000 for.  Do ya think they're going to be looking to sell them for less than what they paid?  Nope...neither do I.  They might engage other underwriters to participate, cutting them in.  

Now we have a stock that I will suggest is ready to be put "in play".  What do I mean by "in play"? Well, these investment banks have analysts, and its reasonable to expect their analysts to initiate coverage on Big Money Losing company.  Maybe one of the underwriters sponsors one of those investor dog and pony shows.  and now BML company is slated as a presenter.  Maybe they have a hot new technology, something unproven but really cutting edge.  Or maybe they could be merged with a Small Money Losing company, then analysts can start hyping things like economies of scale an synergies and BML and SML unite to form Massive Money Losing company, or MML.

Next thing you know MML is being touted on CNBC and by other media outlets, maybe some chop shops are alerted and they start pumping out emails hyping MML to their books.  Everyone is making money, the company, the underwriters, the chop shops.....its party time.  Picture the scene where the hookers come out in 'The Wolf of Wall Street'.  

And the poor retail schmucks who buy into all the excitement, paying maybe $20 or more per share?Oh well, it sucks to be them.  They can keep averaging down, and who knows....maybe at some future date Massive Money Losing company will come up with something that's profitable.  And if not?  Then the hedge funds can enjoy the downfall by shorting MML into oblivion.  

That, in my opinion, is the game boys and girls.  Play at your own risk, its a zero sum game....some get money and others get shares.  And its usually the retail herd holding the bag.  

Sunday morning musings on timing a perfect entry.....

Being something of a message board and social media junkie when it comes to stocks, there's a common refrain I hear from those I suspect to be retail investors just like me.  

Retailers will often hesitate, trying to decide on the optimum entry point.  "Is now a good time to buy"?  That's something I've frequently seen on stock sites, regardless of the equity being discussed.

When is the right time to buy?  You've researched a stock, and for whatever reason you've decided you want to buy in, but you don't want to make a purchase and see it drop almost immediately by 5 or 10%.  

Deciding on the perfect time is nearly an impossible task.  

Some swear by the technicals, and will draw lines out on a chart representing traditional support levels, then they'll put a limit order in based on that analysis.  Others will keep a close watch, and when they first see it start climbing they'll jump in with a market order, hopeful of catching some momentum which will launch them well clear of their entry point.

If you play the markets long enough, sometimes you will do well, and other times not.  And I would argue that even if you make the perfect decision on an entry point, the stock you just bought could still trade down 5 or 10% and maybe even more.  

How could that be you may ask?  How could someone time their entry perfect and still see the stock they purchased drop by a significant amount?  If someone times things perfectly that means it can't drop.  Right?  

In my opinion no, and of course I will explain.  

The first thing retail investors need to understand is that they are not buying shares directly from those selling, we're not dealing with auction style markets.  It doesn't matter whether its the NYSE, the Nasdaq or OTC, or any of the Canadian exchanges.  When buyers purchase a stock they're going through a Market Maker Broker Dealer, or MM for short.

We'll use my favorite hypothetical stock, ABC which we'll say is trading around $10.  I look at level II and see that the bid is $9.95 with an ask of $10 and that there are 100 lots showing on the ask.  So we'll say I decide to buy 10 lots, 1,000 shares and I put a market order in because I'm convinced ABC is going to be moving up any day now.  

My broker will then pass the order to the house showing that $10 ask, looking to get the order filled. We'll call the brokerage that gets my order Moonshot.  There's a problem though, while Moonshot is a MM for ABC that doesn't mean that they have clients with shares to sell, or any themselves for that matter.

Moonshot could pass on the order, telling my broker to go to another house, but invariably they'll simply fill the order by going short.  If they pass then they risk getting a reputation as a non-performer.  Brokers will by-pass non-performers because in the public markets speed of execution is everything.  

Of course mine is just a small little 10 lot order, 1,000 shares.  But what if I'm not alone and a number of other investors have been watching ABC and decided that $10 is a good price to get in at.

