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Small Cap Stocks Blog is dedicated to the discussion of buying, selling and trading small caps. Any stock discussed on this blog trades on the OTCBB or Pink Sheets. The blog with all response and discussion capabilities can be viewed at

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**Comments found on this page do not represent the views, opinions or policy of Empire Relations Group, Inc. All items found on this page are subjective, except where specifically stated and/or quoted otherwise. The comments are from various members of Empire Relations Group.**

Independent Research

Wednesday, January 25, 2006

As the Chief Executive of a successful New York-based investor relations firm, I am besieged with phone calls from independent research firms that would like to publish research reports about our clients. I usually receive quotes of $25000-$50,000 for these reports. For ten years now, I haven't been able to figure out the value of these literary pieces. They're not really research reports, they're literary pieces.

When approached, I always react the same way, "If you can convince me that you have a following and that the research report is more than just a fluff piece for the pr package, I'm willing to listen."

This is not to say that these companies are not legitimate organizations, I just hesitate identifying their work as research reports. Whenever I read one of these things, I look for 2 things that allow me to quickly determine what value I would attach to one of these reports in doing my own research about a public company. First of all, is there any contact information on the report. I am looking for a company, phone number and name of analyst. If this information isn't available, I look no further. If it's available, then I contact the analyst. Let's just say, for example that the company's main product is serial cards. I will make up a question. Something like, "What about Dell?" If the response is something like, "I didn't know Dell makes serial cards", then you know your obviously dealing with someone that has no real knowledge of the company's market. If the analyst replies by saying, "Dell doesn't make serial cards", can you see why this analyst would have much more credibility. It's an easy thing to do and I highly advise it. If the company is working on a drug for rheumatoid arthritis, I'll say something like, "What about Merck's product?" If the analyst says, "I didn't know Merck has a product", then that research report isn't worth the paper it's printed on. Maybe 2 points in the round file (garbage folks) but that's about it.

It is very important that I mention the following. About a year ago, I visited with Taglich Brothers with one of my clients. After presenting to the person that we met with, the guy said to us that he would gladly produce a report but he couldn't assure a buy rating or even a hold on the stock. In fact, he said, "We just don't take your money and for a fee, give you a buy rating." My client was insulted but I was extremely impressed. I would say that Taglich Brothers is one of the few credible equity research organizations in the marketplace that produce research reports for a fee. Their buy ratings, in my opinion, are not just rubber stamps.

Mark Cuban Speaks

Tuesday, January 24, 2006

After spending almost 20 years around the financial markets and almost all of my adult life, I have to say that I have never read an article that so eloquently, accurately and so simply summarizes Wall Street. Here is the link :


  • I highly advise reading it. Several years ago, I was managing some money for a CEO of a NASDAQ company. This company had buy ratings from several major investment banks in the country. After meeting with my client in the Silicon Valley, he proceeded to give me a presentation about his company that was very technical. I joked with him that I really understood the story and we laughed.

    After asking him if the analysts understood the story, he replied, "You probably understand it better than them." He was talking in particular about an analyst from a major investment bank.

    Cuban points out:

    Part of the process of taking a new company public is something called a road show. The road show is just that. A company getting ready to sell shares visits the big mutual funds, hedge funds, pension funds - anyone who can buy millions of dollars of stock in a single order. It’s a sales tour. 7 days, 63 presentations. We often discussed turning up the volume on the stock. It was the ultimate “Get Loud.” Call it Stockapalooza.

    Prior to the road show, we put together an amazing presentation. We hired consultants to help us. We practiced and practiced. We argued about what we should and shouldn’t say. We had Morgan Stanley and others ask us every possible question they could think of so we wouldn’t look stupid when we sat in front of these savvy investors.

    Savvy investors? I was shocked. Of the 63 companies and 400-plus participants we visited, I would be exaggerating if I said we got 10 good questions about our business and how it worked. The vast majority of people in the meetings had no clue who we were or what we did. They just knew that there were a lot of people talking about the company and they should be there.

    The lack of knowledge at the meetings got to be such a joke between Todd and I that we used to purposely mess up to see if anyone noticed. Or we would have pet lines that we would make up to crack each other up. Did we ruin our chance for the IPO? Was our product so complicated that no one got it and as a result no one bought the stock? Hell no. They might not have had a clue, but that didn’t stop them from buying the stock. We batted 1.000. Every single investor we talked to placed the maximum order allowable for the stock.

