Sunday, April 9, 2017

Sunday thoughts on how the market really functions - An ethical dilemma

Its Sunday again, and though I haven't done this for a while I think its time again to contemplate those things that daze and amaze, astound and confound, the market tricks that both amuse and confuse a lot of retail investors.

Of late I've been doing a fair bit of negative posting on StockTwits (username growacet) on a company called Vuzix, trading under the symbol VUZI.  I had a position on the short side that has been closed for almost 3 months now, but still I chime in fairly regularly expressing a very negative point of view.  Why?  A big part of the reason is all the pumping that goes on, pumping that in my opinion is almost criminal.

Of course VUZI isn't the only stock that gets pumped in this fashion, but because its on my watch list I see it and it gets under my skin.  What am I talking about?  I'm referring to social media posting that paints a highly speculative stock as a "no brainer" type investment.  Here's an example of what I'm talking about:

@jmcekc It will be rewarded! Vuzi really is a no brainer to be invested in. Great company, owner and fantastic products.

That was in October on the 15th, back when the PPS was still around $7, having collapsed after trading up well over $9 in September.  A "no brainer"???  Really???  A company that discloses a lack of long term commitments from its customers in its own SEC filings among a whole page of risk factors that could cause the stock to absolutely crater in value.  This is a sure fire winning investment?

Pumpers must think some investors are complete morons.  Well, sorry to say, a lot of investors are, (as the expression goes) dumber than a sack of hammers.  

The same thing happened with Ziopharm early in 2015 when its PPS shot up like a rocket to almost $15, and I was called an idiot and a moron for not seeing that this was a gold star winner destined to go to at least $20 and almost definitely, much, much higher.  One idiot was on twitter touting ZIOP as a #miraclecure.  

Sell $ZIOP for a mere $13+???  I had to be brain damaged.  

Why do pumpers engage in such reckless, and as I opined earlier, almost criminal behavior?  Because a lot of investors have more money than brains.  But there's more to it than that of course, they also understand basic human psychology at some level.  They know that people will follow strength, conviction and certainty.  If someone is wishy-washy, if they take note of the risks involved, then people aren't going to feel confident about clicking on the buy button and forking over their hard earned cash on an extremely risky stock.

You see it in all facets of life, take religion for example.  H.L. Mencken once quipped that:  

"A church is a place in which gentleman who have never been to heaven brag about it to persons who will never get there".  

Why are some Fundamentalist Evangelical Churches bursting at the seams on Sunday mornings? Because often times the Pastor in the pulpit has "absolute certainty" about what God wants and expects of people.  How does the Pastor know this?  Because he has read and studied the Bible and he KNOWS what God wrote in there and how it is to be read and understood.

Does the Pastor really know?  I don't think so, but that's neither here nor there.  My own personal view is that it takes far more strength and courage to acknowledge doubts and uncertainties, and that many who claim to be experts are simply intellectual cowards who can't face the prospect of not knowing something.  Even something as unknowable as God.

Okay I've covered religion.  Now what's that other taboo topic nobody is supposed to talk about for fear of offending people?  Oh yeah....politics.  The same principle of attracting the brain dead sheep applies in the political arena as well, the voting sheep also follow strength, conviction and certainty. Not everyone, but enough to fill a lot of churches and enough to get someone of dubious distinction elected President of the United States.  Just check out this video:

If you believe 'The Donald' nobody is better at: 

The military, building walls, treating the disabled, on equality, on being Pro-Israel, respecting women, attracting the biggest crowds, understanding the horror of all things nuclear, trade, infrastructure.....and on and on and on and on.  There's nobody better than Donald Trump at all these things.  He's the best at everything, just ask him.

You don't get to be the most senior elected politician in the world's most powerful country without getting an awful lot of people to vote for you.  You don't need a majority, but you still need to inspire confidence in a mass of people to get the job.  And you're not going to inspire that confidence in the minds of the people who behave like sheep if you give thoughtful nuanced answers, it ain't gonna work.  You have to sound like that Pastor who knows exactly what God wants and expects....the sheep will come.  

So what's the ethical dilemma?

While I do my utmost not to engage in this type of pumping, I have profited from it.  By buying stocks in speculative companies when they've been quiet and lightly traded I've been able to sell for higher prices when the herd moved in.  I'm not writing this to toot my own horn, there have been times where I've bought in when things were quiet on speculation that a stock might attract attention, but it hasn't happened, LMD.V qualifies in that regard.

