Why the stock market can be worse than a casino.....

I'm not the first to equate investing in the stock market with gambling, lots of people have compared the public markets to a casino.  And that's never more true than with speculative and money losing companies, no matter whether they're OTC penny stocks or those listed on more senior exchanges like the Nasdaq.

I'm not a big fan of casinos, in the past five years I think I've only been once, during a weekend trip to Niagara Falls Ontario.  In fact the only casinos that I've ever been to are in Ontario, twice to Niagara, once to Rama, and perhaps about ten times to an Indian run casino up near Port Perry.  And that's over the past 20+ years.  

If you don't include the stock market I'm not much of a gambler.  Besides the odd visit to a casino I might play a game of Hold 'Em with friends once or twice a year. 

So why do I think the stock market can be worse than a casino?  The reason is simple, I think its easier to walk out of a casino.

When you sit down at a blackjack table and start betting sometimes you'll hit a a streak. Depending on the stakes you might go up a few hundred dollars in a short period of time.  Then you can choose to walk away, cash in and go home.  But once you leave the table you'll never know whether you would've have made even more money by staying, or if  you picked the perfect time to hit the cashier.  

While you're sitting at the table you can bemoan or congratulate yourself for not taking another card based on what the player to your right draws.  But once you leave its over, you'll never know whether you left at the right time.

The stock market is different.  Maybe you're watching a stock, my favorite hypothetical ticker symbol ABC, and its trading for $5.  You don't buy but you are watching.  Then big news comes out and it climbs 40% in one day, going to $7.  DAMN, I COULD'VE TURNED $10,000 INTO $14,000!!!

Maybe the reason you didn't buy ABC was because your money is tied up in another company, XYZ where you have 1,000 shares and its trading at $10.  You keep watching ABC and after its big 40% climb it pulls back and settles once again at $5.  Your 1,000 shares of XYZ aren't doing anything, still worth $10 each....so you dump them and use the money to buy 2,000 shares of ABC.  

So what happens?  Unlike a blackjack table where you'll never know what cards you would have been dealt after you leave the table, with stocks they keep trading and you can keep watching. Maybe XYZ, the stock you just sold for $10 gets big news of its own and climbs to $15, while the share price of ABC, instead of rebounding off the $5 price you bought in at, it loses support and falls even further to $4.  

Dontcha just love the market?

If you've ever played hold 'em then you probably have seen someone fold their hand and then ask to see what the flop would've been.  Then they want to see the turn card and the river.  Its happened to me. Say you're dealt a pair of jacks, after going ten or more hands of seeing twos and nines.  "Finally" you think, "a hand I can play".  Then the big stack tries to force you all in and you have a decision to make.  Do you risk your entire stack knowing full well you could be going up against AA?  If its a game with friends in your basement you might fold and then ask the dealer to draw out the flop, turn and river cards to see if you made the right choice.

That's sort of what the stock market is like, only worse....because the table never closes.  ABC and XYZ will probably be trading for years and you'll be able to look back whenever you want, to either congratulate or kick yourself.

And there's another reason I consider the stock market to be worse, social media. 

One of the things I don't like about casinos is that I often find the people in them to be anti social.  I'm a friendly guy, a talker....but at a casino table I find an awful lot of people who are deadly serious.  I assume that to be because they're probably gambling because they're in financial trouble and hoping lady luck provides them with a quick fix.  Its depressing.  When I see someone who's in a good mood and relaxed, that's someone I figure who is there for the right reasons, for fun.  I also find they're the types who tend to be lucky.  

My last trip to Niagara I walked out after about an hour with about $150 more than I walked in with....I think its part of that whole "law of attraction" thing. But I digress.

Where was I?  Oh yeah....why social media makes the stock market worse than a casino.  

Imagine going to a casino and being badgered to play at one table or another, or sitting down at a slot and having someone come up and start telling you the machine you're playing, that its a piece of junk that will never pay out.  That's what stock social media sites are like with all the pumping and bashing.

Some people say that comments posted to a message board or to sites like Stock Twits or Seeking Alpha don't matter.  I have a two word reply to that view, and the first word is Bull.  