Market Maker Moonshot could find themselves short tens of thousands of shares.  MMs are in business to make money obviously, and they're not going to want to cover off a short position by paying more than what they sold at.

So what is a MM caught short to do?

Years ago the US Department of Justice (DOJ) documented a practise they discovered that they dubbed "Moves on Request".  Basically it involves MMs asking each other to change the bid and asks being quoted in order to give off an impression that a stock is either weak or strong.  You can read about it here:  

https://www.justice.gov/atr/case-document/competitive-impact-statement-9

Using my example of ABC which MM Moonshot has found themselves short on, the DOJ article documents how a broker who is short will contact other MMs and ask them to move their bid and asks down.  This has the effect of making the market for ABC look weak and it can reasonably be expected to drive the PPS down, allowing Moonshot to cover off their short position, buying back the shares sold for $10 at a lower price.  

The opposite would be done when Moonshot or another broker finds themselves with shares to move, asking other brokers to move their bids and asks higher to give off a bullish impression.

Why would MMs co-operate in this fashion?  Its a quid pro quo system, quid pro quo meaning "you scratch my back and I'll scratch yours".  Other brokers comply because they know they'll be in a situation where they too will need to make a "move on request" because they're long or short.

So even though a retail investor may have picked a perfect entry, he could still see the PPS fall after he buys in, that's life.  Sometimes its not a matter of timing the market, but rather of time in the market.  While some will get scared off and bail on a drop in the PPS, others will hold tight.  And if the stock they've bought is a good one that is able to catch the attention of buyers, then those that showed patience will have a chance at profits.

Sometimes you get lucky, it happened to me recently with LAC, the stock for Lithium Americas.  

Regular readers (both of you) will recall that back on April 27th I did a blog posting wherein I offered up the opinion that I could see LAC dropping as low as 65 cents on the handle portion of the chart pattern I saw playing out.  

I didn't pull the number out of my rear end, it was based on the chart. Between March and July of 2015 LAC had hovered over and under that 65 cent mark, before and as the left hand side of the cup started forming.  Ultimately it was a guess based on what I perceived to be a support level.

Before I give myself too much credit though I have to admit to some impatience.  On April 27th, the same day I expressed the opinion that I could see LAC dropping as low as 65 cents, on that day I picked up another 1,000 shares at 75 cents.  The reason?  Simple, I wanted to increase my holdings a little and I was afraid of news or something coming out that would send the PPS much higher before I got a chance to add.

But I also put a limit order in at 66 cents on that same Friday Apr 27th, that was set to expire on Friday May 6th.  During the trading week of May 2nd to 6th I was going to be busy and unable to watch the trading during market hours, and if my 65 cent prediction came true I wanted to be able to add at close to that price.  

It was an order for 2,000 shares at 66 because I don't ever expect to get the bottom of a bounce. And on Monday May 2, it filled.  When I saw that LAC had traded as low as 66 cents Monday evening I checked to see if I'd gotten my fill, and was somewhat surprised to see that I had.

Good, but far from perfect.  Obviously I should have gone for the whole 3,000 at .66....then again, maybe I wouldn't have gotten the full 3,000 filled at 66 cents, I shall never know.  As it stands my average cost was 69 cents plus brokerage fees,  With LAC now trading up around 88 cents that's a gain of over 25% so I'm not gonna complain.  

Given my opinion of LAC's chart, I very much like the chances of it climbing north of $1.00 CDN. 

Please note though, with respect to my comments on LAC, this is a highly speculative investment and its not suitable for everyone obviously.  Not everyone has the same tolerance for risk, and investment objectives can vary widely.  

Getting back to the central theme of this post, timing the perfect entry, good luck.  The way I see things the board is tilted, and the  direction of the tilt does not favor the retail player.  With that being said forewarned is forearmed.

Good luck.