    How does this relate to small cap stocks? One of the things that you should take from Cuban's post is that stocks rarely trade on fundamentals. Their valuations are based on supply and demand. So the next time you're in a penny stock that has made a big move to your advantage, assume that the move was based on increased demand which doesn't really mean that business fundamentals for that company are any better.

    Once again, read the article. It is Five Star Entertainment

    OTCBB and Pink Sheet News

    Monday, January 23, 2006

    As a housekeeping note, there seems to be a tremendous void in the marketplace for a place for investors to visit for a summary of all news releases for OTCBB and Pink Sheet Companies.

    We are currently engaged in constructing a new section for this site so that you can see a daily summary for all OTCBB and Pink Sheet News. Look for this section to be completed in the next few weeks.

    Penny Stock Recommendations

    Monday, January 23, 2006

    Over the past few years, there has been a litany of newsletters popping up throughout North America touting penny stocks that could rise 1000% over the next year. This post is meant to protect you, the reader of

    Many of these newsletters are distributed through junk faxes and unauthorized emails. Here is a simple rule that you should really think about. What reputable organization distributes a stock recommendation with no contact information for the advisor? That coupled with no website is a recipe for investment disaster. Stay clear of all penny stock advisory services that distribute a stock tout without any contact information.

    NOBO List - Important Information - Remove Yourself Now !

    Thursday, January 19, 2006

    If you own stock that is held with a brokerage firm, your stock is held in street name. Street name is the name given to securities held in the name of a brokerage. Registered shareholders are individuals or institutions that have physical possession of their shares. Typically, street name beneficial owners are not identifiable. However, a public company may be able to identify a portion of the “street name” population by obtaining a listing of Non-Objecting Beneficial Owners (“NOBO” list).

    Issuers request a "NOBO" List from ADP, a NYSE public company that has signed contracts with many of the brokerage firms in North America to send proxy materials to shareholders. Many small cap companies work with scandalous stock promoters that regularly request these "NOBO" lists to see who owns the stock. Would you want someone seeing your bank account? Then, you shouldn't want to give someone the ability to know how many shares you own of a given security. It is simply nobody's business except your own.

    We have good news for you. Becoming an Objecting Beneficial Owner ("OBO") is easy. Being an Objecting Beneficial Owner simply means that the next time a query is placed to ADP by the public company, your name will not be on the list. This will not affect your ability to receive proxy materials. It simply means that your position in the security will be guarded information. Simply, contact your broker and tell them that you would like to become an OBO. Chances are that the broker does not do it often unless he has other customers who read Small Cap Stocks Blog. The great news is that the paperwork is simple and will take all of about 60 seconds to complete.

    Most institutions are OBO's. You should be one also.

    A Big Red Flag - The Popular is not Popular at this Blog

    Monday, January 16, 2006

    In the investment world, we must learn how to play defense. Just like any good sports team, a good investor has an offensive mode without forgetting about defense.

    By nature, I'm a very positive person. However, I'm always searching for red flags in a company that would tell me to stay away.

    Two years ago, I was researching a company and I saw that they issued an announcement about the effectiveness of one of their drugs for Severe Acute Respiratory Syndrome (SARS). It was about the same time that SARS began to become prevalent in the media, the new hot story on CNN. I researched the company's SEC filings and there was no other reference to SARS in the company's SEC filings. I would bet that company didn't even have a strain of the SARS virus to test their drug and yet they were stating that their drug could be effective. That type of claim was about as credible as me saying that I could play shortstop for the New York Yankees. There was simply no solid basis for that claim.

    Over the past 6 months, we've seen a few companies participating in the Bird Flu Olympics. I would stay away from those companies.

    Look out for an announcement from a company to announce that their technology could have saved the miners in West Virginia. Then, run and don't stop.

    The Best Investment Lesson

    Wednesday, January 11, 2006

    This is an old story that I like to tell several times a year. Throughout my career on Wall Street, I've been fortunate to meet some folks that have provided me with a million dollar education. Once again, if you heard this story, please forgive me. Read on.

    One day, a man approaches an innocent bystander and asks, "Would you like to buy a can of tuna fish?"