Yahoo Message Boards, StockTwits, InvestorVillage, Investorshub, Stockhouse, RagingBull, SeekingAlpha, MotleyFool, InvestorsHangOut, 

That's just the tip of the ice berg, there are countless forums and social media sites where investors can go to read and express views on just about any stock trading anywhere in the world.  Why?  If message boards and such have zero impact why are there so many of them?  Because, in my not so humble opinion, they do.

Ultimately stocks trade on supply and demand.  Cards on the other hand, its luck of the draw.  

Every investment social media site is almost like a casino on the Vegas strip.  Each one vying for customers, and when you go in you'll be told what tables to play and which games to avoid.  In my opinion, if you're smart.....you won't listen.

Resverlogix - A Phase III clinical trial targeting Diabetes and Coronary Artery Disease

Full disclosure right up front, I have been invested in Resverlogix since early in 2014 and hold, what I consider to be, a fairly substantial position.  It trades in Canada on the big board TSX under the symbol RVX, while in the US it trades OTC Foreign with the symbol RVXCF.

This company came onto my radar when I was looking for companies engaged in research for the treatment of diabetes, a disease my late great father suffered from.  It represents a highly speculative investment for me and I would not recommend it to anyone.  In fact I've been hesitant to write about it on this blog because of the risks.  

So why did I finally decide to write about it here?

The answer is simple.  Ego.  Nothing more nothing less.  

While I fully acknowledge the risks, with risks come the possibility of rewards.   And if Resverlogix succeeds with their Phase III trial of lead compound RVX 208 known as Apabetalone, then I believe the rewards will be beyond spectacular. If it fails?  Then I expect the share price to absolutely crater.  

The reason I say ego is because if Resverlogix succeeds with their trial I don't want to appear like a 'Johnny come  Lately' touting what a great investment I made.  And if it fails, then I own that too.  Its my money at risk here.

Quite frankly, when it comes to speculative investments, I think there a lot of people who have what I'll call the "Homer Simpson Approach", thinking only of the rewards while totally ignoring the risks involved.

I'm a huge fan of 'The Simpsons' and here's a clip that illustrates the mentality of many retail investors risking money on highly speculative stocks in my opinion.

Okay, so what's this phase III trial all about?  

The trial is called BETonMACE.  BET refers to the fact that RVX 208 is a Bromodomain and Extra Terminal domain inhibitor.  And MACE stands for Major Adverse Cardiac Event.  So in a nutshell the purpose of the trial is to see if RVX 208 (or Apabetalone) can mitigate the occurrences of Major Adverse Cardiac Events in patients suffering from a type of Diabetes called Diabetes Mellitus along with Coronary Artery Disease (CAD).  MACE includes things like heart attack, stroke and obviously death.  

There is a lot of heavy science involved here, and as I have disclosed on this blog before, I have neither a medical nor a scientific background.  Yes I did take science courses in both High School and University, but this science is far too advanced for me to provide commentary beyond a general overview.  

Resverlogix is involved in a relatively new field called Epigenetics. Most people understand what Genetics is, DNA and all that.  Epi is Latin and means above.  What Epigenetics is about is something referred to as writers and erasers, basically above the genetic level, turning things off and on.  

The BETonMACE trial is double blind, randomised, parallel group and placebo controlled. What the company is trying to prove is that with RVX 208 the time to a Major Adverse Cardiac Event (MACE) will be longer and its what is called an Event Based trial.  What that means is that in the different arms they will be measuring the length of time to a MAC event.  Ideally those taking RVX 208 will be free of a MAC event longer than those in the other arms of the study, or maybe not suffer one at all. 

For those with the background and/or patience to understand and research the trial here is a link to the information on clinicaltrials.gov:

https://clinicaltrials.gov/ct2/show/NCT02586155

Rather than trying to explain my understanding of things I will direct you to a couple of resources. Those sufficiently intrigued and wishing to conduct further research can start with these links, but there are many other resources available beyond what I will provide.