The perils of taking on 'The Street'

I have no illusions about this blog's significance.  My little island in cyberspace is a tiny speck, a dot on the ocean that is the public markets. That's why you will frequently see me referring to Avoid The Bag as a meaningless and insignificant little blog, (or words to that effect) because that's what it is.

Do I have bigger aspirations for this space?  Yes and no.  I would be lying if I didn't admit to some delusions of grandeur.  Of being a beacon of market wisdom and reasonable commentary, with a large following.  But I also know the dangers that would come were that ever to come to fruition, which I highly doubt will happen in any case.  

If you read the disclaimer at the bottom of this site you will see right up front something that, to me, is very important.  I have not and I will not accept any payment or compensation of any kind to write anything about any stock, either bullish or bearish.  With that being said, I do eat my own cooking, and when I'm bullish on a stock I will take out a position.  And if I'm bearish and thinking a stock is overpriced and due for a correction, I will try to profit from that as well....that's how the market functions.

But I also know that for a market to function you need two things, buyers and sellers.  Yes, I know that is obvious, but I believe it merits repeating.  

The Bath Tub 

The best analogy I have ever heard involves representing the market as a bath tub.  Let's say there is a stock that we will call ABC, and its trading for $1.  The tub will represent the market for ABC and the water level will be the share price.  At $1 we will say there is one inch of water in the tub.  Water added to the tub is the buying that occurs, selling conversely is represented by the drain.  So long as there is a reasonable balance between buying and selling, then the water level or price per share will remain about the same, the water being added equaling the water going out.

For the sake of this example we will say that ABC is a speculative stock, that the company represented is currently losing money.  We will also assume that the company has sought out a big name partner, and that if the deal is finalized the news of this partnership is reasonably expected to create a lot of excitement and buy side interest in the stock.

Although it is illegal I for one am convinced that when deals and partnerships are being negotiated and other significant developments are in the works, that there are obviously individuals in the know. And while trading on insider information is counter to the rules, I have little doubt in my own mind that there are individuals who seek to profit regardless, not directly certainly...but maybe by proxy.

Back to the bathtub.  Those who have perhaps caught wind of the big partnership plans could reasonably be expected to want in, to establish a position by going long on ABC.  Now, they could just storm in and start buying, causing the water level of the tub to rise.  The danger there is that the rising water level might cause the drain to plug, as those inclined to sell hold on tighter to their shares because of the rising price.  And other players may see the water level rising and start competing for the available shares, driving up the price and defeating the idea of buying low.  

A better method might be to borrow some shares and sell them, going short in other words.  This has the effect of taking a pitcher and scooping water out of the tub, causing the water level and hence the PPS to drop.  This brings on fear in shareholders and may induce them to sell while the PPS is low.  

And so it goes, ABC's water level stays around $1 as those anticipating the big deal load up.  As the deal gets closer those who have been loading up stop scooping water out, they cover off any outstanding short positions and start driving the PPS higher.  This often brings on the attention I just mentioned, other players see ABC's bathtub rising so they want in too.  The tub rises higher and higher, from one inch to two, and then three and then five.  ABC once worth $1 is now trading at $5.

Then the news hits, ABC has just finalized a major partnership deal with a leader in their business space.  New releases are issued, social media catches fire and ABC is being talked about in stock forums all over the Internet as buyers storm in.  Maybe the deal is announced on CNBC or other similar media outlets.

Now the tub really starts rising, in a few short days or weeks the level of water goes from five inches to ten. But don't forget the drain.  If people are buying then others must be selling.  As the tub gets up around twelve inches or $12, the water stops rising.  The volume of water pouring into the tub is still high, but an equal amount of water is going down the drain as those who got in early and cheap start leaving. 

And if the deal doesn't bring in any added revenue, if ABC is a company that issues shares to finance its business, then those who jumped into the tub with exuberance and excitement may find themselves trying to keep themselves clean with an ever diminishing supply of dirty water.  

