Promoted Stocks: A Stream of Hot Air

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Promoted Stocks: A Stream of Hot Air

Promoted Stocks: A Stream of Hot Air by David Merkel, CFA of Aleph Blog

Let’s roll the promoted stocks scoreboard:

Ticker Date of Article Price @ Article Price @ 6/27/14 Decline Annualized Splits
GTXO 5/27/2008 2.45 0.022 -99.1% -53.9%
BONZ 10/22/2009 0.35 0.001 -99.8% -72.7%
BONU 10/22/2009 0.89 0.000 -100.0% -83.4%
UTOG 3/30/2011 1.55 0.001 -100.0% -90.7%
OBJE 4/29/2011 116.00 0.083 -99.9% -89.9% 1:40
LSTG 10/5/2011 1.12 0.011 -99.0% -81.6%
AERN 10/5/2011 0.0770 0.0001 -99.9% -91.3%
IRYS 3/15/2012 0.261 0.000 -100.0% -100.0% Dead
RCGP 3/22/2012 1.47 0.080 -94.6% -72.4%
STVF 3/28/2012 3.24 0.430 -86.7% -59.3%
CRCL 5/1/2012 2.22 0.013 -99.4% -90.7%
ORYN 5/30/2012 0.93 0.026 -97.2% -82.2%
BRFH 5/30/2012 1.16 0.620 -46.6% -26.1%
LUXR 6/12/2012 1.59 0.007 -99.6% -93.3%
IMSC 7/9/2012 1.5 1.000 -33.3% -18.6%
DIDG 7/18/2012 0.65 0.047 -92.8% -74.2%
GRPH 11/30/2012 0.8715 0.077 -91.2% -78.6%
IMNG 12/4/2012 0.76 0.025 -96.7% -88.8%
ECAU 1/24/2013 1.42 0.047 -96.7% -90.9%
DPHS 6/3/2013 0.59 0.008 -98.7% -98.3%
POLR 6/10/2013 5.75 0.051 -99.1% -98.9%
NORX 6/11/2013 0.91 0.110 -87.9% -86.8%
ARTH 7/11/2013 1.24 0.213 -82.8% -84.0%
NAMG 7/25/2013 0.85 0.087 -89.8% -91.5%
MDDD 12/9/2013 0.79 0.097 -87.7% -97.8%
TGRO 12/30/2013 1.2 0.181 -84.9% -97.9%
VEND 2/4/2014 4.34 2.090 -51.8% -84.5%
HTPG 3/18/2014 0.72 0.090 -87.5% -99.9%
6/27/2014 Median -96.7% -87.8%

My, but aren’t they predictable.  Onto tonight’s loser-in-waiting Windstream Technologies [WSTI].  This is another company with negative earnings and net worth, though it has a modest amount of revenue.

Think of it for a moment: this company has a “breakthrough technology,” and yet they were a hotel company within the last year or two.  That’s not how real businesses work.  I you have an incredible technology, but little capital, private equity investors will happily fund you.  You won’t try to do it in some underfunded corporate shell which tempts crooked financial writers to write fantasy.

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Now, you might look at the disclaimer in the glossy brochure which came to my house, which in 5-point type takes back all of things that they about in bold headlines and readable text.  For example:

  • It begins with: DO NOT BASE ANY INVESTMENT DECISION UPON ANY MATERIALS FOUND IN THIS REPORT.
  • The Wall St. Revelator is neither licensed nor qualified to provide financial advice. As such, it relies upon the “publisher’s exclusion” as provided under Section 202(a)(11) of the Investment Advisers Act of 1940 and corresponding state securities laws.
  • The Wall Street Revelator and/or its publisher, Andrew & Lynn Carpenter, dba The Wall Street Revelator has received a total amount of twenty five thousand dollars [DM: $25,000] in cash compensation to assist in the writing of this Advertisement, as well as potential future subscription and advertising revenues, the amount of which is not known at this time with respect to the publication of this Advertisement and future publications.
  • Mandarin Media Limited paid nine hundred thousand dollars [DM: $900,000] to marketing vendors to pay for all the costs of creating and distributing this Advertisement, including printing and postage, in an effort to build investor and market awareness.
  • Mandarin Media Limited was paid by non-affiliate shareholders who fully intend to sell their shares without notice into this Advertisement/market awareness campaign, including selling into increased volume and share price that may result from this Advertisement/market awareness campaign.
  • The non-affiliate shareholders may also purchase shares without notice at any time before, during or after this Advertisement/market awareness campaign.
  • Non-affiliate shareholders acted as advisors to Mandarin Media Limited in this Advertisement and market awareness campaign, including providing outside research, materials, and information to outside writers to compile written materials as part of this market awareness campaign.

The disclaimer exists to cover the writers from legal risk, and what it tells us is that there are largish shareholders looking to profit by running up the stock price as a result  of the advertisement, enough to cover the $925,000 cost.

Such it is with a pump and dump.  One thing is virtually certain, though.  This is not a stock to hold onto.  Look at the stocks in the table above.  No winners, and most are almost total losses in the long run.  Manipulators love working with stocks that have no earnings and no net worth, because they are impossible to value for the grand majority of people.  New buyers, if they come in a group, can create a frenzy that raises prices.

That’s the goal of the advertising campaign: a short term “pop” that the sponsoring shareholders can sell into, letting a bunch of muppets take losses.

Again, never buy promoted stocks.  If they have to buy the services of others to promote the stock, it is a fraud.  Good stocks do not need promotion.  It’s that simple.

PS — the pretentiousness of the word “revelator” should be replaced by the simpler “revealer.”

Promoted Stocks: A Stream of Hot Air
Source: Pixabay

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David J. Merkel, CFA, FSA — 2010-present, I am working on setting up my own equity asset management shop, tentatively called Aleph Investments. It is possible that I might do a joint venture with someone else if we can do more together than separately. From 2008-2010, I was the Chief Economist and Director of Research of Finacorp Securities. I did a many things for Finacorp, mainly research and analysis on a wide variety of fixed income and equity securities, and trading strategies. Until 2007, I was a senior investment analyst at Hovde Capital, responsible for analysis and valuation of investment opportunities for the FIP funds, particularly of companies in the insurance industry. I also managed the internal profit sharing and charitable endowment monies of the firm. From 2003-2007, I was a leading commentator at the investment website RealMoney.com. Back in 2003, after several years of correspondence, James Cramer invited me to write for the site, and I wrote for RealMoney on equity and bond portfolio management, macroeconomics, derivatives, quantitative strategies, insurance issues, corporate governance, etc. My specialty is looking at the interlinkages in the markets in order to understand individual markets better. I no longer contribute to RealMoney; I scaled it back because my work duties have gotten larger, and I began this blog to develop a distinct voice with a wider distribution. After three-plus year of operation, I believe I have achieved that. Prior to joining Hovde in 2003, I managed corporate bonds for Dwight Asset Management. In 1998, I joined the Mount Washington Investment Group as the Mortgage Bond and Asset Liability manager after working with Provident Mutual, AIG and Pacific Standard Life. My background as a life actuary has given me a different perspective on investing. How do you earn money without taking undue risk? How do you convey ideas about investing while showing a proper level of uncertainty on the likelihood of success? How do the various markets fit together, telling us us a broader story than any single piece? These are the themes that I will deal with in this blog. I hold bachelor’s and master’s degrees from Johns Hopkins University. In my spare time, I take care of our eight children with my wonderful wife Ruth.

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