The first is a corporate presentation which includes other fundamental data beyond the science like financing and information about share structure:

http://www.resverlogix.com/upload/media_element/229/01/rvx-bio-2016-presentation---final.pdf

The second is from an analyst engaged by the company to provide coverage:

http://www.stonegateinc.com/reports/RVX_March_2016.pdf

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Now onto more familiar terrain.  I am guessing there might just be one or two readers who are surprised to find that I am invested in a Biotech company given some previous posts I have done about Ziopharm.  

I have nothing against Ziopharm as a company and I sincerely hope they are able to develop a treatment or cure for the various forms of cancer they're targeting.  What I don't like is pump and promotion.  

Contrasting Ziopharm with Resverlogix I am willing to bet proverbial dollars against donuts that many Biotech players have never even heard of Resverlogix.  And likewise I would wager that most have come across something somewhere about Ziopharm, either on a message board, a CNBC mention, or even an email blast from an anonymous promotional outfit.

Go onto sites like Twitter, StockTwits, Yahoo Message Boards, InvestorVillage or any other multitude of stock social media sites and you're not going to see messages hyping RVX - RVXCF, You won't see posters telling people: "You gotta get in now, this is gonna explode soon"!!!  Why not?  I'll leave readers to answer that question for themselves, but I will suggest the fact that the company is well capitalised precludes the need for this type of activity.

Do note, Resverlogix has engaged in some IR type activity, hiring the aforementioned  StoneGate for example, to provide analyst type coverage.  With development stage companies it comes with the territory.  For small small and microcap companies to garner exposure its very common. For me its a matter of degree, and I use volume to gauge whether or not I think a company has gone too far.

Resverlogix has not grabbed the attention of the investment world, not judging by the volumes trading on a daily basis.  Over the past 3 months there have been many days with less than 10,000 shares trading hands, and only one day over that time frame with more than 100,000 in volume.  That was March 17th when just over 102,000 shares were bought and sold.  The trading is incredibly thin.

Look at some Biotechs that have shot up and seen massive gains.  Note the volumes before the PPS went up by hundreds of percentage points.  Those who bought in when things were quiet and the trading was light did very well.  Of course there's always the risk that things will remain quiet, that's the price of admission.

This is a risky investment, and given the volumes its not going to attract the attention of day traders looking for a quick flip.  Once again this isn't a recommendation to anyone....those risking money here, I hope they make huge profits, but I hope those risking $$$ here can also afford to lose it.

I'll leave it there, I do think the chart looks bullish right now but with the volumes being so low I view the chart as being less reliable.

I will add in one point on short interest, its almost entirely non-existent.  While many high flying biotechs have awoken the bears of the market, Resverlogix by contrast has just 1,500 shares shorted as of the most recent update to May 31st 2016.  That's not even 1/100th of a single percentage point of the roughly 105 million outstanding shares.  Short interest on RVX has never been high, you would have to go back almost two full years to find a time when it rose to even 1 full percentage point, back in July of 2013.

Cheers.

Ellis Martin Report pulls Nemaska interview from their You Tube channel...

An interesting comment was put up on my Seeking Alpha instablog on a post about Nemaska Lithium.  The post had the subject line:  Why I got off the Nemaska Train Yesterday.  It was published on April 21st, before the birth of Avoid The Bag.  

In that post I included a link to an interview that Nemaska Lithium had done with The Ellis Martin Report, noting the extensive reach of this promotional firm with a radio network broadcasting into a lot of major US markets, places like NYC, Seattle, Houston, DC and more.

The comment came from someone with the user ID EllisMartinReport, representing himself as Ellis Martin.  In point of fact I believe it to be genuine.  I am as yet unable to verify the identity, but that ID has been on Seeking Alpha since 2010.  In the comment (which I will include) EllisMartinReport said the interview with Nemaska had been removed from their You Tube channel, and in fact it has been.

Here is the old URL:  https://www.youtube.com/watch?v=hKwgoxi8x0E&feature=youtu.be

There are also some other interesting comments which I will now share, to read it on Seeking Alpha just go to my original Seeking Alpha instablog post linked above:

*****************************************************************************

Hi Joe! 

After pulling my youtube piece on Nemaska from youtube this morning, I googled to see how the company may have been using me and/or my piece further. That's when I found your blog. 