A good analogy but not perfect

I like the bathtub analogy, but it does have its flaws.  Often there are shares that weren't bought when the PPS was at $1.  There are option grants and warrants and shares that may have been used as payment for good and/or services.  But overall this example provides an excellent general overview of how the market functions.  And I think it is most useful when considering companies that are speculative in nature, with companies that are not yet profitable and perhaps never will be.

So whats' the point

The point of this posting is in the subject line:  The perils of taking on 'The Street'.  When I reference 'The Street' I am using it as a euphemism for industry players, or market hacks as I like to call them. I am not talking about the website or news service of that name.

The stock market is a zero sum game, every trade involves a buyer and a seller, one gets shares and the other gets money.  The 'smart money' players who buy low and sell high, they need others doing the opposite, selling low and buying high.  And this latter group is invariably dominated by retail investors, the target audience of this pathetic and insignificant little blog.

I get attacked almost daily in social media for my opinions.  especially when I refuse to drink the Kool-Ade about some speculative money losing company's forward looking promise when its trading at or near its highs.   No worries, I get it.  

'The Street' is far more powerful than any little ol' Joe Retail blogger, I know that.  If this blog and my opinions were to ever get too popular, then the market would have to slap it down....and with the money that industry players have at their disposal it would be an easy thing to do.

Good luck in the markets retail players, its a shark tank...so pay attention to those sharks, they usually try to disguise themselves as playful friendly dolphins.

Life lessons from the stereo store

After I finished high school I decided to take a break from the world of academia before going on to University.  I ended up taking a job in a stereo store as a salesperson.  If you're wondering how far back this was, well the place sold quite a few items that hardly exist now.  Stereo receivers, amplifiers, tape decks and turntables were some of the products, along with televisions and a relatively new invention called the microwave oven.

One day while I was still relatively new a young couple walked in, they were right around my age, maybe 17 or 18.  They had just moved in together and were looking to buy a TV Set.  There was one problem, they didn't have any money, and were attracted to the store I worked at by a sign that promised easy financing.  

After settling on a TV that cost two or three hundred dollars I had them fill out a credit application with one of those lending institutions that specialized in that type of loan.  A short phone call later and they were approved.  They would be paying something like $15 or $20 per month for the next two or three years.  

All seemed well and good, a sale....hot dog.  

Then my manager Winston stepped in and asked me:  "How much are they good for"?  I didn't know what he meant, so he took me back to the phone and said:  "Watch".  He proceeded to call the financing company and found out that they were approved for up to $500 or thereabouts.  The next thing he said was:  "Watch this".

Winston walked over and grabbed a random VCR costing somewhere around $200.  He walked up to the couple and said: "Look what I'm gonna do for you".  He explained that for just $10 more per month they could have both the TV and a VCR.  

The guy lit up like a Christmas tree, probably envisioning watching XXX videos with his girlfriend. But as is so often the case, his girlfriend looked worried.  She asked Winston if they could talk to me. My manager retired behind the counter and the young couple and I went into a corner of the store. She was worried, I had explained to her that the interest rate was high, but that it was a small purchase that would help establish a good credit rating.  That was when it was just a TV.  

Sensing her concern I advised them to buy the TV, and to stick a a few bucks aside each month and then to come back in a few months and pay cash for the VCR.  

Winston took it all right, I explained to him that with rent, gas for the car, insurance, phone and all the other expenses that come with independent living, that the girlfriend was worried about them overextending themselves, and she had good reason to be concerned.

Marketing and sales people love to break things down to a low monthly payment, some will break it down to "just pennies a day".  But those small monthly expenses add up, $5 here, $25 there, an extra $10 for this and another $30 for that, before you know it you're spending and additional $200 or more per month and putting nothing aside for savings.  

What's the point of this little bit of personal history?  None really....its just life experience.  But whether its TVs and VCR, or stocks and other financial instruments....most sales and marketing people only care about the sale and the commission that goes with it.

