Lost your marble(s)

What does the audience think of using materials highly susceptible to stains, in a rental building kitchen, then withholding the security deposit when things like coffee, oil, and other acids happen to stain the material after at least a year of everyday use.

Did you lose any money as BLGW was pumped to $1

If so... please let us know we would like to hear your story...

Get your ice cold stock alerts here...

If you follow a sell and hold strategy by taking the stocks that the promoters tell you to buy, and you sell them instead, you will make money. You will need to spread out your timing so that you are less vulnerable to some of the pops and pumps, but overall you will be in the black in the long run as most of these companies eventually trade to zero.

We are still working on the research for this portFAILio project, if you are interested in working, comment below.

http://pennystockalerts.com/  (why does this site have unclickable images from the WSJ etc.)

BLGW.ob

BLGW was being promoted heavily as it ran up towards $1. Subsequently, the stock has traded down to 23 cents losing more than 60% of it's value. It is always interesting to see stocks tank on "good news", especially while being unambiguously promoted. Maybe this one is just a coincidence... will have to look further.

The Goldman allegations... Bullish or Bullshit?

UPDATE: I was wrong about the call options, but the lawsuit is still bullshit! They may settle but they won't lose.

Here is a list of reasons why I think the allegations are BULLSHIT! The corresponding trade IMO is to buy the 170 JUNE call option for $5.55 10:30am/4.20.10

1. All of these deals were zero sum games. There was a buyer for every seller.  ABACUS was no different.
2. What duty did Goldman have to disclose "the seller" or the ultimate originator of the synthetic CDO.?...
3. Even if they did have a duty disclose who selected the securities in the portfolio or at least not to lie and say it was ACA when it wasn't... for the SEC to win they have to prove not only that GOLDMAN LIED but that these lies are what caused the damages. As far as I know (and I am no lawyer),  the buyers lost money because they didn't make the right bet, not because of WHOM selected the securities.

$1,000 portfailio challenge

Many of you are familiar with the traditional portfolio challenges where people invest an imaginary sum of money and compete against others to see who can grow their portfolio by the largest amount. We are putting an unconventional spin on a traditional contest... the point of the B or BS portfolio challenge is to see who can LOSE he most money.... the winner gets $1,000

Here's how it works....

1. Invest $1,000 in up to 5 securities listed on the OTCBB
2. You do not have to invest all 5 and you do not have to pick them all at once, but you cannot "trade"
3. Enter your selections here, using DISQUS, TWITTER, OR FB
4. The person with the portfolio value closest to zero will be PAYPALED $1,000 from paymens@justtradewith.us
5. Contest ends September 1st... all purchases must be made by August 1st

INDEX for OTC stocks

We are not sure why there isn't an "index" for OTC stocks, other than the facts that no one really cares and accurate data is tough to find.

UPDATE: There are no stocks that are really "representative" of the 3400~ issues. So the INDEX is going to be an aggregate of all issues, and their aggregate % change for the year, adjusted for reverse splits etc. If you have any suggestions for improving this "index" please comment. Once we have the data for a year, we will add the % aggregate change in the OTCBB for the previous years (and of course we will keep it current going forward).

OTCBB REFORM

IF you support reform in the OTC marketplace, click here and add your name

http://www.otcbb.ws/supporters.php

Frozen pipes are a good thing...

when investors stop getting ripped off...

Things you must know about companies quoted on the OTCBB

1. There are no shareholder approval laws
2. Certain dilutive investment are not reported fully - like PIPES using regulation D exemptions
3. Proceeds from dilutive fund raising is reported as INCOME on the balance sheet

Change?

Yes we can!

1. Is it really possible to change the status quo of fraud and low expectations in the OTC marketplace?
2. Is it really necessary to change the status quo of fraud and caveat emptor, and "that's the way it is" in the OTC marketplace?

My answer is YES! and to all the people who say otherwise, or "why bother?" I say (or quote) the following...

