Promoted Stocks: Like a Cardinal, The Price Action Will Be Red

Promoted Stocks: Like a Cardinal, The Price Action Will Be Red by David Merkel, CFA of The Aleph Blog

Okay, let’s roll the promoted stocks scoreboard:

Ticker Date of Article Price @ Article Price @ 1/20/15 Decline Annualized Dead?
GTXO 5/27/2008 2.45 0.011 -99.6% -55.6%
BONZ 10/22/2009 0.35 0.000 -99.9% -72.5%
BONU 10/22/2009 0.89 0.000 -100.0% -82.3%
UTOG 3/30/2011 1.55 0.000 -100.0% -92.0% Dead
OBJE 4/29/2011 116.00 0.069 -99.9% -86.3% Dead
LSTG 10/5/2011 1.12 0.004 -99.7% -82.5%
AERN 10/5/2011 0.0770 0.0000 -100.0% -93.4% Dead
IRYS 3/15/2012 0.261 0.000 -100.0% -100.0% Dead
RCGP 3/22/2012 1.47 0.003 -99.8% -89.5%
STVF 3/28/2012 3.24 0.360 -88.9% -54.2%
CRCL 5/1/2012 2.22 0.004 -99.8% -90.2%
ORYN 5/30/2012 0.93 0.013 -98.6% -80.1%
BRFH 5/30/2012 1.16 0.466 -59.8% -29.2%
LUXR 6/12/2012 1.59 0.002 -99.9% -92.3%
IMSC 7/9/2012 1.5 0.910 -39.3% -17.9%
DIDG 7/18/2012 0.65 0.003 -99.6% -89.1%
GRPH 11/30/2012 0.8715 0.021 -97.6% -82.5%
IMNG 12/4/2012 0.76 0.010 -98.7% -86.9%
ECAU 1/24/2013 1.42 0.000 -100.0% -98.4%
DPHS 6/3/2013 0.59 0.003 -99.5% -96.0%
POLR 6/10/2013 5.75 0.001 -100.0% -99.5%
NORX 6/11/2013 0.91 0.008 -99.1% -94.7%
ARTH 7/11/2013 1.24 0.200 -83.9% -69.7%
NAMG 7/25/2013 0.85 0.013 -98.5% -94.1%
MDDD 12/9/2013 0.79 0.022 -97.2% -95.9%
TGRO 12/30/2013 1.2 0.056 -95.3% -94.5%
VEND 2/4/2014 4.34 0.655 -84.9% -86.1%
HTPG 3/18/2014 0.72 0.008 -98.9% -99.5%
WSTI 6/27/2014 1.35 0.150 -88.9% -97.9%
APPG 8/1/2014 1.52 0.035 -97.7% -100.0%
1/20/2015 Median -99.3% -89.8%

It is truly amazing how predictable the losses are from promoted stocks, and that is why you should never buy them. Today’s loser-in-waiting is Cardinal Resources [CDNL].  The promoters purport that this company will provide cheap clean fresh water to the world, and will make a fortune off of that.  Now let’s look at some facts:

What commends this stock to you?  Is it:

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  • That it has never earned any money?
  • That the firm has had a negative net worth for the last four years?
  • That their auditors doubted on the last 10-K that this company would be a “going concern?”
  • That the company 12 months ago was known as JH Designs, which was in the “home staging and interior design services business?”
  • That the writers of the promotion got paid $30,000 to write the speculative fiction of the promotion?
  • That affiliated shareholders of CDNL paid another $670,000 to publish speculative fiction about the company to unwitting people in an effort to raise the stock price, so that they can sell their shares?

Here, have a look at part of the disclaimer written in five-point type on the glossy ad they sent me in the mail:

Resources Kingdom 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 Resources Kingdom 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.

Thus, we know who is sponsoring and profiting from this scam.  It is existing shareholders who want to sell.  I can tell you with certainty that you should not buy this, and that if you own it, you should sell it.  There is one significant party that implicitly agrees with that assessment — the company itself, which issued shares at a price of ten cents per share in 2014, according to the recent 10-Q, if you look at the balance sheet and cash flow statements.

Avoid this company, and avoid all situations where stocks are promoted.  They are bad news for all investors.  Good investments never need promotion.

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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.