    The person perplexed as to why someone would approach him with the proposition to buy a can of tuna fish replies, "How much?" After being told that the can of tuna fish is $4.00, he replies, "That's crazy, I can buy a can for $0.89 in the local supermarket."

    After some persuasion and after being told that this is the best can of tuna fish he would ever eat, he buys the can.

    After holding the can for a few weeks, the second man decides to employ the same tactic. He finds a consumer and after hesitating for a few moments, he asks, "Would you like to buy a can of tuna fish?" The man asks how much and he replies, "$8 dollars."

    The consumer replies, "That's ridiculous. Tuna fish is less than $1.00 a can."

    But by using the almost exact pitch that he had heard just a few weeks earlier, he is able to sell the can for $8 or a 100 percent profit in about three weeks.

    The third man holds the can for a few days and inexplicably decides that he doesn't want the can of tuna. He approaches someone at the local store and whispers, "Would you like to buy this can of tuna?"

    The middle aged woman who he approached asks, "How much?"

    In a voice that can be barely heard, he says, "$16 dollars."

    The woman, laughing uncontrollably replies, "That is the most foolish thing I have ever heard in my life." She states that the price is 16 times the going rate for a can of tuna.

    The man, convinced that the woman should buy says, "Maam, I'm telling you this is great tuna. Just buy it!!"

    After hesitating for a few moments, the woman buys the can of tuna.

    A few days later, the third man is approached by a crazed, irate woman. The same woman that he had sold the can of tuna fish to only days earlier.

    "You ripped me off!!" she screams. "You ripped me off!!"

    "Hold on, what happened?"

    She screams, " I bought that can of tuna and ate it and it was an ordinary can of tuna. I want my money back."

    The man, not believing the mistake the woman had made says, "Lady, it's not my fault. You have to understand, there are 2 types of tuna. Real tuna and trading tuna. It's not my fault that you thought that you had real tuna. I never said that."

    And so, the lesson was learned.


    Because, most of the stocks that we buy are trading fish. Don't ever believe that you have the real thing until you are really sure. We trade trading fish and we consume and hold on to the real thing. Just ask Mr. Buffett. He never sells his fish.

    SEC Public Reference is an Important Number

    Monday, January 09, 2006

    Almost all of us have invested in a company that has completed a registration for additional stock. SEC filings such as SB-2 and an S-3 are examples of registrations. In most cases, the stock that is linked to that registration has been or will be purchased at a discount to the market price of the stock.

    Typically, a stock registration will be effective about 3-4 months after the registration statement was filed with the United States Securities and Exchange Commission. Unfortunately, this is just an estimate and there are many things that can affect the timeframe such as missing information on the registration statement. Additional information requests by the SEC to the issuer (the public company) and the general SEC workload could also affect the time that is takes for a registration statement to be effective.

    I would make it my business to have the SEC Public Reference in my list of important numbers and here's why. Can you think of any more important information to an investor than to know when the stock that was sold at a significant discount to the market will be eligible for sale? If a stock now is $1.00 and the stock was sold at $0.40, don't you think that there will be pressure on the stock when that stock is eligible for resale? For small cap stock investors, this can be the difference between success and failure.

    Here's how it works and FYI, it's free. Just go to any site on the internet that lists SEC filings. If the company that you invested in has filed an SB-2 (typical for small companies), then I would begin calling the SEC number to find out if that registration statement is effective. Effective means that it is now registered stock, the registration statement has been accepted by the SEC and most importantly, the stock is now eligible for sale. Just give the file number for that registration statement to the SEC representative and tell them that you want to know if it is effective.. If it is, watch for pressure on the stock. OK?

    And the number is ……………………………… (202) 942-8090

    CEOs of Multiple Companies

    Wednesday, January 04, 2006

    I work about 50 hours a week and when I get home at night, I'm exhausted.

    I always admire these people that can be CEO of 2, 3 and possibly even 5 companies. In fact, I admire these people so much that I always invest in their companies. Of course, I'm being facetious. I stay away. I never invest in these companies. I run, run, run. Can I make it any clearer?

    How the (*&*&& ) can anyone have the time to run four companies. In the future, I would suggest to visit a site that allows you to search SEC filings by name. If the same person is CEO of multiple companies, I would suggest to be careful.