It is absolutely true as you say in that most companies pay me for the exposure of their soft interview to my audience. I disclose that fully on my website and my radio program. I was asked by a friend as a personal favor to do a friendly interview on the company and another lithium company (PE) when they visited in Los Angeles. I reluctantly agreed, knowing the the lithium space might be over-hyped and these companies probably wouldn't pay for the advertising and audience that I offer. 

Note: How many people do you know that personally own an electric car? Secondly, do we not have an oil glut? I could go on and on. Does Nemaska have the best real estate in Quebec province for lithium? Probably yes. Is the lithium space a potential bubble? Probably. 

Was I paid by Nemaska for the interview? Much to my chagrin, absolutely not. Did they promise to do so? No. Was everything in the interview stated true? Most likely. I have received a comment or two from investors in NMX thanking me for my report even though they believed it was paid for...thanking me nevertheless. 

But I must state categorically in this and perhaps other blogs where I find information like this posted about my segment with NMX, that I do not recommend, nor do I support investment in this company or the lithium space, nor have I ever been paid to do so. As I've said to many who have asked and many who haven't, I am not a financial adviser or expert. I am a paid broadcast journalist and interviewer. 

I regret conducting the interview or airing the piece on my network, which was limited to VoiceAmerica.com and not the terrestrial radio stations you listed which are certainly part of my overall network. The VoiceAmerica Business Channel and YouTube alone are more than adequate in conveying a message however. 

Furthermore and finally...does anyone remember the rare earth space? Enough said. Thank you for allowing me the opportunity to publish this. Joe, you're a sharp guy. 

Yours, 

Ellis Martin. The Ellis Martin Report.

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There seems to be a lot of subtext here for those adept at reading between the lines.  Of course that`s assuming the message is genuine, and I believe it is.  What I find of particular interest is the parts in bold, that emphasis is my own not Mr. Martin's.  

It appears the interview was done as a favor, however from the tone of the comment I detect that Mr. Martin was likely expecting some kind of remuneration,  But it seems nothing was contractually agreed to and now he's more than a little put off in my opinion.

Does Mr. Martin have cause to be ticked?  If things played out here the way he suggests, then yes I do.  This interview took place on March 3rd of 2016 and was put up on The Ellis Martin Report's You Tube channel one day later on March 4th.  Did the interview have any impact on the trading of Nemaska`s shares?  I will let you be the judge, just look at what happened after that March 3rd date, both volume and the PPS exploded.

Was this the result of the interview?  That's impossible to say conclusively, but I do think it had some impact.  Of course Nemaska has been getting a lot of exposure lately.  The Midas Letter, Investor Intel, InvestingNews, the Las Vegas Lithium investor show, DecisionPlus...and likely a few more.  

I will keep watching Nemaska even though I no longer have any position, long or short.  I will be watching to see how things play out as they move closer to actual production sometime in 2018 barring any delays.  

Will Nemaska rebound?

I first started writing about Nemaska last year over on Seeking Alpha where I post under the same user name that I employ here, Joe Retail.  That was back when NMX was trading for about 15 cents on Canada's Venture exchange.  

http://seekingalpha.com/instablog/15663412-joe_retail/3902216-lithium-americas-and-nemaska-charts-and-insider-buying-have-me-bullish

I rode it for more than a 600% gain, but ultimately left a lot of upside on the table, exiting well before it hit its all time high up near $2 CDN.  That's okay, even when I wrote about getting off the Nemaska train I acknowledged that I was likely leaving too soon, that there was in all likelihood more upside.  I shared that with another SA blog post on April 21st, which was just before I started publishing my own blog here at Avoid The Bag.

http://seekingalpha.com/instablog/15663412-joe_retail/4875517-got-nemaska-train-yesterday

I admitted liking Nemaska even when I was selling, and in fact I still do....from a fundamental perspective.  I know, I can just hear both of my regular readers saying:

''FUNDAMENTALS'!?!?!  

''You're always writing that the fundamentals are already priced in, that's its old information that barely registers when you're making trading/investing decisions''.

And that is true, and ultimately its why I sold.  The lane that Nemaska was riding in on the investment freeway started going too fast for my liking, things were so good that everyone was moving in and I figured it was due for a correction....my timing could have been a lot better, but as I write so often, better to get out too soon than too late.

