Spotting the pumps easier than going long

This blog is not even three months old, and already I have managed to identify some stocks that, in my opinion, were inflated and due to come down.  Taking the PPS from my first write up on the following companies, here is how my bearish calls have performed as of this past Friday's close.

• May 8th  RYU.V   Down -18.9%
• May 5th  ZIOP     Down -27.2%
• May 17th KTOV   Down -54.9%
• June 12th ABRW  Up    +04.0%

My scorecard on bearish calls isn't perfect, but if ABRW does what I expect in the coming weeks and months, then I'll have to give myself an A+.  

As much as I'd like to pat myself on the back for my genius skills at sniffing out inflated stocks, it really wasn't that hard.  The way I see it this was all "low hanging fruit" so to speak.  Three out of those four companies, ZIOP, KTOV and ABRW were all hyped and promoted by an email blasting promotional outfit called StockReversals.  

I followed StockReversals long before I started this blog, and I've seen them pump a number of stocks that have all tanked.  In no particular order I've witnessed them pounding the proverbial table to drum up buyers for SBOT, MOBI, CLDN, LEJU and WBAI over the past 3+ years, touting long term value potential.  

If you want to check the charts on those stocks be my guest.  Those buying in expecting price appreciation over the long haul got creamed.  

RYU.V on the other hand was a stock I saw getting spammed all over a site popular for Canadian listed stocks, stockhouse.ca.  They'd just announced that Gwenyth Paltrow was going to promote their clothing line. I've seen so many celebrity endorsements for penny stock companies over the years, and have yet to see one deliver long term value to shareholders.

So why is identifying inflated stocks so much easier than finding companies with low share prices poised to make gains?

That's pretty easy to explain in my opinion.  Inflated stocks that are poised to drop big, they are SCREAMING for attention.  Why?  Simple....the smart money holders who want to sell need dumb money suckers to come in and pay the inflated price.  

Companies that are trading at or near their lows on the other hand, the good ones in my experience aren't experiencing heavy volume and don't have much in the way of news.  So it can be hit and miss trying to discern which ones might be good candidates.  

I have put out some bullish opinions on a couple that have born fruit though.  I wrote up EGT.V when it was 14 to 15 cents and it got up around 40 and is still trading in and around 28 to 30 cents.  And HMPR was at $1.81 when I expressed my reasons for being bullish and it just closed up over $1.90.

Hampton Road Bankshares is actually a company that I truly believe has the potential to deliver long term shareholder value.  That's not to say it is without risk, but to my eyes the fact that they are turning  a profit gives them a lower risk profile as compared to companies using their shares as capital to stay afloat.

Ultimately I think its every bit as important to know what to avoid as it is to know what to look for. Who wants to pay $6+ for a stock like KTOV only to have half your money wiped out in a matter of weeks.  

I've also mentioned some stocks that have come down, RVX.TO is one that I wrote about when it was trading at $1.34 and this past Friday it closed at $1.23 for a drop of 8.2%.   With RVX though I haven't seen any suspect pumping and table pounding all over social media....if that happens my opinion will change in all likelihood.  And if that does happen it might be reasonable to expect to see the PPS climbing well above even $1.34....only time will tell.  Ideally I'd like to see them succeed with the Phase III clinical trial.  

News Hype and Promotion boys and girls.  In my opinion that is the Unholy Trinity of the stock market that should be avoided.  Beware when something looks too tempting, things are not always as they appear.

RYU Apparel - Beware the lure of celebrity

One of the benefits of watching the markets over an extended period of time is that everything old becomes new again.  Bubbles spring up and get burst, promoters and talking heads tout stocks that become a flavor of the month before crashing, and different angles are used to try and grab the investing public's attention.

Back over 10 years ago a company called Warning Model Management started buzzing over news that they were going to be representing Paris Hilton, sending their stock on a wild ride.  It was a classic penny stock ''Pump and Dump'' scheme in my opinion.  Hilton was already represented at that time by the Ford Modeling agency, but that didn't matter as the stock for Warning Model Management went up over 1,000% with one individual reportedly pocketing over half a million dollars in profits:  (NY POST STORY).

More recently sports drink maker Fuse Science caught fire in 2011 with news that Tiger Woods was putting Fuse Science ''on his bag''.  He even did an interview about it that aired on CNBC:

Celebrity is a great thing, it can attract all kinds of novices to invest in a company as fans of the star buy in.  Which brings me to RYU Apparel.

Last week on a social media site called Stockhouse, which is popular for Canadian listed companies, users started spamming the boards about RYU Apparel.  One prolific user with the ID ''venturestockpicks'' went onto at least a dozen threads for different stocks with this message.

• Gwyneth Paltrow Promoting RYU.VN! Game changing news today out of V.RYU. Gwyneth Paltrow and her lifestyle brand is going to be promoting RYU clothing. RYU is a fast growing tech clothing brand that in their first month of opening outsold LULU Lemons first year of sales!  Very under the radar. Celebs coming on board now. This one will breakout over .20 very soon!

As noted before, the Paris Hilton news didn't lead to long term price appreciation for Warning Model Management, and notwithstanding Tiger's endorsement Fuse Science now trades for fractions of a single penny.  

Will RYU Apparel be different?  In my opinion, no.

If you check the filings for RYU at SEDAR you will see they have the usual ''Going Concern'' warning with respect to their ability to continue as a going concern.  In reading over their filings you will see that the company has been securing financing by garnering cash from private placements of their shares.

Do note that my opinion is for the longer term.  In the coming weeks perhaps RYU will spike higher. History certainly suggests that's possible.  But I have to question how much pull the name Gwyneth Paltrow will have.  

The actress is probably best known for the film Shakespeare In Love, which was made all the way back in the 90s. I'm old enough to remember it very well though, and I thought Ms Paltrow's performance was brilliant, I'm a fan.  But not  a big enough fan to invest in RYU.