Peace :-)

Why short interest matters - The danger of betting against Dah Bears

I have had many conversations with retail shareholders over the years, and one thing I've found is that a lot of people have little or no understanding of how short selling works.  Pretty much everyone gets that its a ''bet'' that a share price is going to go down, and that short sellers make money when a stock drops.  But ask people the mechanics of how a short sale works and often its deer in the headlights time.

Short selling is a big part of the market game.  Not knowing how it works to me is like stepping onto a basketball court without knowing that you have to dribble the ball with one hand, and not two.

When explaining it to people I often use something removed from the market.  If someone is wearing a nice watch I'll use that as an example.  Let's say I have a friend who owns an expensive watch that sells for $5,000.  But let's also say that I have learned that an announcement is about to be made that this same watch contains an element that has been proven to cause cancer.  I know that once this news comes out, that my friend who is always bragging about his $5,000 watch...that he'd be lucky to get $5 for it.

So how might I profit in this made up example?

Simple.  I borrow my friend's watch, maybe give him $100 to loan it to me for a couple weeks while I go on vacation.  I then take his watch and sell it for the $5,000 it is currently worth.  In a few days the news comes out, the metal on the backing of the watch has some coating that has been proven to cause cancer.  I am then able to buy that same watch back for $5, if not the exact same one then another which is identical.  I give my friend back his watch and have profited to the tune of $4,895 with something I never even owned.

That's exactly how it works in the stock market.  But instead of a watch its done with shares.

I'll use the example of Nortel, a darling of many Canadian tech stock lovers in the 1990s.  If memory serves it traded up around $180 at its highs, but for this example I will say its trading at $100.

Someone we'll call Mr. Bear is convinced that Nortel is a bloated pig at $100.  He can go to a brokerage and ask to borrow shares of Nortel.  Shareholders don't have physical possession of their actual shares, they're held in street name.  Let's say there's a shareholder named Bob who is using a discount broker charging him $5 a trade.  In his account sit 1,000 shares of Nortel, trading at $100 and worth $100,000 at current market prices.

The brokerage will lend the shares out, at a fee of course.  Mr Bear then takes the 1,000 shares and sells them for $100 each, netting himself $100,000 from the trade.  But of course Mr. Bear has to give those shares back at some point...unless Nortel declares bankruptcy and stops trading in which case he doesn't have to buy them back because they'd be worth $0.  

Mr. Bear is counting on Nortel going down obviously.  But remember I said Nortel traded as high as $180?  This is where it gets fun.

When Mr. Bear sells the 1,000 shares he borrowed for $100 each he doesn't immediately get to take the money and run, the funds are held in a margin account.  On top of that he'll be required to have extra money tied up in that margin account in case the PPS starts climbing.  And if the PPS does start climbing the broker he owes will require him to put even more cash in his margin account.  Let's say the margin requirement is 50%.  After netting $100,000 from the sale of the 1,000 shares he needs to add in $50,000....if Nortel climbs to $200 per share he'll need to have $300,000 in the account.

This is where dreams of a short squeeze dance in the heads of longs.  If the PPS climbs and Mr. Bear can't come up with the extra funds for his margin account then the broker will simply take the money in the account and use it to buy back the shares.  Let's say Nortel goes to $200 and Mr. Bear comes up with the $300,000 to hold his position.  But then it goes to $250 and the broker tells him to ante up another $100,000.....But Mr. Bear can't, he's tapped out.  The broker then takes $250,000 out of the margin account and buys the shares back,  In this hypothetical situation Mr. Bear just lost $150,000 large.

That is what longs dream of, but as happens with many dreams.....it rarely plays out that way.

Short sellers know the risks they're taking, and because of the enormous risk Bears are known to be hyper active when it comes to research.  Do some searching on the Net about notorious hedge funds and you'll see stories about people going through trash bins to get the inside scoop.  

That's why it dangerous to bet against 'Dah bears'.  Never underestimate an opponent.  That wisdom applies on the battlefield, in the sporting arena, and in the public markets.  Longs would do well to check their egos at the door when seeing a stock they're holding having a large % of short interest.  