    Just like many of our other posts, a little time spent complying with our suggestion and a few cents may save you thousands.


    CEO of One Company

    Message Boards on Small Caps

    Wednesday, January 04, 2006

    The Ten Commandments of Message Boards

    Are the message boards for small caps valuable? The answer is absolutely? However, it is imperative that you manage your time effectively. Otherwise, you'll find yourself without a job.

    Here are my rules regarding message boards.

    1. I completely ignore all stock price predictions. My predictions are as good as theirs.
    2. I completely ignore any references to charts. You can't chart illiquid or very volatile low priced stocks.
    3. I completely ignore people that bash other posters. If you have the time to do that, you're either a child or you have no money.
    4. I completely ignore all people that post messages such as "Big News is Coming". I question the wisdom of anyone who posts something of that nature on a public message board.
    5. I completely ignore the people that can't spell. Spelling isn't related to investment knowledge but I'll take my chances on my intuition.
    6. I completely ignore anyone that posts more than 3 messages in a given day. Get a job!!!!
    7. I pay close attention to anyone that says that they spoke to the CEO or CFO. Then, I call the CEO. I love to invest in stocks of small cap companies in which the CEO is willing to talk to shareholders.
    8. I pay close attention to anyone that references the technology or science that seems to know what they're talking about. Of course, trust but verify.
    9. I pay close attention to anyone that tells me something that I don't want to here but may save me money. I'm not always right.
    10. I pay close attention to anyone that references any scientific or technological sources away from that message board that directly pertain to my investment. It tells me that they're really doing they're homework.
    11. Most importantly, trust but verify.

    Please Announce the Terms on Small Cap Stocks

    Thursday, December 22, 2005

    I hate when a public company says, "Terms were not announced."

    If the terms were so good, wouldn't they announce them?

    This type of public relations really turns me off. In 90% of all cases, terms were not announced because the terms were simply not that attractive.

    I'm still waiting for the opportunity when I see an announcement that says, "Terms were just too good."

    That's the stock I want to own.

    Buy Small Caps for a Reason

    Wednesday, December 21, 2005

    "Buy a stock for a reason and when that reason no longer exists, sell it!!!!"

    If you don't believe that this is not one of the best pieces of advice you ever received, I'll prove that it is.

    Below are several scenarios. If you fit into one of these scenarios, I win. If you don't. I lose.

    You heard that Company X is coming out with an announcement. It is supposed to be next week. Three weeks later, there is no announcement. You hold onto the stock and you lost money.

    You heard that Company A, a healthcare company, is issuing a press release regarding one of their products which cures or treats something. The press release is issued, the stock doesn't go up, but you continue to hold on. You lost money.

    You heard that Company B, a technology company, is getting a big contract. They receive the contract but the announcement says terms will not be disclosed. The stock goes up some but over a few days, it falls right back to the price that you paid. You continue to hold on and then, you lost money.

    You hear that Company E is going to beat earnings. Earnings are up slightly or flat. The stock trades flat for a day but you hold on and eventually, you lost money.

    This rule applies to all stocks. In fact, most professional traders and investors will tell you that this is the most difficult thing to do but it's essential if you want to be successful.

    Are you one of these people? Betcha I won.

    Friday, December 16, 2005

    Share Price Doesn't Mean Much

    I never really understood the value of floats.

    It's like saying, " The man is 200 lbs., 6 feet three inches, and has a 36 inch arm." Unless I am engaging in a boxing match with that individual, I don't care about his arm length.

    I cringe when I hear people asking, " What's the float?" First of all, they probably don't even understand what they're asking for. Second, does it really matter?

    Here is the only time float matters to me. I see a stock running on Nasdaq and it's up 15% for the day. If I see that the company has 30 million shares outstanding and a float of 3 million, I may be more hesitant to buy that stock knowing the reason for the run could be lack of supply. Using the same example, I would be much more willing to buy a stock if there are 30 million shares outstanding and the float is 24 million.

    Float allows to me to apply the theory of supply and demand to any stock run. That's the only thing it's good for other than ice cream. A little humor for the holiday season !!!

    Thursday, December 08, 2005

    Share Price Doesn't Mean Much


    You'd be amazed how many times I witnessed the following scenario. I just completed a presentation to a friend, colleague or investor about the investment merits of a public company.