I do write about speculative stocks here, RVX is a prime example.  However if/when a stock I've written about starts attracting wider attention, that's when I typically stop writing and liquidate at least some and often all of my shares...making note in the comment section of the original post and on the social media sites I frequent.

As I'm getting older I'm taking my Christian faith far more seriously, and the core belief of my personal faith is the so called "golden rule" of doing unto others as I would have them do unto me. But I also play the market where the golden rule is more "those with the gold make the rules", that or "do unto others BEFORE they do unto you".

Everyone wants to buy low and then sell high.  But you can't buy low unless there are others willing to sell at those low prices.  And likewise you can't sell high if there aren't buyers willing to pay the inflated prices.  The market machine is highly skilled at getting retail sheep to do the opposite of what the smart money players do.  Lambs get slaughtered by buying high and selling low.  

I reconcile my conscience (perhaps rationalize would be a better way of putting it) by knowing that no matter what I do, the market game will go on and on.  The machinery that entices retail investors to buy highly speculative stocks at grossly inflated prices will continue as it has regardless of whether I play the game or not.  

And I also realize that I'm a bit of a hypocrite, I can see the log in my own eye in other words.  If the market game were more above board, and retail investors weren't enticed to risk money on dubious investments the way they are and have been for ages....then the market machinery itself would break down.  The investment banks, the market makers and analysts....the promoters and chop shop players, they'd have to find other endeavors to earn a living.  And that's to say nothing of the entitled corporate executives and insiders who run these companies that are losing millions of dollars every quarter and yet earn 6, and sometimes 7 digit incomes.

That's enough for now....happy Sunday everyone.  

Thursday, March 30, 2017

A pending breakthrough for Diabetes patients? Resverlogix Phase III trial progressing

Resverlogix (RVX.TO or RVXCF) is a Canadian biotech company based in Calgary that has developed a compound called Apabetalone that is currently in a Phase III trial for patients with Diabetes Mellitus.

Diabetes is being called an epidemic, and in our increasingly sedentary western world experts are projecting that it will get worse.  Like cancer pretty much everyone knows of someone who is diabetic.

According to the American Diabetes Association over 29 million people in the United States had the disease in 2012 (LINK).  And the International Diabetes Federation put the global number in 2015 at 415 million,  projected to climb to over 640 million (LINK).  In Canada 11 million people are living with Diabetes or Pre-Diabetes according to Diabetes Canada (LINK).  

Thankfully Diabetes is a treatable condition due to the discovery of Insulin by Canadian Dr. Frederick Banting and his team at the University of Toronto in 1922.  But while Insulin is a treatment, it is not a cure, and Diabetics have a number of health concerns to deal with while taking insulin to regulate the level of blood sugar.

One of the biggest concerns for Diabetics, if not the biggest, is Cardiovascular Disease (CVD), especially for older individuals. 

According to the American Heart Association at least 68% of Diabetics over the age of 65 die from some form of Heart Disease and 16% from Stroke, (LINK).  Even for those who are not seniors the risk is high, with the above linked AHA site noting that among adult diabetics the risk of CVD is two to four times higher. And that is regardless of how well diabetics control their blood sugar.

Obviously Cardiovascular disease is a major concern for those with Diabetes, especially those with Diabetes Mellitus which is simply the scientific term for those with full blown insulin dependent diabetes.  Most often its simply referred to as Diabetes.

While insulin is vital in controlling blood sugar levels, the incidence of cardiac events and strokes is a huge and as yet unresolved problem.    

The occurrence of Major Adverse Cardiac Events (MACE) is what Resverlogix is attempting to address with their lead compound, called Apabetalone or RVX-208.  Based on the results from earlier trials Apabetalone demonstrated a 55% "Relative Risk Reduction" (RRR) of  "Major Adverse Cardiac Events" (MACE) in patients suffering from Cardiovascular Disease.  And in patients with Diabetes Mellitus the RRR of MACE was 77%. (LINK)

How does Apabetalone work?  Resverlogix is involved in the relatively new field of Epigenetics.  For those who aren't linguists, the word "Epi" is Latin and it means above.  Thus Epigenetics means above the genetic level and it involves what are called ReadersWriters and Erasers.  If you think of it in terms of computers, genes are the hardware and epigenetics represents the software.  

Those wanting a detailed description of how Apabetalone works, I'll invite you to watch the following video which explains it in detail.

Based on results from earlier phase II trials Resverlogix is currently running a Phase III trail called BETonMACE.  The trial has been running for almost a full year and a half now and is:  Double Blind, Randomized, Placebo Controlled and is running in multiple centers.  A full description is available at ClinicalTrials.Gov (LINK).