*OVER THE COUNTER, ABOVE BOARD: Fraud, especially in a public market like the OTC capital market is not just an innocent, zero sum game of dumb suckers who "deserve" to lose their money to more sophisticated, smarter people who know the game.. what fraud really does in this case is supply start up capital inefficiently to reward chicanery more than innovation. And we are not talking small numbers either... I believe that countless new companies, solutions, jobs, etc are lost pointlessly and there is finally something that everyone can do to change this fact. I will prove it:)
* Hugh Macleod, How To Be Creative: 5, 08-22-04 Nobody can tell you if what you're doing is good, meaningful or worthwhile. The more compelling the path, the more lonely it is.
* UNKNOWN nothing worthwhile is easy
* UNKNOWN If you keep doing what you’ve always done, you’ll keep getting what you’ve always gotten
* -Confucius "the journey of a thousand miles starts with a single step"
* Walter Sobchak: Smokey, this is not 'Nam. This is bowling. There are rules.
* Walter Sobchak: [shouting] Has the whole world gone crazy? Am I the only one around here who gives a shit about the rules? Mark it zero!
* the starfish story There was once a wise old man who used to go to the ocean to do his writing. One day as he walked along
the shore, he looked down the beach and saw a human figure moving like a dancer. As he got closer, he saw
that it was a young man, and the young man wasn’t dancing, but instead was reaching down to the shore,
picking up starfish, and very gently throwing them into the ocean.
“Good morning! What are you doing?” asked the wise man. The young man paused, looked up, and replied,
“Throwing starfish into the ocean. The sun is rising, and the tide is out. And if I don’t throw them in, they’ll
die.”
“But, young man, don’t you realize that there are miles of beach and thousands of starfish all along it? You
can’t possibly make a difference!”
The young man, listening politely, bent down and picked up another starfish, throwing it into the sea past the
breaking waves. Turning to the old man, he modestly replied,
“It made a difference for that one.”

Who is to blame?

LIVE DRAFT

The same logic that The Big Lebowski used to figure out who kidnapped bunny, can be used to figure out who is benefitting from stock scams, pump and dumps, misleading or untrue press releases and basically anytihng else that causes investors to buy something they shouldn't.

"It's like what Lenin said... you look for the person who will benefit, and, uh, uh..."

So who benefits from these stock sales... is it the companies? the PR firms? the Lenders?

Is there a law against hedge funds loaning out shares of companies they lend money to?

Anyone know?

UPDATE 11/24

funds cannot short shares ahead of a pipe

And, the S.E.C. says, it is illegal to use the shares obtained from the PIPE to repay the shares borrowed, since that would amount to having sold the PIPE shares too early.

The investor is supposed to buy other shares to cover the short position, and then sell the PIPE shares separately. If the shares are illiquid, there is a risk that prices will move, leaving the trader with a loss.

In addition, the S.E.C. says, it is illegal insider trading to sell the shares short if the seller knows a PIPE deal is coming, but that fact has not been announced to the public.

but can they loan these shares for a profit so someone else can short?

PIPE DREAMS and nightmares

DRAFT -- COMMENT PLEASE

Q: What is the difference between the Pink Sheets and the Otcbb?
A: The method of dumping on the OTCBB is way more veiled and sophisticated...

On the Pinksheets, the pumpers use 504 offerings, and distribute a bunch of free shares to their buddies and promoters and sell these shares directly to the public. On the bulletin board, it's a little more sophisticated and wholly accepted.

Most start up companies raise money from friends and family, then angels, then venture capital, then if they are lucky through the public capital markets.

Existing companies with revenues and profits can access growth capital by issing debt, selling to equity, issuing a secondary offering, etc.

Failing companies raise money with PIPES. The problem with PIPES is that the risk reward proposition is out of alignment. Companies that are controlled by a majority...

Too big to fail vs too small to matter

Previously published as "The long tail of stock fraud" UNDERGOING RE-WRITE

The long tail theory can be applied to fraud in the public stock markets. Instead of charting popularity to inventory on the x/y graph, as Chris Anderson does in his book,The Long Tail, the re-rederivation from the reference to the tail of a demand curve, is the relationship between losses (or the less quantifiable "attention") and the frequency of frauds.

There are about 3,000 stocks quoted on the OTCBB. These stocks are regulated by FINRA and the SEC and are required to file their reports. There are roughly 5,000 more quoted on the Pink Sheets These stocks DO NOT HAVE TO FILE with the SEC. Even the 3000 isues on the OTCBB that DO HAVE TO FILE financials with the SEC, can raise money under REGULATION D without having dto disclose the lender.

Pump and dumps on the pink sheets are unsophisticated and ... the shares are just issued to close groups pumped up and sold directly on the open market.