    Then someone asks, "What's the stock trading at?"
    I respond, "One dollar and 25 cents."
    I hear, "Wow, that's cheap. Or 6 cents, that's cheap. Eighty dollars, wow that's expensive."

    Warren Buffet, arguably the most successful investor of all-time understands this better than most. I wish I had a few drops of sodium pentothal to give old Mr. Buffet. I'd ask, " So how come you never split the stock.?" I'd probably hear, " Less shareholders, everybody thinks it's too expensive."

    We must all remember that we are ultimately investing in a public company. After you've done all your research, shares outstanding multiplied by stock price determines if a stock is cheap. If one company has 1 million shares outstanding at $1 a share and the other has 5 million shares at 20 cents, which is cheaper? I hope you get the point.

    This topic and this post are extremely relevant to investing in the small cap stock market. I'd guess that over half of all investors never even bother to find out how many shares are outstanding. The share price doesn't mean much. Sad but true.

    Tuesday, December 06, 2005

    47 Cents Can Help You Save Thousands

    I attempted to contact a company the other day to do some research. The phone number listed on their 10K was disconnected and there was no forwarding number. I would also bet that if I sent a letter to the company, it would be returned by the post office with a stamp that reads "No such addressee".

    Sometimes, the art of investing is an application of good old fashioned common sense. A disconnected number with no forwarding number and a bad address listed on an SEC filing indicates that something is not right. At the very least, it tells me that management of that company isn't very responsible.

    With about 5 minutes of your time and about 47 cents of your hard earned dollars (10 cents for the phone call and 37 cents for the stamp), you can save yourself of a lot of money and lost sleep.

    What should you say in the letter you ask?

      Dear Sir:
        I am an interested investor and I just wanted to make sure that a company actually exists at this address.

      Smart Investor

    Thursday, December 01, 2005

    Revenues or Earnings

    Most investors know what the term PE means. It simply means price of stock divided by the earnings per share. It is a basic and yet important measurement to determine the pricing of a stock. Is it overpriced or cheap? As we become more sophisticated in our analysis of public stocks, we will use the PE of a stock to compare the value of that stock to other stocks in the same sector. We can even value the stock based on a PE to the overall market. It's a basic but important analysis tool.

    When I invest in small cap stocks (For purposes of this blog, it usually means OTCBB or Pink Sheet stocks), I tend to disregard net income, earnings per share and PE's unless the company is doing at least $10 million in revenues. In the small cap market, I really am focused on the revenue growth. Let me explain.

    Take for example a company that in 2004 did $2.7 million in revenues and earned $900,000. Most investors would conclude that the profit margins are good. But in the following year, what would excite me more?

    • $2.9 million in revenues and $1.3 in net income.

    • $9 million in revenues and $150,000 in net income.

    Scenario number 2 will cause a buzz among sophisticated in investors. Scenario number 1 typically leads to a good, healthy yawn. Why?

    Scenario 1 doesn't tell me much. Does the company have room to grow? Did they lay off employees? Did they cut back on advertising expense? Did they save on a new healthcare plan?Does management know how to grow the company?

    Scenario 2 tells me one thing. The company is growing and many more people are now buying their product or service. A few years down the line and if profit margins are still low, I'll start to ask questions about the business margins. However, at the early stages of growth, I am always interested in the revenues more than earnings. It's a good rule to remember. If I want profit margins, I'll buy blue chips. If I want Scenario 1, I'll invest in the local restaurant.

    Wednesday, November 30, 2005

    More Market Makers are Better

    I typically like to invest into small cap stocks only if they have at least 10 market makers.

    Markets makers are predominantly in the business of trading off your orders and trading off order flow. Contrary to the opinion of masses that has developed over the past few years, market makers are not usually in the business of creating a large short or long position in an OTCBB or Pink Sheet stock that will be sustained over time unless there is an extremely good reason. As one of the smartest traders that I have ever met once said, "If you're wrong, it's financial suicide."

    Therefore, more market makers is usually a positive attribute for any small cap stock. More market makers usually create less risk for the market makers. It's the old fashioned game of Hot Potato. If it's too hot, you can pass it on too someone. This on the same line of thinking creates less of a spread (difference between bid and ask) in the stock quote which is usually attractive to most investors. More market makers also creates a more orderly and efficient market.

