Tag Archives: ideas

Stocks That Can Double, Can Give You Trouble

Summary Every day, around 45 stocks double or more in price. That may be true, but most of those that do double or more in price don’t do so for fundamental reasons; they are often manipulated. Second, the stocks that do double in price can’t be found in advance – i.e., picking the day that the price will explode. Third, the prices more often fall hard for these tiny stocks. Fourth, for the few that rise a lot, you can’t invest in them. I haven’t written about promoted penny stocks in a long time . Tonight, I am not writing about promoted stocks, only penny stocks as promoted by a newsletter writer . He profits from the newsletter. Ostensibly, he does not front-run his readers. Before we go on, let me run the promoted stocks scoreboard: Ticker Date of Article Price @ Article Price @ 12/1/15 Decline Annualized Dead? ( OTCPK:GTXO ) 5/27/2008 2.45 0.011 -99.6% -51.5% ( OTCPK:BONZ ) 10/22/2009 0.35 0.000 -99.9% -68.5% ( OTCPK:BONU ) 10/22/2009 0.89 0.000 -100.0% -100.0% ( OTC:UTOG ) 3/30/2011 1.55 0.000 -100.0% -100.0% Dead (OBJE) 4/29/2011 116.00 0.000 -100.0% -100.0% Dead ( OTCPK:LSTG ) 10/5/2011 1.12 0.004 -99.6% -74.2% ( OTC:AERN ) 10/5/2011 0.0770 0.0001 -99.9% -79.8% ( OTC:IRYS ) 3/15/2012 0.261 0.000 -100.0% -100.0% Dead ( OTCPK:RCGP ) 3/22/2012 1.47 0.180 -87.8% -43.4% ( OTCQB:STVF ) 3/28/2012 3.24 0.070 -97.8% -64.7% ( OTCPK:CRCL ) 5/1/2012 2.22 0.001 -99.9% -87.2% ( OTCPK:ORYN ) 5/30/2012 0.93 0.001 -99.9% -85.4% ( OTCQB:BRFH ) 5/30/2012 1.16 1.000 -13.8% -4.1% ( OTCPK:LUXR ) 6/12/2012 1.59 0.002 -99.9% -86.3% ( OTCQB:IMSC ) 7/9/2012 1.5 0.495 -67.0% -27.9% ( OTCPK:DIDG ) 7/18/2012 0.65 0.000 -100.0% -100.0% ( OTCQB:GRPH ) 11/30/2012 0.8715 0.013 -98.5% -75.4% ( OTCPK:IMNG ) 12/4/2012 0.76 0.012 -98.4% -75.0% ( OTCPK:ECAU ) 1/24/2013 1.42 0.000 -100.0% -94.9% ( OTCPK:DPHS ) 6/3/2013 0.59 0.005 -99.2% -85.5% ( OTC:POLR ) 6/10/2013 5.75 0.005 -99.9% -94.2% ( OTC:NORX ) 6/11/2013 0.91 0.000 -100.0% -97.5% ( OTCQB:ARTH ) 7/11/2013 1.24 0.245 -80.2% -49.3% ( OTCPK:NAMG ) 7/25/2013 0.85 0.000 -100.0% -100.0% ( OTCPK:MDDD ) 12/9/2013 0.79 0.003 -99.7% -94.5% ( OTCPK:TGRO ) 12/30/2013 1.2 0.012 -99.0% -90.9% ( OTCQB:VEND ) 2/4/2014 4.34 0.200 -95.4% -81.6% (HTPG) 3/18/2014 0.72 0.003 -99.6% -95.9% ( OTCQB:WSTI ) 6/27/2014 1.35 0.000 -100.0% -99.9% (APPG) 8/1/2014 1.52 0.000 -100.0% -99.8% (CDNL) 1/20/2015 0.35 0.035 -90.0% -93.1% 12/1/2015 Median -99.9% -87.2% If you want to lose money, it is hard to do it more consistently than this. No winners out of 31, and only one company looks legit at all – Barfresh ( OTCQB:BRFH ). But what of the newsletter writer? He seems to have a couple of stylized facts that are misapplied. Every day, around 45 stocks double or more in price. Some wealthy investors have bought stocks like these. Wall Street firms own these stocks but never recommend them to ordinary individuals The media censors price information about these stocks so you never hear about them Every day, around 45 stocks double or more in price. That may be true, but most of those that do double or more in price don’t do so for fundamental reasons; they are often manipulated. Second, the stocks that do double in price can’t be found in advance – i.e., picking the day that the price will explode. Third, the prices more often fall hard for these tiny stocks. Of the 30 stocks mentioned above that were not dead at the time of the last article, 10 fell more than 90% over the 10+ month period. 13 fell less than 90%, 1 broke even, and 7 rose in price. The median stock fell 61%. This was during a bull market. Now you might say, “Wait, these are promoted stocks, of course they fell.” Only the last one was being actively promoted, so that’s not the answer. My fourth point is for the few that rise a lot, you can’t invest in them. The stocks that double or more in a day tend to be the smallest of the stocks. Two of the 30 stocks listed in the scoreboard rose 900% and 7100% in the 10+ month period since my last article. How much could you have invested in those stocks? You could have bought both companies for a little more than $10,000 each. Anyone waving even a couple hundred bucks could make either stock fly. So, no, these stocks aren’t a road to riches. Now the ad has stories