Pumps on the OTCBB are a bit more sophisticated Hedge funds invest via pipes and lend companies money, if the money is not paid back they are given stock or convertible stock istead and thne need a market to convert these shares back into their origial loan


The high amplitude segment of the chart is composed of well-known and highly publicized frauds: Enron, WorldComm, Michael Milken, Martha Stewart, and Ivan Boesky. (add MADOFF TO THE LIST- this article was written beforehand orignally) These cases are fodder for big law firms, the SEC, and the mainstream media. The "long tail" of this chart comprises the thousands of frauds, cons and general chicanery relating to small-public-companies, whose stock usually trades on less-regulated exchanges. In this tail, the total volume and frequency (and overall deleterious impact) is much higher, but the individual cases are relatively small. Novice investors1 are attracted to the potential for huge returns in these penny stocks; predators use schemes and mechanisms like fax spams, e-mail spams, chat room manipulation, misleading advertising and PR, pump and dump schemes, and 504 offerings2 to adulterate the markets and steal money. Fraudsters prey upon investors' psychology, flaws/loopholes in the law, and a system where those laws go unenforced. With relative ease they are able to create scams that go unchallenged, unpunished, and generally unnoticed. These affronts get little public attention, perhaps because they're just so prevalent in these markets. (Or perhaps are they so prevalent because they are unnoticed and unchallenged.) There is almost a baseline expectation of fraud in these markets. However, just because something is accepted does not necessarily mean that it is acceptable. This collective long tail of fraud is detrimental to a sense of fairness in society and to the integrity of the market on the whole. Confidence in the integrity of public markets is vital at any level and these frauds should not go unchecked because they are "too small". It is the small nature of the individual fraud, that makes it so effective, consequently creating the higher frequency and the long tail. The cycle then perpetuates itself leading to more frauds making each individual one all the more insignificant. It makes more sense for the bulk of investors burned in penny stocks to move on because, on an individual level, the stakes are too small to put up a BIG fight. But these are the very reasons why the creation of these schemes are so desirable for the criminals -- and that's also what feeds the tail.

The cases on the high amplitude side of the chart are the high profile shows. The Journalists and reporters want to write about them and cover them, the politicians want to regulate them, and the lawyers want to sue them. The media wants to cover the titillating tales of theft and scandal. Politicians want to legislate high profile cases. It makes economic sense for big law firms to start class action suits against the big frauds. Publicity can be garnered and fees generated. The small stories just don't make the cut: there are not enough pages in the paper, air-time is limited, resources are limited, and money is scarce. Most legislators could not be bothered with something so small and the SEC is overwhelmed and understaffed.3 It usually doesn't make sense for a lawyer or firm to make a case against these frauds and it makes even less sense for an individual to try and do so. The fallout of the long tail of the chart remains relatively quiet and is (unfortunately) greeted with a general complacency by almost everyone. These "islands" of crime and deception are kept intentionally small, to make a legal ordeal (or any crusade to "fight back") against the fraudulent companies uneconomical or undesirable. They fly under the radar because very few have the means to fight back, and the targets of the prospective lawsuits are often shell companies with few assets by the time the fraud is known. (The company has gone bankrupt, funds have been hidden offshore, etc.). It is not worth it for the law firm to spend $200k and 3 years to recover $20k in judgments or potentially collect nothing. People may not fight back on their own because they don't want to spend "good money after bad." Less understandably, they convince themselves that the lies and fraud are expected and just part of the market and that they could use the loss as tax write-off against gains. There are also intangible, psychological reasons why the people do not do anything about these scams. They do not want to admit to themselves, much less make a big deal to others that they fell for something so stupid. Not only are lawsuits costly and time consuming but there is a negative connotation about being litigious and looking to blame someone else for your losses. It makes more sense for the bulk of investors burned in penny stocks to move on because its just not "big" enough to fight. But these are the very reasons why the creation of these schemes are so desirable for the criminals -- and that's also what feeds the tail. It is the small nature of the fraud that causes/produces/leads the frequency to increase, thus producing the incredibly large tail. (we just need to create an index and show what the same value of stocks is worth year over year-- ) i can get data that shows the pipes invested and how these stocks go to zero repeatedly http://www.spamstocktracker.com/ http://www.nytimes.com/2006/03/15/business/15place.html?_r=2

For the most part, these small stock frauds were islands before the Internet. They were intentionally set up to be too small to matter (or too small to fight). They were impossibly small for each individual "mark". They were the "obscure books" that Anderson notes in The Long Tail. In the exact same way, the Internet provided "virtual shelf space" and cheaper search costs that has provided a way for users to "unite around a common symbol."