The trial is being tracked by an independent Data Safety Monitoring Board which has given positive recommendations for the trial to continue without modifications on three separate occasions, the most recent coming on March 17th of this year (LINK).  Of note is that no safety or efficacy concerns were identified. The trial is event based and will be deemed completed once at least 250 Major Adverse Cardiac Events have occurred.  

Obviously a breakthrough of this nature, significantly reducing the risk of Major Adverse Cardiac Events for those with full blown Diabetes, in of itself this would be a major achievement.  However Apabetalone may have application for other disease indications as well.  

The company recently reported a positive meeting taking place with the FDA for the design of a proposed Phase 2a trial for patients with Chronic Kidney Disease, or CKD for short.  (LINK)  And third parties have found potential applications for Apabetalone for a rare form of Muscular Dystrophy and Neurodegenerative Eye Disease. (LINK)

There may also be applications with diseases like Alzheimers and Thrombosis and quite possibly more.  Most of the diseases either undergoing trials right now, or with the potential for application, they lean heavily toward older individuals and with our ageing population the market would be massive if they succeed in my view.

I don't think its overstating things to say that Apabetalone has "blockbuster" potential, and that's based simply on reducing the risks of Major Adverse Cardiac Events in patients with full blown Diabetes, its a huge unmet need.  And that's to say nothing of all the other indications that might bear out in clinical trials.

Given the potential I don't think it would be unreasonable to expect Resverlogix to have a Market Capitalization (MC) in excess of $1 Billion USD.  That isn't the reality however, the company has a MC of less than $250 million and that's in Canadian Dollars, with RVX.TO having its most recent close at $2.30.  In the US the stock trades OTC under the symbol RVXCF and sits at $1.72 USD with the market cap in American Dollars coming in around $185 million.

Why so low?  There are a number of reasons in my opinion, the biggest being uncertainty.  It is said that nature detests a vacuum, well so does the market.  With stocks though its not a vacuum as such, but uncertainty.  Uncertainty that can create opportunity if successfully addressed. In my opinion there are two major reasons for the low valuation, and they both revolve around money.

The first reason is a loan with Citi-Bank for $68.8 million which is due this coming August. The company must satisfy this obligation in some manner in the next few months.  If they default the loan has been guaranteed by Resverlogix's biggest investor Eastern Capital which is the investment arm of billionaire Kenneth Dart.  The collateral provided to Eastern is the patents and intellectual property of the company.  The company's CEO Donald McCaffrey has said they are looking at several different avenues including a secondary offering, licensing/partnerships or a loan extension.

The second reason is closely tied to the first, and that is the need for money....not just to satisfy the loan but to further finance the company in order to complete the Phase III BETonMACE trial as well as clinical work on Chronic Kidney disease, and any other indications the company wishes to pursue.

If BETonMACE succeeds though its my opinion that money will no longer be a concern.

The lack of financing represents a material uncertainty, and in my opinion it is the major stumbling block to Resverlogix attaining a much higher market cap.  However it should be noted that despite these uncertainties RVX has been trending higher over the past year.  As recently as this past summer shares of RVX.TO could be bought for somewhere in and around $1.10 to $1.30 per share. Obviously those who've been buying and pushing the share price higher, they're buying in spite of the financial uncertainty.  Here is the 1 year chart which shows the stock trading close to its 52 week high.

I will end things here with a special note.  If this is the first you're learning about Resverlogix I would strongly advise against making any investment decisions based on anything written here, I wrote this blog piece for informational purposes only and as a shareholder any opinions expressed are obviously biased.  Anyone considering an investment in RVX or RVXCF, I advise verifying everything I have provided and to conduct further and extensive research. I strive to ensure that everything I provide is accurate however I can make no warranty that there are no errors.

Consulting with an investment professional is always the best course of action for those lacking the requisite knowledge and expertise.

Comments are welcome, however they are monitored and those including profanity will not be published.

Sunday, March 26, 2017

Vuzix - Has this company become a religion?

I haven't written anything on Vuzix for a while, in fact its been over a month since I've written anything at all here.  I'm still active on sites like StockTwits (growacet) and SeekingAlpha (Joe_Retail), but I haven't been contributing to my own blog.

I currently have no position in Vuzix whatsoever, but I did open a position playing VUZI on the short side in September, however that was closed in January.  That hasn't stopped me from chiming in fairly frequently on StockTwits where Vuzix has a large following of over 4,300 watchers, and sometimes on SeekingAlpha as well.  

