Author Archives: Scalper1

GeoInvesting’s Dan David: 6 Things You Can Learn From My Shorting Mistakes

By Dan David, Co-Founder and VP of GeoInvesting Shorting stocks is rarely easy. In keeping with our practice to not only bring investors quality research, but also educate them, I wanted to run down some of the top mistakes I have made in the past when shorting stocks. If you are considering short selling or are already short selling, perhaps knowing the mistakes I’ve made in the past will help you become a better investor. Over the last seven years, our research-based, on-the-ground due diligence has led to over 10 U.S.-listed China-based stocks delisted or halted. In addition, we have exposed over 10 pump-and-dump stocks that have resulted in 90%+ gains for those who shorted them. Shorting U.S.-listed China-based companies can be grueling, mostly due to the fact that the companies you are up against can make up or fabricate information to combat your allegations. Many times I have opened a short position and have been immediately greeted by the company announcing a buyback or issuing a dividend in hopes of driving the short position out of the company. This happened when I shorted China Green Agriculture (NYSE: CGA ) in 2014, and management declared a special dividend. The issue is that some of these companies have stolen so much money from the capital markets through stock offerings that they have money to play with even when their companies are not generating real revenue. Shorting Stocks Opens You Up To Infinite Losses Shorting stocks is a far more inherently dangerous practice than going long companies, and there is more risk in being short. The most you can make when going short is 100%, but your loss can be infinite ( Remember KaloBios (NASDAQ: KBIO )?). Even if you are right, your short position can be forced to be closed. Furthermore, you can pay ridiculous amounts of interest, sometimes 100% per year, on the shares you have shorted. Apparently usury is not illegal in the stock market. As such, we wanted to lay out that risk here today. Here are some of the top mistakes I have made over the years short selling that hopefully you can avoid. Leave Your Emotions For Your Romantic Life, They Will Kill Your Portfolio This is a universal shorting rule, but must be said; take emotion out of it. It’s also one of the hardest rules. If you know you are right, dig deep inside and realize that when fraudulent stocks rally, they will likely eventually come down. One of the sickest feelings I have had is when I cover a rallying stock out of fear, only to see shares come right back down. Assuming That Insiders Will Not Lie Is Naive Failing to pay attention to insider ownership, which includes funds that have “special” relationships with management, is a mistake I made early in my investing career. The bigger the ownership, the more the chance that management will try to pump its stock by issuing false press releases in response to a short report. This has taught me to keep some powder dry for the pump. Know The Risks Of Being A Hero Be careful shorting shares of a state-owned enterprise (“SOE”). Accusing an “SOE” of fraud is accusing the China government of fraud. From my experience, the SOEs I have run into are frauds or at least have some material accounting misrepresentations, but the government will crush you before it ever admits that fact. Always have a second or third account to play the “PR pump.” Remember, a fraud can say anything since they have nothing to lose once they are exposed, so more often than not they will put out a PR pump to squeeze you and dump their shares. I learned the hard way that if you just cover and try to short again at the top, you will never find the borrow again. Go long in an alternate account to box your short. Putting Too Much Faith In The System Will Cost You Money Do not count on the exchanges to halt a security. In my view, as a matter of policy, both the NASDAQ and NYSE are hard pressed to halt. They have come to realize that the risk of a suit by the halted company is much greater than the risk of any individual investor – and lest we forget, the exchanges themselves are for-profit companies that are paid by companies they list. You also can’t count on the SEC to halt a U.S.-listed China-based company. The SEC has no power or resource to investigate inside of China. ‘Nuff said. Not Covering Enough Shares Ahead Of A Halt Trading halts have gone from a desired outcome for shorts to a nightmare for all. As I already touched on, brokers are now known to raise interest rates from the high teens to over one hundred percent during a halt on borrowed shares! This gives the halted company insiders the ability to collect on the majority of that interest from their broker on shares they lent out to be short, which acts as an incentive to insiders of halted companies to prolong a halt as long as possible. This new trading dynamic is causing chaos on both sides of the trade. Remember that shorting stocks is a volatile enterprise, and even experts have to expect the unexpected in situations where they are short. So, if you plan on involving yourself with this kind of investing, I hope that these tips and tools help you out going forward. This article originally published on geoinvesting.com on 3/29/16. Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.