Unlike the retail long tail which is desirable, a long tail of fraud is not. The Internet can be a mechanism to shorten this tail or one used to perpetuate it. The Internet provides a cheaper and easier medium to create and disseminate each of these islands. It is also a place where the public can "meet at the symbol" in order to create economies of scale in defending and pro-actively protecting each other. The Internet can continue to serve as a medium to assist fraudsters in perpetrating their schemes, or it can be the antidote. One may make an argument that the antidote is just banning all of these small pennystocks and unregulated exchanges. But there is legitimate value for smaller companies to be able to access the capital markets. So it is not desirable to eliminate this facet of commerce altogether, nor is it realistic. The answer to allow it to continue but with a stronger focus on Internet transparency and vigilante regulation. Message boards, blogs, web-sites like Sharesleuth.com and search engine transparency can be used to create economies of scale, to make it easier, more realistic, and more productive for people to fight back after they have been scammed. More comforting still, those same tools can be used to educate and shine a light on things in a common arena to prevent fraud and to obviate the need to fight back in the first place.

Short selling as a tool to prevent fraud in OTC markets.

As a corollary to the post on shorting in general, this post will discuss how short selling can and should be used as a way to help mitigate fraud in stocks traded over the counter via the OTCBB, Pinksheets, etc.

At present, Market Makers are legally allowed to naked short stocks since they are required to provide liquidity. I think hedge funds should be able to apply for and/or pay a bond for a license that allows them to do the same thing.

Thoughts...?

Pink Sheet Sucess Stories

This post/project will tie a few different objectives together. We are looking for companies that were once or continue to trade on the pink sheets (for any reason; started there, foreign, de-listed from NASDAQ, non-filing, etc) that either

* graduated to a national stock exchange and trades there now
* has had 8 consecutive quarters of net income
* was bought out

Selling, Short selling, and naked short selling.

LIVE DRAFT

What's the difference, and what is the big deal. No one (sane and smart) will argue with your right to sell a stock in a free market (as long as you do not have inside information-- more on that in another post).

So if there is unequivocally no contention with the right to sell something you own outright, for any reason, why is there a bit of superciliousness associated with short selling. Why do some people think it's bad for markets (and why do we disagree).

Short selling is the act of borrowing shares for the purpose of selling something you don't own in an attempt to profit by buying the same shares back at a lower price, returning them to the owner; effectively placing a wager on the price of the shares going down rather than the conventional "long" play. Short selling is akin to playing the don't pass line at the craps table in Vegas.

Some arguments against shortselling include...

LIMITED DOWNSIDE (can't go any lower than zero, where long plays have no cap). This argument is purely theoretical.
FIGHTING A GENERAL TREND (this is true, stocks tend to go up, but this is a very general argument and does not apply to specific stocks).

Excellent blog post/discussion on shortselling and naked short selling

Sort of funny but kind of dumb daily show video on short selling

"Essentially they buy fire insurance on the company, and then they burn it down" -Patrick Byrne (he, hopefully, is just talking about NAKED short selling and was taken out of context. He is too smart to think that the mere act of selling is akin to burning the place down. Many short sellers lose a ton of money. The defense of his line would be, if you saw a building that was going to burn down anyway NO MATTER WHAT YOU DID, because it was not looked after properly, and you could buy insurance on it, would you. The answer, hopefully is yes, because not only could you stand to profit, but you might be able to warn some of the innocent people to get out of the building in time...)

Market makers and naked short sellers.

Do market makers play games? In my opinion, they game they play is more like poker than the three card Monte some theorists believe. It’s funny to read the term big boys when it comes to OTCBB stocks. I am not sure if the term even refers to the MMs or the intuitions, but There ARE no big boys in BB stocks. Hedge funds and pension plans and mutual funds DO NOT BUY BB STOCKS. Pension plans and hedge funds do not buy them EVER, that is a fact. And not just because they are risky, illiquid, and too small to make a return on the scale needed – they are not allowed to invest in stocks less than 5 dollars. As for hedge funds, they will invest in anything worthwhile but they look for big returns, it’s nearly impossible to make more than a million dollars on a company valued at less than 25m especially when most of the shares outstanding are tied up with insiders. Now, back to the price of chickens… MM’s DO play poker style games. They can use low volumes around whole numbers where they know stop losses are set and they can just do little things that any expert in any industry knows to do better than the rookie or dilettante. HOWEVER. MM’s cannot keep the stock price down artificially for too long. If they put an offer below the market price, it will get taken and they HAVE TO SELL THOSE SHARES. You cannot “bluff” in this market simply with quotes. That would take extreme coordination with other mms and even then you actually have to sell the stock, not just quote that you “would” sell the stock. Actions speak way louder than words. They have to put their money where their mouths are… NOW. The coordination and conspiracy brings me to the next point, NAKED SHORT SELLING. Short lists and regulations have been updated in the past years, but as far as I know, the only way for a NAKED SHORT SELLER to really “win” is if they actually put the entire company out of business… otherwise they have to cover those shares eventually.

Hidden Orders

B or BS?