I am often accused of either being still short on VUZI myself, or of somehow being compensated for my efforts by those who are.  Again, I have no position, and I have never been compensated to write anything about any stock, and would refuse any overtures of that nature regardless.

So, some will quite reasonably ask....Why bother commenting at all if you have no skin in the game?

Its a perfectly reasonable question, and one I have posed myself when confronted with persistent negative posting of a stock I own.  PPHM was being trashed mercilessly on StockTwits not too long ago when it was trading around 30 cents, and even now after climbing to around 70 it still continues. Some may be short players, others may just not like the company....Who knows why?  There are probably several possible reasons.

I will give my reasons for continuing to post my opinions on Vuzix despite have no financial stake.  

Its really not hard to understand why someone would post opinions on a subject despite having no financial stake in the outcome, all you have to do is look at social media sites like Reddit, Facebook and Twitter to name just three.  Its all about two things really, ego engagement with a bit of OCD (Obsessive Compulsive Disorder) thrown in.

There are threads on social media sites about who the best Star Fleet Captain is:  Kirk, Picard or Janeway.  On Facebook I have an ongoing feud with a friend of mine over whether the Toronto Maple Leafs are a .500 hockey team or not.  I say "not" because they've lost four more games than they've won.  My friend Scott insists they are a .500 team because 15 of those losses came in overtime or in a shootout, and in those losses the losing team gets a point.  Ultimately the Leafs are over .500 based on points, and under .500 based on wins and losses.  But the sword play is fun, and Scott and I like the exchange.

Sports, politics, the best captain....ego's become engaged and everyone wants to get the last word in.

But, as I so often do, I am digressing.

Before placing my bet on the short side with VUZI back in September I did my research and took out my position based on what I discovered.  The continual dilution coupled with an ever mounting accumulated deficit.  The huge 1:75 reverse split and the speed with which they burned through the $25 million Intel tossed their way.  On top of that of course there was all the paid hype and promotion, which is something I consider to be of vital importance when looking for stocks to avoid as long term holds.  Some promotion is to be expected, but when it is reported to be by as many as 21 different outfits.....Holy Pumpity Pump Batman.  

In the posts I've done on Vuzix I was also careful to underline that these were my opinions, and they could very well turn out to be wrong, especially when it comes to the PPS.  Ultimately a stock doesn't trade on fundamental performance, but rather on supply and demand.  Manipulation does play a role in my view, but it works both ways....stocks can be manipulated both higher and lower in my opinion.  

If fundamentals were the holy grail some claim then a garbage stock like CYNK would never have gone from one nickel to over $20.  I would argue that CYNK Communications also had a fair bit of manipulation involved in pumping it up to those levels, but no matter.....even though the company was fundamentally worthless that didn't stop some people from paying $20+ per share and getting creamed when the chickens came home to roost.

Of course for a lot of players, all that matters is the PPS.  If a stock goes up, no matter whether its just hype or solid financial results....Who cares?  I expressed my bearish opinion on a company that traded under the symbol ABRW back in June of 2016 just after its PPS had gone from under 50 cents to up around $2.  Subsequent to that posting the company changed its symbol to NBEV, was uplisted from the OTC Market to the Nasdaq and in November the PPS shot up to near $6.  

Strictly based on the PPS, and ultimately that's what stocks are all about no matter the reason.....I was wrong on ABRW/NBEV.  Its still trading over $4 as of last week's trading.  No question the higher share price has been a boon to the company given the recent capital raise they had.  In February they pulled in somewhere around $17 million through a public offering of over 4 million shares.  I'll leave any possible further comments about New Age for another day, and will wait until they have audited financial statements as their last 10Q came out when it was still an OTC stock without that requirement.  Suffice to say that up until Sept of 2016 the company still was not profitable with an accumulated deficit in excess of $5 million.  

But again, I'm digressing.  Time to get to the subject line of this post, asking if Vuzix has become a religion.

For those who aren't religious, the most important part of religion in my opinion is FAITH. Christians cannot prove that Jesus was crucified, died and resurrected, its something taken on as a matter of faith.  Muslims cannot prove that Mohammed was a prophet and Jews cannot provide definitive evidence that Moses led the Hebrews out of Egypt.  

With Vuzix, longs cannot prove that the company's new product offerings will do something that no previous products have done.  That is to make the company money.  But there are posters all over social media who seem to present it as fact, the same way some televangelists promise salvation, as a matter of faith.  And those like myself who are not convinced are attacked almost as heretics casting stones at the chosen one.  Puh-lease.  