as to how much money people made at some point buying the penny stocks. The odds of stringing several of these successful purchases in succession, parlaying the money into bigger and bigger stocks that double is remote at best, and your odds of losing a lot of it is high. This idea is a less classy version of the idea promoted in the book 100 to 1 in the Stock Market . If it is difficult to find the 100-baggers 30 years in advance, it is more difficult to find a stock that is going to double or more tomorrow, much less a bunch of them in succession. You may as well go to Vegas and bet it all on Double Zero on the roulette wheel four times in a row. The odds are about that bad, as trying to get rich buying penny stocks. The ad also lists three stock that at some point fit his paradigm – MeetMe (NASDAQ: MEET ), PlasmaTech Biopharmaceuticals, Inc. (PTBI), which is now called Abeona Therapeutics Inc. (NASDAQ: ABEO ), and Organovo (NYSEMKT: ONVO ). All of these are money-losing companies (MeetMe may be breaking into profitability now) that have survived by selling shares to raise cash. The stocks have generally been poor. Have they had volatile days where the price doubled? At some point, probably, but who could have picked the date in advance, and found liquidity to do a quick in-and-out trade? The author lists five future situations as a “come on” to get people to subscribe. I find them dubious. As for wealthy investors, he mentions two: Icahn pulling of a short squeeze on Voltari (difficult to generalize from), and Soros with PlasmaTech Biopharmaceuticals, Inc. It should be noted that Soros has a big portfolio with many stocks, and that position was far less than 1% of his assets. In general, the wealthy do not buy penny stocks. As for brokers and the media not mentioning penny stocks, that is being responsible. The brokers could get in hot water for recommending or buying penny stocks even under a weak suitability standard. The media also does not want to be blamed for inciting destructive speculation. Retail investors lose enough money through uninformed trading, why encourage them to do it where fundamentals are typically quite poor. I’ve written two other pieces on less liquid stocks to try to explain the market better: On Penny Stocks and Good Over-the-Counter “Pink” Stocks . It’s not as if there isn’t value in some of the stocks that “fly under the radar.” That said, you have to be extra careful. Near the end of the ad, the writer describes how he is being extra careful also. Many of his rules make a lot of sense. That said, following those rules will get you boring companies that won’t double or more in a day. And that’s not a bad thing. Most significant money is made slowly – it doesn’t come in a year, much less in a day. That said, I recommend against the newsletter because of the way that it tries to attract people. The rhetoric is over the top, and appeals to those who sense conspiracies keeping them from riches, so join my club where I hand out my secret knowledge so you can benefit. In summary, as a first approximation, don’t invest in penny stocks. The odds are against you. Fools rush in where angels fear to tread. Don’t let greed get the better of you – after all, what is being illustrated is an illusion that retail investors can’t generally achieve. Disclosure: None

5 More Dividend ETFs For Your Consideration

Summary These five dividend ETFs have similar expense ratios but very different yields. Sector analysis shows that the portfolios have some very material differences. SPHD, SDY, and NOBL all work for investors that want to handle their investing in the technology sector on their own. The one that catches my eye for high yield and utility allocations that may go on sale during December is SPHD. One of the areas I frequently cover is ETFs. I’ve been a large proponent of investors holding the core of their portfolio in high quality ETFs with very low expense ratios. The same argument can be made for passive mutual funds with very low expense ratios, though there are fewer of those. In this argument I’m doing a quick comparison of several of the ETFs I have covered and explaining what I like and don’t like about each in the current environment. The Five ETFs Ticker Name Index DLN WisdomTree LargeCap Dividend