Tesla Stock Shrugs Off Parts Shortage; Model 3 Reservations Pass 276,000

Loading the player…   Tesla Motors ( TSLA ) stock opened down 2.6% Tuesday morning but erased the loss, with a 3% gain in early-afternoon trading, after the company late Monday gave a Q1 deliveries count and mentioned Model X parts shortages. That highlights Tesla’s  task ahead as the electric car maker tries to ramp up production dramatically to deliver its new Model 3 starting in late 2017. “Tesla Q1 deliveries consisted of 12,420 Model S vehicles and 2,400 Model X vehicles,” Tesla spokeswoman Alexis Georgeson  said in an emailed statement after the market close. “Q1 deliveries were almost 50% more than Q1 last year and Tesla remains on track to deliver 80,000 to 90,000 new vehicles in 2016.” ‘Tesla’s Hubris’ Blamed For Delays Tesla said the Q1 delivery count was impacted by “severe Model X supplier parts shortages in January and February that lasted much longer than initially expected.” Production rates improved once the issues were solved, the company said. “The root causes of the parts shortages were: Tesla’s hubris in adding far too much new technology to the Model X in version 1, insufficient supplier capability validation, and Tesla not having broad enough internal capability to manufacture the parts in-house,” Georgeson’s email said. “The parts in question were only half a dozen out of more than 8,000 unique parts, nonetheless missing even one part means a car cannot be delivered. Tesla is addressing all three root causes to ensure that these mistakes are not repeated with the Model 3 launch.” Model 3 Reservations Rack Up, With Challenge Ahead Tesla stock closed up 4% Monday at 246.99, compounding Friday’s gain as reservations for its new Model 3 electric car soared far beyond views. CEO Elon Musk tallied 276,000 reservations by the beginning of Sunday and said he’d give another update Wednesday. The pre-order period opened Thursday ahead of a Thursday-night reveal event. Musk said in Twitter posts that  he’s definitely going to have to rethink production planning. Tesla had expected only one quarter to one half of the 115,000 reservations that came in before anyone even got to see what the car looked like. The refundable reservations are $1,000 each and worth $11.6 billion dollars in revenue if everybody were to go through with a purchase. “While there was clearly a lot of excitement and optimism around both the car and the company, roughly one-third of the respondents we talked to sounded undecided on whether they would actually purchase when the option came up in two years,” Pacific Crest Securities analyst Brad Erickson said in a research note written Friday and distributed late Sunday. The focus now is on how all the numbers — and Tesla stock — will play out. The company has just effectively crowdfunded more than a quarter billion dollars from reservations. That’s more than it raised in its IPO. The 276,000 reservations worldwide also tops the number of electric and plug-in hybrid vehicles sold around the U.S. in the last two years by the entire auto industry. And it’s more than the 245,000 BMW passenger cars sold in the U.S. last year. Tesla delivered almost 51,000 electric vehicles — its Model S sedan and Model X crossover — last year worldwide. Tesla Stock Analysis Going into Monday, Tesla stock was just below where it started 2016. It closed Friday at 237.59 after hitting its highest point since early October. The stock isn’t highly rated by IBD now, factoring in its history of losses and earnings, stock performance and other factors. The Model 3 is the electric car meant for the entry-level luxury mass market, priced at $35,000 for the base model before any tax credits. Musk expects the average purchase price with add-ons to be $42,000. The car is seen as a challenger to BMW’s 3 Series and similarly priced models from Daimler ’s ( DDAIF ) Mercedes-Benz, Volkswagen ’s ( VLKAY ) Audi and Toyota ’s ( TM ) Lexus, as well as electrics like General Motors ’ ( GM ) Chevrolet Bolt EV. Among the many things analysts and investors will be deconstructing is how much content from Tesla’s tech partners Nvidia ( NVDA ) and Mobileye ( MBLY ) go into the Model 3. Nvidia chips power the entertainment console in Tesla’s current vehicles. Mobileye is a maker of camera-based advanced driver assistance systems, and its technology is used by Tesla in conjunction with Autopilot self-driving car features. Nvidia GPU Tech Conference: ‘Deep Learning In Auto’ Mobileye stock rose 3.2% Monday, while Nvidia was down fractionally. Nvidia  gets a top 99 Composite Rating from IBD and Mobileye a 70. Nvidia stock rose fractionally in early trade Tuesday, with its analyst day events slated to start soon and its GPU Technology Conference underway in Silicon Valley, while Mobileye was down about 1.5%. The Nvidia GTC16 liveblog going into a keynote talk by Nvidia co-founder and CEO Jen-Hsun Huang said “he’s going to talk about five things: A tool kit, VR, deep learning chip, deep learning box, deep learning in auto.” RELATED: Tesla Model 3 Reservations Hit 276,000 By Sunday This Is What It’s Like To Ride In A Tesla Model 3  

Nvidia Targets ‘Deep Learning’ As ‘Big Deal,’ Says CEO At GPU Event

SAN JOSE, Calif. — As  Nvidia ( NVDA ) CEO Jen-Hsun Huang stood gazing at the Martian surface — a virtual reality simulation, of course — he talked about a future for the company that investors should look forward to. Or so he says. At the company’s annual GPU Technology Conference, which started here Tuesday, Huang in the opening keynote address told attendees that Nvidia’s focus will be even more centered around its core GPU (graphics processing unit) technology. GPUs provide graphics on computers, in video games and in various other applications. Nvidia competes mostly with Advanced Micro Devices ( AMD ) in this field, but No. 1 chipmaker Intel ( INTC ) is among other rivals. Huang said the company’s key markets will be virtual reality, autonomous cars and artificial intelligence, including chips for drones and deep learning. “Deep learning is no longer just an app, not just a field,” Huang said.”We think this is so important, we think this is going to utterly change computing. We think it’s a big deal.” He described such applications as algorithms plus massive amounts of data and computing power. Nvidia stock was up a fraction, near 36, in afternoon trading on the stock market today . The company has the highest possible IBD Composite Rating of 99, meaning it’s performing among the top 1% of all stocks in such metrics as sales and earnings growth, and stock performance. Nvidia stock broke out of a cup-with-handle base at 33.16 on March 16 and is now up 8.5%, so it’s a bit extended.