I also believe there are likely some shareholders who have been convinced that the negative posting, be it by myself or others, that this is some form of PROOF that shares of VUZI must be a highly prized commodity and that its only because of manipulation that shares aren't worth at least the $9 they were back in September, if not much much more.  

I do get my back up when I see those promoting VUZI on sites like StockTwits presenting outright falsehoods in attempt to attract buyers.  Here's an example that just went up March 25th 2017:  

judy buckey
$VUZI New money and present institutions adding shares. Reassuring.

It would be reassuring if it was a verifiable fact, but its not.  Adding is a 'present participle' denoting a continuing action in the present.  We can verify from filings available on Nasdaq's site that institutions WERE adding up to December 31st 2016 when the PPS was trading in and around the $7 mark.  But there are as yet no filings to tell us what institutions have been doing in January, February or March of 2017.  Have they been buying?  Selling?  Standing pat?  Nobody knows.

It could be that institutions have been dumping so far this year, which might explain why the share price is down from where it started the year.

If anyone has information about institutional activity since the calendar rolled over from 2016 to 2017 please share, otherwise I'll wait for the updated info to come out sometime in the month of June when we'll get to see the activity for the first 3 months of this year.

I know some were excited when Toshiba threw a little over $1 million at Vuzix, but I also remember all the posts about how Intel had given them $25 million and that wasn't even enough to forestall further dilution.  And now Intel has announced their intention to bail out.  

I'll wrap things up here by just noting again that I have no position, and to strongly advise anyone considering an investment in VUZI or any stock for that matter.....take message board and social media posting with a huge grain of salt.  Bashers are not always right, but likewise they are not always wrong.

Comments of course are welcome, with the usual caveat, no profanity.  

Friday, February 3, 2017

U.S. President Donald Trump proves how meaningless fundamentals are

For at least the past few months I have been harping on a singular theme here at Avoid The Bag. That theme is that stocks trade on sentiment and not on fundamentals.  Many will argue the value of a company's shares depend on revenues, profits, net asset value and a host of other definable metrics as well as guidance about what those numbers are expected to be in the coming months and years.

Even with a speculative stock that is losing money in the here and now, those who reside in the fundamentalist camp will claim its about projections based on expectations of fundamental performance.  I will channel the late great actor Carroll O'Connor and his Archie Bunker character for my response.

I realize that's not exactly a high brow way to make a point, so I will expand on my reason for giving fundamentals the proverbial raspberry.  I won't have to try too hard though, because all the proof you need is provided by the newly installed President of the United States, Donald J. Trump.  

What do Boeing, Lockheed Martin, Toyota, GM and Ford all have in common?  Aside from all being involved in the manufacture of either cars or airplanes, they have all drawn fire from the Twitter account of "The Donald".  And almost immediately all of them saw their stock prices slammed.  If you've been following media reports on the markets you've likely heard something like: 

"Shares of (Insert Stock) are trading sharply lower in the wake of President Trump's tweet about the company".  

But why would something as innocuous as a simple tweet send the stocks of some highly profitable and fundamentally sound companies markedly lower?  A tweet cannot undermine or alter the fundamental pillars upon which a company is built.  Can it?  Of course it can't, but it can affect investor sentiment.  

And then of course there's manipulation.

Rather than going into great detail I will link up a Washington Post article that explains how some traders have operated in order to profit from the Presidents social media posting.  

Quite simply there are programs and algorithms that have been set up to monitor +RealDonaldTrump and when there's a post about a public company it determines whether the sentiment is bullish or bearish.  If its bearish as with Boeing, Lockheed and the other aforementioned companies, then within seconds short positions are opened.....shares are borrowed from shareholders and dumped back into the market, sending share prices lower.

Here's the Washington Post article:  

So what happens?  Some retail schmo has some of his retirement money invested in a stock like Lockheed Martin that he bought for $265 at the start of December.  All of a sudden he checks in on his investment and sees its fallen to $250 and reading about the President's comments he gets scared and sells for a loss.  Those who went short at $265 buy back the shares they borrowed at the lower price and pocket the difference in profits.

The biggest driver of sentiment is of course price, the second biggest driver is price, and the third is also price.  In real estate they say its location location location, with stocks its location too, but also direction.  The location of the PPS and the direction in which its moving.

And that was with Lockheed Martin, an enormously profitable defense contractor with a lot of seasoned investors and market professionals as stockholders.  Imagine how easy it is to push around the stock of a speculative company without profits and maybe not much in the way of revenue either, like a development stage biotech for example.