What do I like about Nemaska?  I have a patriotic streak to me, and I lived four years in la belle province de Québec, et franchement, Québec me manque.  Oooops, sorry.....latent French slipping out from my time living in French Canada.  I share the opinion that lithium is going to be hugely important, and a mine not only in Canada but also in my favorite province of Quebec, that's beyond awesome.

But as I've also written a few times before, a lesson from my late great father was not to fall in love with a speculative stock.  And with Nemaska not projecting an operating mine until 2018, there's still a lot of speculation left with Nemaska.  Everything so far has gone smoothly, but they're not yet in production.  As they get closer to to an actual working mine, a few snags and road blocks are probably to be expected.

Another concern is dilution.  Back in 2015 when I first bought in the number of issued and outstanding shares was around 190 million.  As of May 31st of this year that number had increased significantly, by about 45 million.  That's an increase of almost 25% to over 235 million.  

Also there's a chart you can find on line, several actually, which show the life cycle of a mine from start up to production.  The chart shows a rise, a fall and then another rise, with a trough in between. If Nemaska follows the pattern it should start on an marked uptrend sometime prior to full production in another two years or so. 

I don't think this chart pattern is one size fits all, but as a general guide I believe it can be useful. I would share it with you but I don't want to infringe on any copy written material.  You can google image search it and look at a few examples if you wish.

Nemaska, thanks to promotional efforts with Ellis Martin, The Midas Report, the Vegas Lithium investor show, and probably one or two others that I'm missing, it has had one helluva run.  And even though I am out right now I still check it from time to time.  The trough that the life cycle chart shows is the period when the hard work of building the mine is carried out, before it goes into actual production.  

We shall see how it plays out over the next couple of years.  In the meantime I'll keep looking for slow moving lanes on the investment speedway that look like they may start moving in the future.  

Is a reverse split ever a good thing? China Recycling Energy (CREG)

For every rule there is an exception, or so the story goes.  That is never more true than in the public markets.  No one single indicator, whether fundamental or technical, is right 100% all the time.  It couldn't be, the market couldn't function if it was.  

If, for example, insider selling was "always" bad and was guaranteed to lead to a falling share price, then pretty much everyone would start jumping ship whenever a company's stock reported insider sales.  But if everyone is selling, that means there's no buyers.  Its that old analogy I use all the time about a football game with both teams lining up on the same side of the ball, the game wouldn't work, and neither would the markets.

Which brings me to the subject of reverse splits.  Like insider selling, consolidations are generally considered to be negative events, and its easy to understand why.  Share consolidations are most often the result of a falling share price, and are usually employed so that a company can maintain its listing on an exchange like the Nasdaq or NYSE.  

A reverse split cures the deficiency in the share price, by multiplying the PPS by 10, or 20 or whatever ratio is decided upon.  But it only treats a symptom, not the actual disease.  A stock price falls because of a lack of investor confidence.  While consolidating the number of shares fixes, at least temporarily, the share price requirement to remain listed on a senior exchange, it does nothing in of itself to fix the investor sentiment which caused the share price to fall in the first place.

Shares of China Recycling Energy (CREG) were consolidated 10:1 on May 26th after having fallen all the way to 26 cents.  The reverse split had the effect of immediately raising the PPS over the Nasdaq's required level of $1.00 which, if maintained for 10 consecutive days, will put the company back in compliance with the rules of the exchange.  Which leaves two days as of this writing.

I think these two days could prove interesting.  I'll explain why at the end.

I have been holding CREG since the summer of 2013, for almost 3 years.  And while I did sell a small number of shares when it spiked up around $5 in that same year, I held onto the vast majority.  

How did CREG come to be on my radar?  

I found China Recycling when researching small cap holdings of the Carlyle Group.  Years ago, back around 2000, I had done the same thing, seeing what publicly traded companies Carlyle held.  For those unfamiliar Carlyle is a who's who of conservative politics, with luminaries such as Reagan National Security advisor Frank Carlucci and George H.W. Bush's Secretary of State James Baker having been listed as board members.  In fact George Bush the elder reportedly did consulting work for them after serving as President.