Some short interest is to be expected with any stock, sometimes its hedge funds pushing a stock up and down, scalping for 1 or 2 points, maybe 5.  But when you see a stock with 10, 20, 30% or more short interest....you might want to ask yourself, ''Do they maybe know something I don't''?  

PPHM recently tanked, going from in and around $1 to about 30 cents in the wake of a cancelled phase III clinical trial.  But just before it tanked news came out that shares of PPHM had triggered something called a ''Stop Loss'', which meant that so many shares had been sold short that few to none were available for further shorting.  

For me that should have been a flag given what I know about short selling.  But I was blinded by greed and dreamed of Bears overplaying their hands....a monster short squeeze had me envisioning big profits.  Hindsight being 20/20 I realize the mistake I made.  In my opinion what happened was obvious, word of the cancelled trial was leaked and smart Bears borrowed all they could until there was nothing left available for shorting.  

That's enough for now....comments are always welcomed, just keep it polite.  I realize this is very remedial for long time traders, but its something basic that many retailers don't grasp.

My next post is going to be a long idea, Hampton Roads Bankshares (HMPR) which as of April 29th 2016 had less than 3% of its shares shorted.

Why buying low and selling high is so hard for retail investors - More reasons I write this blog

When it comes to the public markets retail investors are lambs among wolves, gnus running with lions.  We are the main course on the menu when big market players sit down to dine. 

The retail crowd is constantly being bombarded by information that is ultimately worthless, fundamental data.  

Check the earnings, look at the revenue, don't forget debt, watch out for dilution, read the filings. The mountain of information is overwhelming.  Insider and executive profiles, analyst forecasts, sales, book value,   Its almost endless, if someone took the time to pour over every single piece of data available, by the time they finished...Three more months of reading material would have piled up and would be waiting.

And I'm going to argue that the only way fundamental information matters is in its potential to influence buying and selling decisions.  And even then it depends on what the big boys do.

Retail players need to be aware of what they're up against, the money that's in play.  You have thousands?  Tens of thousands?  Maybe even a few hundred thousand?  Its peanuts.  There are bigger fish lurking in the oceans that are the public markets, sharks and killer whales with hundreds of millions, even billions.

Think of it in terms of Texas Hold 'Em.  Even when you've been dealt good cards, your stack is chicken feed compared to what the big boys are playing with.  Their stacks are so big you can't even see who you're playing.  

What am I talking about?  Listen to famous and infamous Jim Cramer in an early interview talking about the stratagems used by the market whales, hedge funds.

You can be long on a quality stock, one with positive earnings that might even be paying a dividend. A company with a business that is growing month over month, quarter over quarter, year over year. But maybe there's a big player looking to accumulate a large position who will raid the stock, borrow all that's available and start selling it short, using multiple brokers to create the impression of a broad based sell off.  As noted by Cramer in the linked 2006 interview, some writers and talking heads might even start talking it down.  

I can hear some saying...."I don't buy on margin, they can't borrow my shares"  Or, "I have Level II, I can see what's happening".  

A company with outstanding shares of 100 million or more, even if some investors don't have shares available to be borrowed for shorting purposes, there are plenty others who do.  And level II is no panacea, don't be fooled, not with the ability of big players to use Iceberg orders.  "Iceberg orders"??? "What the hell are iceberg orders"???

Iceberg Orders

Just as with an iceberg where only a small portion is visible above the water, so too with an iceberg order where only a fraction of the actual shares available to be bought or sold can be seen.  Let's say there's a big player looking to dump 1,000 lots of some high flying stock trading at say $10, that's 100,000 shares worth $1,000,000 at $10.  Rather than displaying all the shares he's looking to dump the big fish will only show a fraction, maybe 50 of the 1,000 lots.  The remaining 950 are still there, but they're below the water and retailers looking at their Level-II depth won't see it.