I write this blog for retail investors, to hopefully give them some insight into the workings of the markets so that they can hopefully make better decisions.  However it doesn't matter how good you are, how diligent your research is, how flawless your analytical skills.  You will still make bad calls on occasion.  The reason is simple, there are always bigger fish out there.  

Now to end this posting off, and to toss a bone to those who rely heavily on the fundamentals I will attempt to make peace.  Ultimately fundamental performance should affect investor sentiment and solid performance will most often be rewarded and reflected in a company's PPS.  Lockheed Martin still hasn't gotten back to the $265 area it was at before the President's tweet but if they deliver solid financial results in the weeks and months to come I have no doubt they will get back there and beyond.

As always good luck to all retail players swimming in this shark tank, comments are always welcomed but as I always request, no profanity please.  Actually it doesn't matter ultimately, swear all you want...I moderate the comments and just delete those which tell me to do something that is physically impossible. 

Friday, January 20, 2017

MYDX and NBEV - Admitting bad calls....

I haven't been shy about patting myself on the back here when I've written a bullish opinion on a stock that then goes on to make substantial gains.  I've had a number of successes.

The Bullish Calls

I first wrote about LAC.TO at $0.75 CDN and it is now trading for $1.06....I long ago took profits on that stock at lower prices than where its trading now, and when that happens I simply cry into the money I made.

EGT.V is one I wrote about at 14 Canadian pennies.  I bailed on it after doubling my money but its still trading up around 25 cents.

HMPR, which is now trading as XBKS after a merger is one I'm particularly happy about, and while I have taken profits by selling some shares its one I continue to like and have maintained a position in.
It was trading at a split adjusted price of $18.10 when I first wrote about it here, now its at $26.50 after pulling back from as high as $30.

RVX.TO is a stock I first wrote about here when it was trading around $1.30 CDN, its currently at $1.75 after getting up around $2.50 in October and is one I still continue to both like and hold, however fully ackowledging that it is extremely high risk in my view.

ACU.V written about at .16 cents now at .185 is one I doubled down on when it fell to 10 cents.  I took some profits when I climbed up over 20 cents, but I still am maintaining a position and still think there's much more upside potential.

In October I expressed a bullish opinion on RMHB when it was trading around .036 cents American. Now it has climbed to is another one where I'll have to cry into the money I made, bailing on it after a 50% profit.

KUB.V has been a monster, I wrote about it in October as well when it was 2 cents...and now its settled in around 6 cents after trading as high as 7.5 pennies CDN.  Its one I continue to hold, in fact I just added to the position I started at 2.5 cents by buying more at 6 cents.

Not too bad at all, and I'm leaving out more recent gainers like Emblem Corp.

Of course not all my calls were long plays.  I did express bearish views at times when I thought some stocks were bubbling up on nothing more than Promotion, News and Hype.

The Bearish Calls
I wrote a few bearish opinions on ZIOP starting last May when that stock was trading in and around $7 to $8 per share, now its sitting around $5.50

I did a couple posts on KTOV also in May when that stock was trading up around $6.60 per, now its fallen all the way to around $3.

And then there's VUZI when it was up at $8.81 on its way to almost $10.  Now its fallen all the way back to $6.40

And finally my very recent bearish thoughts on NF.CN from November when it was up around 25 Canadian pennies and on its way to being promoted to over 30 cents.  Its now trading for 11 or 12 cents and in my opinion on its way back to .02 cents eventually.

But enough of the successful calls, I didn't get them all right last year and I am sure I will get some wrong in the future.  Two opinions I expressed were particularily bad, one long idea and one short.

MYDX is a company I wrote about this past November and one I took a position out in.  When I wrote about the PPS was trading for 2.2 cents, and I bought into at .0144 as revealed in the comments. Its most recent closing price was .0021 for a drop of over 80%.  Ouch!!!  Thankfully it was a small position, and I followed my own advice in that post and only risked money I could afford to lose.

I will continue to hold MYDX (the symbol and company name are one and the same).  The company is forecasting profitability in the near future, I'm not going to hold my breath however.  A good recipe for going broke in my opinion is to believe the forward looking bullish outlooks on penny stocks. I've already booked some solid capital gains in 2017 and losses can come in handy at tax time, even if the dollar amount is small.

The bearish short opinion was expressed on NBEV, back when it was trading under the symbol ABRW.  I wrote about that stock in June of last year when it was trading up around $1.75 cents after already made a huge jump from as low as .20 cents in February and March.  Today its trading up around $4.20 and has been as high as $5.50

My opinion on NBEV hasn't changed for the long term, but I have to admit I was wrong.  The ultimate arbiter in the market is price, and I thought NBEV had been pumped up near its limits in June, so I was incredibly wrong on that one as well.