Back in 2000 or 2001 I came across a company called Equinix trading under the symbol EQIX which was held in one of Carlyle's funds.  I invested in it and did very well.  After taking a large gain it also did a reverse split, in 2002, at a ratio of 32:1.  I bought in again after that reverse split but I didn't have the fortitude to hold on and eventually bailed at a loss.  Seeing where EQIX is trading now, for obvious reasons, I regret my decision.

But that's enough ancient history, besides its painful to remember :-)

So what has caused CREG's share price to languish so incredibly?  It was trading (as mentioned) up around $5 as recently as 2013, and fell to less than 30 cents necessitating the 10:1 consolidation.  

Frankly....I don't know, I can only guess.  I know I don't write much about fundamentals on this blog, viewing it as old information which is already "priced in" to a company's market capitalization.  But for those who are big on fundamentals CREG's don't look bad at all.   Post reverse the company is earnings positive with EPS listed as $1.78 as per WSJ.com. That puts their PE ratio at less than 1.5 as per the same site.  (Wall Street Journal Quote for CREG)

The first word in their company name might explain the low valuation however, that being China. After stories like Sino-Forest investors are justifiably cautious about Chinese companies.  But frankly, I believe there is more to it than that.

I wouldn't be the first person to see a stock plummet, and then to blame it on manipulation, but that is what I am going to suggest as a possibility.  Short selling is a legitimate market activity, and CREG has not been immune.  According to Nasdaq's site the number of shares short was just over 250K as of May 13th 2016.  I am assuming that number to be accurate  and split adjusted, which would have put it around 2.5 million prior to the share consolidation.

That's not a huge number certainly, with 8.3 million shares listed as outstanding its only about 3% of the total. Last year however the number, (before the share consolidation) was up around 5 million. If you look at CREG's volumes over the past 2-3 years, that's a lot considering there were many days the stock didn't even trade 10,000 shares.  (Price/Volume History as per Yahoo Finance)

Another point I should mention about Carlyle, which is currently (as per Nasdaq's site) listed as CREG's largest institutional shareholder with a little over 500,000 shares as of March 31st 2016, or over 5,000,000 pre-split.  Carlyle used to own millions more, but over the past 2 years has been selling.  In the last 3 months Nasdaq reports them having sold a little over 7% of their then remaining holdings.  But the fact they have maintained what I consider a still sizable position has me encouraged.  They had a deal in place some time (1 year or more) ago to sell all their holdings, but apparently it fell through.

To be clear, I am not recommending an investment in CREG, I am just putting this out there for anyone interested in reading.  My history with this stock, after all, is hardly stellar....quite the opposite. But that old saying about a broken clock being right twice a day, well maybe its time for the hands on CREG's clock to come around to a bullish hour.

After the 10:1 reverse CREG behaved as might be expected, it tanked.  Remember what I wrote about a share consolidation treating a symptom and not the disease?  Just two days after the reverse the PPS fell all the way from $2.60 to $2.00...almost a 25% drop.  But since then its rebounded, hitting 2.60 again inter day on June 7th and closing at $2.59

So why do I think the trading over the next couple of days could prove interesting?

My thesis, for lack of a better word, is that CREG has been the target of smart money accumulation, by parties that are not just "smart" but that have incredibly deep pockets as well.  That's what I'm gambling on.  EQIX all those years back saw similar swings and an even bigger reverse split.  And look where it is now.

I use the word "gambling" on purpose, because that is exactly what it is.  If I was 100% certain that CREG was going to follow the same path as EQIX and be worth hundreds of dollars per share in the coming years, I wouldn't be writing about it on a blog.  No, I would be taking out the equity in my home, my cars, maxing out my line of credit....I'd be buying every share I could afford.  But I'm not sure.

But if my gamble does end up being right, then these next two days represent a crucial time for CREG's share price as it must close over $1.00 on each of June 8th and 9th to be back in compliance with the rules of the Nasdaq exchange and to avoid being relegated to the OTCBB.  With that reality in place, and with any remaining retail investors (who knows I might be the last one) being notoriously price sensitive, then the PPS falling anywhere close to that $1 mark could conceivably shake free a good number of whatever shares remain in retail "dumb money" hands.  