    It's a simple rule. Look for at least 10 market makers in a stock.

    Tuesday, November 29, 2005


    Before we say a word about this company, it's important that we state that we are the owner of approximately 550,000 shares of Health Discovery Corporation. This is not a solicitation of any offer to buy or sell. Empire Relations Group Inc., its affiliates, directors, officers, employees and employee benefit programs have a long position in the securities of this Company. We reserve the right and have the right to sell this position anytime in the future.

    Health Discovery Corporation is focused on the discovery of biomarkers and the applications of those biomarkers in the pharmaceutical industry, diagnostics industries, medical imaging and personalized medicine.

    Biomarkers are characteristics present in the human body that are measured to indicate the presence of a disease. Prostate specific antigen is a biomarker widely used for prostate cancer. Biomarkers as simple as high blood sugar levels could indicate the onset of diabetes.

    Biomarkers could be used to:

    1. Understand disease pathways
    2. Measure drug efficacy on the biomarker as a primary of secondary endpoint for a clinical trial.
    3. Conduct clinical trials more efficiently
    4. Expedite the drug approval process
    5. Improve safety

    The completion of the sequencing of the human genome coupled with the emergence of proteomics in addition to sophisticated data analysis tools such as support vector machines has created a new opportunity for biomarker discovery.

    Essentially, all diagnostic tests that measure anything in bodily fluid are based on a biomarker. The importance of clinically relevant biomarkers is just beginning to be known in the pharmaceutical industry. Health Discovery Corporation may be at the forefront of new discoveries.

    The Company just recently announced the sale of the AIDS Biomarker Signature discovered by company scientists using one of the Company's discovery tools. The sale was completed with the University of Miami.

    In addition, the Company recently announced a licensing agreement with Clarient, Inc. (CLRT:NASDAQ).

    To conclude, keep any eye on this one. Like many small cap stocks, this company does have some money issues.

    Tuesday, November 29, 2005

    Analysts and Small Cap Stocks

    Around the year 2000, I had the fortunate experience of being involved in a stock that made a move from 35 cents to over 50 dollars. At the time, I was a stockbroker in New York managing money for very high net worth individuals. Yes, you could win with small cap stocks, For the purposes of this blog, small cap stocks usually mean OTCBB or pink sheet securities.

    Over the years, I've always asked myself the question, "Why don't analysts recommend small cap stocks?" Here are the most conventional answers.

    1. They're too thin and the analysts could move the price erratically.
    2. Too risky.
    Although there is some truth to these answers, I believe it goes much further than this.

    1. Analysts are in the business of helping Wall Street develop banking fees. How much could the banking fee be for a company only trading with a $20 million capitalization?
    2. Yes, they are risky but so is Google at $400. The difference is that most OTCBB and Pink Sheet companies will not be around in 2 years. Although Google may be $200, most people forget that an analyst told you to buy it at $400. But if an analyst tells you to buy a stock at 70 cents and it goes to 0, people usually don't forget.
    3. In addition, it is correct that the small cap stocks are thin. Unfortunately, so is a stock trading at a $100 million dollar cap that's been around for 10 years, spent hundreds of millions of dollars in shareholder money, and has never created $1 in operating revenues.

    In addition, it is correct that the small cap stocks are thin. Unfortunately, so is a stock trading at a $100 million dollar cap that's been around for 10 years, spent hundreds of millions of dollars in shareholder money, and has never created $1 in operating revenues.
    1. Small Cap Stocks don't offer the investment banking opportunities of companies trading on more senior exchanges.
    2. Analysts define the herd mentality on Wall Street.

    Tuesday, November 22, 2005

    Billions of Shares

    I get a bit nervous when I look at a company's balance sheet and I see billions of shares outstanding. Of course, I'm not referring to companies such as Intel and Microsoft. They've done quite well for shareholders. I'm actually referring to small, OTCBB and Pink Sheet companies. This is not the final determining factor for me whether to invest or pass but billions of shares outstanding is not a positive attribute for a small company.

    Investing requires an application of common sense. When I see billions of shares outstanding, I usually look for the following:

    • 1. Financings that are not friendly to shareholders.
    • 2. A company with a history of operations with no success.
    As one of my business associates once said, "Either conclusion is not good for us."