When I get it right I'm not shy about sharing my success, but that means I have to take ownership of those views and opinions I get wrong too.  Some social media posters talk with extreme confidence when pumping and bashing stocks because they know sheep will follow strength, and admitting to past failures or the possibility that a call could be wrong, well that doesn't inspire confidence, and pumpers and bashers in my opinion (one that is often not humble) is that most are industry hacks.

Professional market players infest social media sites where stocks are discussed, that's opinion but for me its not up for debate.  The way I see things they are manipulators and bullies, trying to dominate the herd so as to shepherd the sheep into the stocks they're dumping, or out of the ones they want to accumulate.

I'll end this post here and wish everyone luck.  I will also once again cite those two maxims that I think are of critical importance to retail investors.  Firstly that nobody has ever gone broke from taking profits, and secondly that if you sell a stock and then see it continue climbing even higher, before buying back in cry into the money you made and think again about that first maxim.


Wednesday, January 18, 2017

Emblem Corp - Short players double down, borrowing and dumping nearly 500,000 more shares (EMC.V - EMMBF)

Short interest for EMC.V was just updated, current to January 15th 2016 and that number climbed an additional 496,900 shares to a new total of 952,900...

Again that's only current to January 15th and does not include any activity over the past three days of trading.  That means it is conceivable that the number could be even higher now.

Why would short players increase the size of their bet, more than doubling the previously reported number of shares borrowed and dumped back into the market from the January 15th update of 456,000?  I think the answer is fairly obvious, nobody likes to lose.

Retail investors are notorious for being price sensitive, viewing a rising share price as strength and a falling price as weakness.  Up is good and down is bad.  Its the inverse of what happens when people go shopping for things like groceries.  

My local store puts instant coffee on special every so often, selling it for a discounted price of $2 per jar as opposed to the regular price of $6 or so.  When I see the price drop to $2 do you think I take the jar in my cupboard that I paid $6 for and rush out and try to sell it?  Of course not. Instead I buy 10 jars at the lower price, confident in the knowledge that in another week's time the cost will be back at $6. 

The key word there is "confident".  I know with almost 100% certainty that the price of my coffee is going to return to $6.  When it comes to stocks however, retail investors typically lack that degree of confidence.  And players on the short side can impact what confidence long investors have by borrowing a significant quantity of shares and dumping them back into the market to depress the share price.  Their hope is that shareholders will get scared:  "The price is falling, things must be bad".

Should Emblem Investors be confident?  I think so, but as a shareholder my views are biased and should be viewed in that light.  

Obviously everyone is forecasting the Canadian Marijuana space to be an absolute monster in the years to come with overall revenues forecast to be in excess of $20 billion according to a recent study conducted by Deloitte.  (TorStar Article). 

Emblem specifically has an incredibly talented executive team leading it, arguably the strongest in the entire sector, with luminaries such as John Stewart formerly of Purdue Pharma heading up the pharmaceutical side of the business.  I don't think there's another player in this space with experience running a billion dollar company.

But that doesn't mean there aren't risks.  

The market is going to be highly competitive, with more and more licensed companies fighting over market share.  And there's always the chance that the Justin Trudeau government could back off on their pledge to bring forward their plan for legalized recreational weed, expected this April.  Given the poor state of Ottawa's balance sheet I don't consider that to be likely, however I have to acknowledge that it is a possibility.

Suffice to say there are risks, and risk can lead to uncertainty which causes fear and doubt.  And short players can exploit that fear by borrowing significant quantities of shares and reselling them into the market in order to lower the price of the stock.  

I won't belabour the point further, obviously those players on the short side have shown that they're willing to step up and increase the size of their overall position.  And I have no delusions that this miserable and pathetic little blog will rally retail longs to defend the PPS by holding and possibly even buying more.  

Taking out a sizeable short position takes a big bankroll because of margin and maintenance requirements.  What's that old expression:  "In for a penny, in for a pound".  In the weeks and even months ahead I will not be surprised if short side players up their bets even higher.  Only time will tell if it works.

If you watch social media expect to see the number of posters confidently proclaiming Emblem to be overvalued to increase.  With almost 1 million shares borrowed and sold bears will need investors convinced they overpaid and that selling would be a prudent move.

If you missed my first post on the short situation with Emblem you can read it here: 

I will leave you with an old video I've shared on here a number of times before.  Its Jim Cramer of Mad Money fame talking about the strategies he would use when he was "position short" to influence the sentiment of "moron longs" who fixate on price price price.