I think you can probably guess what my intention is if that happens.  

Eguana Technolgies mentioned in NY Times article about "FREE" energy

I wrote about Eguana Technolgies back on May 1st of this year already:

The Lure of Green Energy

The world is changing, but then that's nothing new.  Twenty years ago I in 1996 I was not writing a blog that's for sure.  Back then if someone was surfing they were near a beach, and the web wasn't something world wide, it was something spun by a spider.  Tech savvy individuals who were ahead of the "information age" curve, they were connecting at baud rate speeds of 28.8 kbps, and were excited about the advance to 33.6.    

Even cell phones back at that time, they were bulky analog things, my first one was commonly referred to as "the brick", with a battery that was thicker and heavier than any of the smart phones commonly used today, phone and battery together.  And smart phones which are everywhere now, they were thought to be too expensive when they first started hitting the market it 2006 and 2007.  

The world changes fast.

We have already seen an explosion in the market capitalization for junior mining companies engaged in the development of lithium projects.  The vast majority of them are not yet active, but that hasn't stopped investors from storming in and sending share prices up 100, 500, even 1,000 per cent in just a year or two.  

Those who get in front of the herd can make a lot of money.  The difficulty is in deciding where the herd is going to go next.  

As regular readers of this pathetic and nearly invisible little blog already know, I like to state my biases up front.  As I disclosed in the May 1st piece I wrote on Eguana, I am invested in this company so my opinions should be viewed in that light.  All my readers, all three of you, know that I don't put much stock in fundamental data.  I view all fundamentals as being old information, and as such I already consider it to be priced in.

What I consider essential when investing in speculative stocks, is to get in before the herd shows up. That comes with risks however, because although I may get in before the herd, there's always a chance that the sheep will ignore my little corner of the investment pasture and walk right on by.  

When I first wrote about Eguana it was trading at 15 cents on the TSX Venture exchange (symbol EGT.V).  This past Friday it closed at 28 cents, so its already fast approaching a double for me, but I still see the potential for a lot more upside.  Part of the reason is this recent mention by the NY Times.

A Suburban Experiment Aims for Free Energy

In that article is one little snippet mentioning Eguana:

"Half the test homes also have energy storage systems with LG batteries and Eguana inverters, which help manage the flow of electricity between the solar installation, home and grid, to allow researchers to test and compare how much value they add".

You may have heard the expression "when someone else blows your horn the sound travels twice as far" or something close to that.  I like the fact that's there's no mention of Eguana as a publicly traded company in this NY Times story, and at least so far, there has been no PR issued from Eguana touting the news.  

Does Eguana have the potential to attract investors the way junior mining companies engaged in lithium projects have?  Ultimately I don't know, but I do see it as a distinct possibility. Technically the chart is pointing heavily toward overbought right now, which in the short term could translate into a pull back.  But I have seen overbought stocks stay that way and continue climbing before.  Lithium mining caught the attention of investors, maybe battery storage systems and the concept of free energy can too.

Who knows?  Maybe in another ten or twenty years we'll be talking about paying electricity bills the same way we talk about old clunky cell phones and 28.8 baud rate modems now. 

Do note again that I consider Eguana to be highly speculative, and it is not a suitable investment for everyone.  There are no slam dunks in the markets, and certainly not with penny stocks.  It is my full intention to sell at some (as yet undetermined) point.  And I fully expect to sell too soon.  Just as with Nemaska when I disclosed selling I also expressed the opinion that I considered continued appreciation in the share price of NMX to be very likely, and that's exactly what happened.  

I sold Nemaska too soon, but a conversation with my brother helped ease the pain after leaving over 50 cents per share in profits on the table, he told me:  "Cry into the money you made on a 500% gain".

With the prospect of Eguana being part of a revolution that leads to electricity bills of just $10 or perhaps even $0, I like the chances for at least another 500% gain....and if I sell too soon, allowing those who end up with my shares a chance at big gains themselves, its all good.

You'll never go broke taking profits folks.  Cheers and good luck

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.