Think this is new stuff?  That these are games that have come along in our internet age.  This kind of market activity has been going on for decades, manipulation has been around since the first merchant started putting his thumb on the scale.  In 1937 Richard Wyckoff detailed the way big players are able to prey on smaller fish.  Here's a link to an article on what I'm talking about:

http://www.businessinsider.com/the-richard-wyckoff-stock-trading-method-2013-2

And here's an excerpt from the above linked article:

It takes a while for a pro to accumulate a position in advance of a big move – buying too many shares at once would cause the price to rise too quickly.

"The preparation of an important move in the market takes a considerable time. A large operator or investor acting singly cannot often, in a single day's session, buy 25,000 to 100,000 shares of stock without putting the price up too much. Instead, he takes days, weeks or months in which to accumulate his line in one or many stocks."

Instead, here's how he sets it up: first, he'll "shake out" the little guys by forcing the stock lower in order to get a better price.

"He prefers to do this while the market is weak, dull, inactive and depressed. To the extent that they are able, he, and the other interests with whom he works, bring about the very conditions which are most favorable for accumulation of stocks at low prices...

"When he wishes to accumulate a line, he raids the market for that stock, makes it look very weak, and gives it the appearance of heavy liquidation by sending in selling orders through a great number of brokers."

"When he wishes to accumulate a line, he raids the market for that stock, makes it look very weak, and gives it the appearance of heavy liquidation by sending in selling orders through a great number of brokers."

Still want to play?  And is it possible for a retail player to still win?  Yes, but it isn't easy.  

If you want to play and win at this game then you have to know the golden rule.  No, not the one Jesus talked about, doing unto others as you would have them do unto you.  No, its the more cynical version:  He who has the gold makes the rules.

This is a game dominated by big players, and its a zero sum game as I keep repeating.  Some players end up with cash, the others with shares.  Nobody is going to win every time, play the markets long enough and you're gonna take some lumps.  

For my own part I look for stocks that are either out of favor or below the radar.  I keep a close watch for too much promotion and hype, and I rely heavily on technical analysis.  But no method, no matter how effective, is going to work 100% of the time....it can't.  A market requires buyers and sellers, everyone can't be buying and selling at the same times.  

Bottom line, the small retail player has to try and by in sync with the big market players, as much as she or he is able.  And don't worry if you miss buying the bottom, or if you get out too early and miss selling the highs.  As my late great Father told me many times:  "You'll never go broke by taking profits".

For those wanting a spoiler on my next blog posting, its going to be about Ziopharm which trades under the symbol ZIOP.  I think the trading of ZIOP over the past 2 years offers up a prime example of why and how retail investors sell low and buy high, while the big market players do the opposite.

Peace Out.

An ode to my Late Great Father -And the reason I write this blog....

We lost my father to cancer three years ago, and like many children with a parent who has gone to a greater reward, I can still hear his voice talking to me when I remember him.  He was, (and for me still is) a remarkable man.

He was born during the depression in a mining town in northern Ontario Canada. His mother was a gorgeous woman with a big heart, but not much in the way of an education.  His father was a jack of all trades, an avid angler and a semi-professional baseball player who pitched two no hitters in the old Northern Ontario Semi Professional baseball league.  Although he never found out for sure, my Dad suspected that he might have been what was once called a "love child", the result of a romantic fling after his mother perhaps went to one of my grandfather's games.

Who would think that from such humble beginnings my Dad would go on to work on both Wall and Bay Streets in the 1960s and 70s.

But those beginnings I believe shaped my father's character.  He treated everyone with kindness and respect, no matter whether he was dealing with someone who was unemployed or the CEO of a major corporation.

My father's parents divorced when he was only 6 or 7 years of age, and later his mother remarried.  I said she was a gorgeous woman, and her charms attracted a former officer in the Canadian military, one who was educated and taught my father how to behave in polite society.  My step grandfather was no Saint however, among his vices were drink, women and gambling.  A university education is nice, but it doesn't say anything about a person's moral being.