Its a dirty little game in the public markets, and knowing the ploys of the bigger players can help retailers make better decisions in my view.  Good luck, comments are welcomed as always but no profanity please.

Monday, January 16, 2017

Eagle Energy Inc. 8% annual yield (EGL.TO - EGRGF)

I don't write much about dividend stocks on this blog, tending to focus more on highly speculative companies.  But I think with Eagle Energy that an argument can be made that, in spite of the dividend, EGL.TO ( EGRGF OTC) is still extremely speculative in spite of its monthly distributions.

I have had this stock on my radar for a number of weeks and just initiated a position on Monday Jan. 16th 2017.  As such the views I am about to express should be considered as biased.  I'm not going to do any brainless pumping however, regular readers already know that's not my style.  I don't gloss over the risks, rather I prefer to stress them.

Calculating the annual yield of a dividend paying stock is pretty simple for those unfamiliar.  Take the dividend and calculate what it comes to over 12 months.  EGL pays its dividends monthly and are currently .005 cents, so over 12 months that comes to 6 pennies.  Then divide the annual dividend by the share price and you have the annual yield.  

An annual dividend of .06 cents divided by $0.76 cents per share CDN, (the closing price on Monday January 16th 2017)  gives Eagle Energy an annual yield of 7.8%,  At 75 cents the yield is a nice round 8%. That's probably just a tiny bit (sic) better than anything the banks are paying. 

Comparing Eagle's distribution to other oil and gas companies is interesting.  Major players like Chevron and Exxon pay less than 4%, even Royal Dutch Shell is less than 7%:

So what are the risks here then?  Where do I begin?  

A good start would probably be with the dividend itself.  Many investors like dividend stocks because you are paid to own them with regular distributions.  However dividends can be reduced or eliminated altogether, and when that happens the effect on the share price can be devastating.  It already happened with EGL back in June.

On June 6th 2016 the company announced it was cutting its dividend in half, from .01 cent to .005 and the impact can be seen in the PPS.  After trading up near $0.90 CDN in May of 2016 the share price collapsed in the wake of the dividend cut, bottoming out around 62.5 cents in early August. That's a drop of around 30%.  Here's the chart:

So someone who bought 10,000 shares at 90 cents (to keep the math simple) for a $9,000 outlay saw the value of those 10,000 shares drop to a little above $6,000 within just a couple months.  It will take a long time for someone to recover those losses even if EGL continues paying an 8% annual dividend at the current share price.  And if Eagle were to eliminate their dividend altogether at some point in the future I think the effect on the PPS would  be even worse than a 30% drop.  

In the near to medium term I consider this to be the biggest risk.  

The other major risk factor I will highlight is the fact that the company is not currently profitable, the only reason they are able to pay dividends at all is because of their credit facility.  Anyone considering an investment in Eagle, I would strongly advise reading over their financial statements on SEDAR.

So why, given those obvious risks.....why did I decide to put money at risk with an investment in EGL?  Firstly I consider the fundamental realities to be old information that is already baked into the current valuation.  What matters more is what is coming in the months ahead, not so much what happened in the recent and more distant past.  

The chart above shows that the PPS recovered nicely after dropping close to 60 cents by August in the wake of the dividend cut and is now trading over both the 50 and 200 day moving averages. There is also the bullish cross of the 50 DMA over the 200, however it should be noted that some followers of Technical Analysis consider that cross to only be bullish when both the 50 and 200 lines are ascending.  

Crude oil prices have recovered to over $50 USD per barrel as we embark on the year 2017,after starting 2016 around $30.  This represents both a risk and a potential reward of course,  Should oil prices start falling again, or even if they remain close to current levels and don't continue climbing then I expect small companies like Eagle to struggle and even possibly fail

Some other aspects I look at are also positive, the share count sits at just under 42.5 million, same as where its been since January of 2016 so the company hasn't flooding the market with shares.  Short interest is practically non-existent at just 200 shares current up to December 31st of 2016.  

And finally I don't see any Promotion, no email blasting chop shops or newsletter services calling the herd to the trough.   In terms of news there's very little, beyond monthly dividend announcements and notifications of required flings.  And given the minimal news and lack of promotion it goes without saying there's no hype.

Some might suggest that's what I'm trying to do.....that I'm trying to hype EGL.  That's not unreasonable, this is a blog about investments after all.  But given how pathetic and miserable my little corner of cyberspace is, I consider this post to be little more than a fart in a hurricane.  

Good luck and as always comments are welcome however they are moderated so no profanity please. Fart is not profane in my opinion.