    Friday, November 18, 2005

    A Tip

    I had an epiphany this afternoon.

    I was sitting at my desk when my phone suddenly rang. It was a friend calling with one of those stock tips. They go something like this.

    "Listen, I'm not sure about this but my friend heard that something may happen with ABCD Company. I don't know what he knows but he usually gets good info. "

    I thanked him and I suddenly envisioned one of those guys at an off track betting service looking to hit the triple on the thoroughbreds. You know, the guy who looks like he hasn't eaten in a few weeks.

    This is no reflection on my friend who I have a deep amount of respect for and who is a rather successful guy. Unfortunately, the fact is, tips usually don't work out.

    Sometimes I write down a really good quote. A few years ago, I wrote this down, "A few million dollars of my net worth could be attributed to avoiding tips."

    I don't ever forget a good tip.

    Thursday, November 17, 2005

    Executions on Small Caps

    In June 1988, I began my career as a securities broker in New York. For 13 years, I had a very successful career as a broker. I primarily spent my career at 3 different firms on Wall Street.

    With that said, I believe I understand Wall Street very well. The knowledge I gained was the direct result of 13 years in the trenches on Wall Street.

    These days, I trade actively for my own account. Several times on a weekly basis, I get frustrated trading my account. The frustration stems from the execution of orders, especially in OTCBB and Pink Sheet stocks. It is important that I bring this to the attention of the "trading public".

    Let's just say theoretically a stock is trading at 10 cents (bid) 12 cents (offer) to make it simple. If an order is given to a trader to sell 10,000 shares at the bid (in other words, the order is given with a limit of 10 cents), you will see that the market will probably change to 10 cents (bid) 11 cents (offer). If you immediately look at the Level 2, the firm now offering the stock out is probably the firm that the order was routed to if your broker dealer does not make a market in the stock. Put two or 3 orders in a row to sell the stock on the bid and you'll probably see the same firm go low offer on the stock. Let me say unequivocally that this practice should not be allowed and as far as we're concerned, the trader is not properly following the rules of execution. That trader has an obligation to sell the stock on the bid in a timely manner if the limit order is equivalent to the bid until either that bid price has dropped or your order is filled.

    For a novice who may be reading this post, the significance is that the trader is affecting your ability to get an execution. Here is the rule. Put 2 or 3 orders in a row in to sell the stock. Watch the bid and offer carefully. If the offer drops and the same market maker is lowering the offer a few minutes after you have submitted your order each time, then that market maker is not following the rules and is affecting your ability to execute a trade. This only applies if your limit order is on the bid. Otherwise, the market maker is free to execute the order or as we say in the business, work the order. The same applies for buying a stock. If the stock is quoted 10 (bid) 12 (offer), then that market maker has an obligation to execute the order on the offer ( in this case, 12) if your limit order is 12. Many investors may think this is trivial but it is not. It is actually complicated and probably happens on a large percentage of orders in small stocks.

    Wednesday, November 16, 2005

    The Great Myth of Shorts

    As I peruse the messageboards on the Internet, I can't help but to notice all the chatter about the number of shorts on small cap stocks (OTCBB and Pink Sheets). The chatter seems to increase at the time when a stock price is going down. Although there are people that are involved in the shorting of 1 and 2 cent stocks on the OTCBB and Pink Sheets, I don't believe that most real players in the short game are shorting 1 and 2 cent stocks. Of course, there are rare instances that a stock may have substantial liquidity to establish a short position. With that said, should we really worry about an individual or an institution shorting $15,000 worth of a public company's stock.

    Take an example of a company that has 16,000,000 shares outstanding and a stock trading at 10 cents. Let's face it, shorting that stock with a substantial position is potential financial suicide. Good news and the stock is at 80 cents and then try to cover. You're dead !!!!!!!

    I always tell our clients the same thing. The short in a small cap stock is usually either an impatient shareholder or the short could be a potential or existing financier. However, no major wirehouse would endorse any of their traders going short $100,000 of stock in a company that trades at a market cap of $2,000,000. The point is to stop worrying about the shorts. In most cases, the shorts on small cap stocks are usually ghosts. Spend your effort on building the company and if you are a sharholder, just open your eyes.

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