But my Dad was always grateful to his step father.  He moved the family from that northern mining town to a big city.  My Dad's stepfather was educated and well read with the letters CPA after his name.  It is because of this man that my father grew up to be comfortable in a higher strata of society. Dad was convinced that had the family stayed where they were that he would have ended up working underground.

But my father did not forget his more humble roots.  He always treated everyone, regardless of their income, education or social status, the way he wanted to be treated.  

I won't go into detail about everything he accomplished, but there is one story that I will always remember, it was told to me by my mother sometime after my Dad had retired.  My parents would go down to Florida to escape Canada's winters, and one year they made a stopover in New York, where my father had worked for a Canadian financial institution starting in the sixties.  

While in NY he had managed the bond desk for his employer.  Going back to NYC sometime around 1999 my Dad decided to go visit the building he used to work at in the Wall Street district.  It no longer housed the firm he had worked for, and he noticed that the large brass doors were badly tarnished.

He poked his head in the door and peered around.  A security guard, who looked to be in his seventies according to my Mom said something like:  "Can I help you"?  My father explained that he used to work in that same building many years before and he was just taking a gander.  My mom said the old security guard scrutinized my father and then his face lit up as he said:  "Mr. MyDad'sName"????

It turned out this was the same security guard who had worked at the building during my Dad's time, My Dad remembered his name as well.  To make a long story short my Mom and Dad were given a guided tour of the building.

My Mom told me why that guy remembered my Dad's name.  "Your father made a point of knowing everyone's name, it didn't matter if they were the president of the company or the janitor".

He was a helluva a man.  

Year's later he was pushed aside, given a job he didn't want, managing a new local branch of a bank in the Pacific Northwest of the United States.  Regardless he endeavored to make it a successful launch. His branch was right on the street that divided the city between black and white, so my Dad made a point of hiring staff who reflected the community in which the business was located.

When it came time for the official opening some senior execs flew in from Toronto.  My Dad and Mom met with them in our family room, sitting around the bar, I was sent to my room down the hall. Up to that point in my life I had never heard my father swear, except perhaps for the word ass.  I soon got the Full Monty.  It wasn't until years later that I found out what happened, again with my Mother telling the tale.

Sitting around the bar in the family room of our house my Dad was asked what he was planning to do for the grand opening.  His answer...."Nothing special, the usual coffee and donuts".  One of the guys from Toronto then said:  "In that area???  Are you nuts???  You'll have every coon in the neighborhood in there".  

As my Mother later told me, and my Father reluctantly confirmed, Dad lost it.  Along with a profanity laced tirade Dad said he'd kick their Effing Asses all the way back to Toronto if they told him how to run his branch. 

Within a year he resigned.  If he hadn't had a wife and three kids to support I suspect he would have quit that very day.  We moved back to Canada and the rest is just prologue.

Which brings me to the reason I write this blog.  When it comes to stocks and investments, retail investors are harp seals swimming in waters infested with killer whales.   And the industry players who infest social media sites have no respect for retail investors, their only aim is to make money for themselves.  

Companies that have little to no value get pumped and promoted, with IR firms and other promotional outfits being paid to bring the retail herd into the slaughter house.  Analysts who work for Investment banks tout investment in companies when their firm is underwriting secondary offerings.  The rich get richer and too many retail investors get lured into stocks that are being sold high by the very people who are telling the retail crowd that they're buying low.

One point I wish to make abundantly clear.  I am no expert, but I will express honest opinions.  I will not write bullish opinion about a stock that I am selling, nor will I trash a company when I am buying it's shares.  That's not treating people with respect, and its not what my Dad taught me.

If you continue visiting this blog you'll see me referencing my Father on occasion and sharing some of the things he taught me.  One of his favorite bromides, especially with speculative stocks, is that "you'll never go broke taking profits" another was "don't marry a stock".

Peace out....