Monday, November 18, 2013

SEC attacks on reverse mergers

Here is a very interesting picture for you from the SEC website. 

This shows the annual number of SEC allegations in prior years on OTC companies. 

Notice that the allegations against reverse mergers are even more than the allegations on manipulation.

In 2010, allegations were made on shell companies and reverse mergers, ten on manipulation, six on securities offerings, and very few on accounting, disclosure and reporting violations and insider trading.

As a matter of fact, shell companies accounted for more allegations of wrongdoing than all other categories put together.

Moral of the story  for companies-- if you are have a shell company or are doing a reverse merger, get a competent securities lawyer.  I find in looking at these deals that in almost all cases, the people could have done it right but went and violated the rules anyway. Either they were the type of folks who violate the rules, or the type who didn't know any better, but they wound up in trouble anyway. 

Moral of the story for investors -- Good to think twice before gambling on these stocks, often better to avoid them altogether unless you are professional. You are swimming with the sharks for sure. 

Friday, October 12, 2012

Penny Stocks - Hot or Not

Two truths stand out about penny stocks. One, the penny stock market is full of sleazy promotions, overblown companies, and outright fraud. Two, it offers the only stock game I know if where you can find all the blazing excitement of a firefight with only a few bucks in hand, where it is at least theoretically possible, if highly unlikely that you can turn a few thousand into many times more.

It is probably impossible to catalog all the hazards of penny stock trading (you can never call it investing). The game is rigged to take money from the market and funnel it into the pockets of the promoters. Information is almost always overblown and sometimes downright fraudulent. Promotion trumps substance. The insiders reverse split the stock to squeeze out the little guy, issue themselves a ton of cheap stock, and then promote the price so they can dump it. Financial statements are sometimes wrong, created by amateurs, and in the Pink Sheets they are unaudited. The insiders can pay themselves excessive salaries, sometimes in stock that dilutes the stock held by the investor. Convertible notes, so-called "aged debt" is used to harvest money from the market.

Further, as a matter of social benefit, not that much of the loot falls into the company's bank account. Most of it goes rather to the promoters, whether they be the majority holders or some outsiders playing the stock.

Some managers do serial stock promotions, entering a fad business, and after that fails, entering another fad business, ad infinitum. They never really intend to succeed.

Let's face it, the penny stock market is a con man's paradise.

Why allow it? I believe that to squash the penny stock market would be to crush even more the entrepreneur, the legitimate little guy trying to get finance. The issue is how to get rid of the scam artist without harming the real people there.

I believe that the penny stock market, the small cap or micro cap market will be even more important in the future as providing an exit strategy for investors who went into crowdfunding deals. For them, the exit is will almost always be public market or selling the venture. In selling the venture, they will get cash or public stock most often.

From the point of view of the investor, the roller coaster ride of penny stocks continues to be a real testing ground for new investors -- kind of like the ten cent crap table in Las Vegas. You know as a beginner you are going to pay to learn the game. It is also a real macho endeavor, where you can test your skill and your nerve.

I am going to let you in on the guts of the game so you can better protect yourself and hopefully make some profit.

As always, never invest more than you can afford to lose, because it is likely that you will lose it. Very high risk territory only for those with the nerve and smarts to survive the battle there.

For openers, you might want to check out my books, "How to Pick Hot Reverse Merger Penny Stocks," and "How to Pick a Home Run Stock," on Amazon.

When you get scammed, you might want to contact me and see if you can sue the bastards,

Saturday, September 18, 2010

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Wall Street Myths -- the Stock Market Today

Wall Street is not fair.

People think Wall  Street should be fair. Wall Street is not fair. Stocks are not fair. Stocks and Wall Street is a way for the smart to legally transfer money to themselves from the stupid. 
Good news – It is not necessarily a way for the rich to transfer money to themselves from the poor. There are plenty of rich investors transferring their money to smarter investors every day. 
So the solution is know what you are doing. Read "How to Find a Home Run Stock." Get a copy on Amazon. 

Volatility is good

People think volatility is bad. If you are a pension fund, or a retired person, sure, volatilty is bad. But if you are an individual investor looking to get rich quick, volatility is good – if you know how to use it.
If you don't know how to use it, read above where it says “Wall Street is not fair.”

Speculation is the only way to survive

Risk taking has a bad name with most investors because (1) they cannot afford to lose what they have, and (2) they do not know how to handle “risk.” 
First, if you cannot afford to lose, please do not play the game.

Second, the biggest gains are in the stocks considered to be the most risky – but you have to know what you are doing in them so that the risk is neutralized. As most investors don't know, they lose and give “risk” a bad name.

Mutual funds are good investments?

If you want the highest possible return, get in the one stock that is going up the most and play that one stock. If you want to make sure you have lackluster returns, get in such a large group of stocks that you do not outperform the market. 
So if you invest in a mutual fund, you are guaranteeing lower return that if you invest in a few high performing stocks. Most mutual fund under-perform the market.
Further, mutual funds have to sell when the public is bearish and demanding their money back from the fund and buy when the money rolls in from over-optimistic investors at the peak of the market. So they are engineered to buy at the top and sell at the bottom. I ask you, is this a good idea?

Buying stocks and holding them for the long term may not be good idea.

If you can buy cheap and sell high – and this is very hard to do – you can outperform the market by a long shot.
If you hold the right stocks for the long term, yes that is good. However, choosing those right stocks may be just as hard, if not harder, than timing the market.

The more you look at the market, the more you will start to learn that you have to know how to pick stocks to survive. Buy and read "How to Find a Home Run Stock." Click on the link on this page to buy it from Amazon.  Learn the basic mechanisms of the market and profit.