ETF WisdomTree LargeCap Dividend Index DGRW WisdomTree U.S. Dividend Growth ETF WisdomTree U.S. Quality Dividend Growth Index SPHD PowerShares S&P 500 High Dividend Portfolio ETF S&P 500® Low Volatility High Dividend Index SDY SDPR Dividend ETF S&P High Yield Dividend Aristocrats Index NOBL ProShares S&P 500 Dividend Aristocrats ETF S&P 500® Dividend Aristocrats® Index By covering several of these ETFs in the same article I hope to provide some clarity on the relative attractiveness of the ETFs. One reason investors may struggle to reconcile positions is that investments must be compared on a relative basis and the market is constantly changing which will increase and decrease the relative attractiveness. For investors that want to see precisely which assets I’m holding, I opened my portfolio earlier in November. Dividend Yields I charted the dividend yields from Yahoo Finance for each portfolio. You may notice that despite each of these portfolios being named for dividends, the yields on the ETFs are significantly different. Expense Ratios These funds are all very comparable on expense ratios which is nice for creating a more direct comparison. (click to enlarge) Sector Assuming your decision isn’t based strictly on yields, the next area to look into is the sector allocations. There were clearly no big differences in expense ratios, so this race should really come down to getting a strong enough yield and getting a great sector allocation. I built a fairly nice table for comparing the sector allocations across dividend ETFs to make it substantially easier to get a quick feel for the risk factors: (click to enlarge) First Glance The first thing I would expect investors to notice is that there are a few areas where one or two of the ETFs have vastly different allocations from their peers. The most obvious standouts in this regard are NOBL allocating nearly 28% to the consumer defensive sector and SPHD allocating over 24% to the utility sector. NOBL Since I see a fairly expensive market, I find the heavier allocation to the consumer defensive sector to be appealing. If the market undergoes a severe correction then I would want to be more aggressive with the portfolio when it appeared the worst had passed. In the later stages of a bull market or entering a bear market I’d rather focus on the consumer defensive sector. It is interesting to note that the technology allocation here is zero. If investors feel very confident in analyzing technology companies, it could make NOBL a great fit for them since the lack of technology companies within the fund would work out well for an investor that was managing their own investments in the sector. SPHD SPHD uses a very heavy allocation to utilities. For investors that already build their own utility positions in their portfolio, this wouldn’t be a great fit since it would double up on the exposure. On the other hand, for the investor that does not have utility exposure in their portfolio, the ETF could be a great fit. The utility sector often demonstrates some correlation with bonds because investors treat it as an alternative source of income. This may be a fairly volatile sector going into December because investors are expecting the Federal Reserve to raise rates and if a rate increase is confirmed it could send bond yields higher and utility stocks would be expected to fall at the same time so that the dividend yields would increase. For investors willing to take the exposure on utilities if the stocks go on sale, the middle of December could bring Christmas a little early with sales in the sector. SPHD also offers the highest yield which may be very attractive for investors seeking to grow more income immediately. Similar to NOBL, SPHD has a very low weight for the technology sector. The combination of high yield, utility exposure, and no technology makes it ideal for the dividend growth investor that focuses their research time on technology. What do You Think? Which dividend ETF makes the most sense for you? Do you want to overweight consumer staples for more safety in a downturn or would you rather have more upside in a prolonged bull market? Do you want to own the oil companies, or do you foresee gas as being in a long term downtrend that makes the business model much weaker?

