Now that our 48 hours of silence are up, I hope all have had a nice weekend away from Ancor concerns. I was reading the July issue of the AAII Journal, and ran across an article by James B. Cloonan, Chairman of the American Association of Individual Investors. In it he reminds us of the risks of investing in development-stage companies who turn to variable convertible preferred stock to fund the development.
Here are a few lines that caught my eye:
In the arena of speculative stocks, probably the most potentially explosive and the most risky is the high-technology (or biotech) small company still in the development stage (no profits, little income).
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These firms often take longer in the development stage than planned and run through the money originally invested. If they are behind schedule or previously have had to go back for financing, the more traditional financing avenues will be closed. Predatory investment operators will be waiting in the wings with offers to buy variable convertible preferred stock.
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But suppose convertible investors start to short the stock ... with it being considered a hedge rather than a pure short because they are long the convertible.
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Well, of course, if companies wouldn't subscribe to such offers, they wouldn't exist, but a desperate company will do most anything to stay in business because they have hope. The predatory investor doesn't care - he can make a profit whether the company stays in business or not.
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For most individual investors, if you believe in the technology of such companies and have them in your portfolio, keep up-to-date on the company's financing plans. If they are going to, or just have, financed with variable convertibles, sell and wait to pick up the stock again when the price falls.
I'm having trouble reconciling investing against prudent portfolio management and against falling in love with a stock. Is investing more noble than trading? It is easy to see in retrospect that I should have bound myself to the mast and resisted the Sirens singing "buy the dips - big announcement just weeks away". Have I been a 2+ year investor, or just a naive and greedy chump?
Some educations are more expensive than others. The Ancor School of Finance has taught me a lot and cost me a lot. It's probably a euphemism to call my ownership of Ancor stock an investment. It is out-and-out speculation. The preferred stock holders are the investors. They have protection built into their ownership.
Of course whether I retain any of this knowledge in my post-Ancor life (whenever that is) remains to be seen. I hope so - if all I wanted was a bigger retirement account, I could have bought Amazon.com. But those would have been empty dollars, lacking these lessons of the last 18 months.
Greg |