Source Capital: Big Change Is Coming At This Closed-End Fund

SOR has a long and solid history. But the long-time portfolio manager has retired. The portfolio remake in the wake of his retirement changes everything. Source Capital (NYSE: SOR ) is one of the old timers in the closed-end fund, or CEF, world. Over the long haul it’s done pretty well, using a focused portfolio to opportunistically invest in small- and mid-cap companies with high returns on equity. But now that the manager is has retired, throw that history out. Source Capital’s advisor, FPA Group, is changing everything . Out with the old Source Capital’s now-retired manager was Eric Ende. He had been with FPA since 1984 and worked closely with the fund’s previous manager. He took over the fund in 1996 and basically kept running the fund the same way it had been run previously. But Ende has now retired. SOR data by YCharts Unlike the last manager transition, which was nearly 20 years ago, there’s no smooth hand off planned. FPA is taking an entirely new approach with the fund. That’s big news that current investors shouldn’t ignore. For starters, the fund will shift from an all-equity portfolio to a balanced portfolio that mixes stocks and bonds. Stocks will vary from 50% to 70% of assets and bonds will live in the range of 30% to 50%. This, in and of itself, isn’t a bad thing. But it is a vast change from the previous all-stock focus and shareholders need to be aware of the remake. Moreover, Source will no longer be keyed in on small- and mid-cap stocks. Over the next year or so the closed-end fund will be shifted to a globally diversified large-cap focus. Again, not a bad thing, per se, but a big change from what the fund had been doing for decades. There’s also a not-so subtle shift from what was more of a growth bias to a value approach that’s going to be part of this transition. There’s a couple of take aways here. The first is that the closed-end fund’s historical performance isn’t a useful guide anymore. That performance was built on an investment approach that no longer exists. So, for all intents and purposes, Source Capital should be looked at as a new fund. Second, the changes taking place will have a major impact on shareholders financially. For example, FPA expects 100% of the fund to turnover next year. Thus, every stock holding is set to be sold as it resets the portfolio to a new baseline. That will increase trading costs, but, more important, will lead to as much as $39 a share in distributions in 2016, according to FPA. Source Capital’s NAV was recently around $76 a share, so this is a really big event. And expect every penny to be taxable. Source is also going to initiate a stock repurchase program with the aim of reducing the closed-end fund’s discount to it net asset value. That discount is only around 10% right now, so it’s not a huge discrepancy. In fact, a 10% discount is the trigger for the buyback and about the average discount over the trailing three years. So this probably won’t be a big change. But combined with the portfolio remake and expected capital gains distributions, this has the potential to further shrink Source Capital over time. That could lead to higher expenses as there’s fewer assets over which to spread the costs of running the fund-which will now be run by a team of five managers. What should you do? If you’ve owned Source Capital for years, you need to rethink your commitment to the fund. It is no longer the same animal. Moreover, there’s no track record to go on anymore for this CEF and the next year is going to be one of material portfolio change. That, in turn, will lead to a large tax bill. If you like the idea of owning a balanced CEF, you might want to give the new approach some time to prove itself. But don’t look at the next year or so as the start of the new approach-the management team will need around a year to get the fund repositioned. You’ll need to sit through the transition and then start examining performance, perhaps using January 2017 as a “start” date for tracking the new approach. In other words, for a year or so, there’s no way to really know what you own here. If you don’t like the new approach or don’t want to sit through the portfolio makeover, then you might want to sell sooner rather than later. In the end, this is a big change and if you don’t buy in to it for any reason, you should get out. Yes, that could have significant tax implications for your portfolio, but the makeover is going to lead to a tax hit anyway.