This e mail came to me from capital I must be on thier mailing list
for what this is worth
From: "R. Thomas Biggers" <rbiggers@slonet.org>
Any word, comments or suggestions on MBHC, and why it keeps getting kicked
further and further downwards? Doesn't seem to make a lot of sense, based on
the news I have seen, and the fundamentals of the stock, unless I have missed
something along the way.
Would be interested in anybody's opinion on this one....
Tom
=== Tom, you have a knack for prompting us into essays<g>.
We have some generalized comments regarding MBHC, which are not, in the
end, peculiar to that company. We will use it solely as an example.
We began talking about MBHC near 12 cents. Suddenly, we had contacts from 2
folks working in the IR field, calls from the CEO. The company appeared to
have significant prospects for increased business, and some quality
alliances in its industry, and so was clearly worth a look. It was also
obvious that there would be at least an attempt by those involved to
attract attention to the stock which, of course, would move it into play.
Waaco often likes to focus on such stocks as trading vehicles, as the moves
can sometimes be dramatic to the upside, if you catch the ride early, and
watch your butt on the downside, i.e., sell into declines, just like
professional traders, although they often sell short or buy puts into a
decline, because the more liquid stocks offer that option. The OTC BB does
not really offer those options to the average Joe.
So here was a company beginning to attract attention, by contracting with
some extra IR folks, getting feature spots at a couple websites, issuing
press releases, getting scads of talk by neophyte investors at
techstocks.com. The numbers bandied about were almost irresistable. Too
good to be true, in a way, but we'll get to that in a bit. Just keep in
mind that we said as much on a number of occassions.
Anyway, company x was making its prospects known for pretty much the first
time, and announced intentions to gain credibility via completed audits and
applications to become a fully reporting company. Good for them, good for
the public. Nothing wrong with disclosure.
However, 'talk' sometimes goes far beyond disclosure requirements. Under
such circumstances, it seems prudent to separate what the company itself is
actually officially saying in press releases and filings, and what the buzz
is saying. How far apart are those sources of information, especially in
terms of numbers? Say, for example, you have a stock at 12 cents, or 1/2,
3/4, and the last numbers from the company itself reported sustantial
losses, and over 20m shares fully diluted, and a book value of pennies, but
the talk around the net is saying a book value near $3, 6m shares
outstanding, all closely held, etc., talking about earnings prospects in a
positive sense, stock price going from 12 cents to 3-1/2...what is wrong
with this set of pictures?
If the pictures don't match, WHY don't they match? Does it mean either
picture is completely wrong? Not necessarilly. But the answer had better
inform your transaction strategies.
In the case of MBHC, what officially emanated from the company was in wide
divergence from what one could find in a number of places round the net.
Who was 'talking up' the stock? Primarily, those whom the company paid with
cheap or free stock, as is the norm among micros, without the ability to
pay contractors in cash. Secondarily, those whom the compensated, or
otherwise equity-interested folks, had convinced with some 'whisper
numbers' that the stock price was ultimately heading quite higher, in this
case, to a hypothetical book value based on some holdings in an undisclosed
'fund' whose assets were could not be disclosed but were reportedly,
subject to audits that took forever to finish (another red flag) sufficient
to establish a higher stock price on that basis alone. Throw in some news
of impending acquisitions and strategic alliances, and, to be fair, some
actual revenues increases issued in an official press release.
In short, the insiders, and those whom they hired, had a lot to gain from a
higher price, and began 'leaking' info and appearing at conventions and so
forth.
Don't misunderstand us: this is normal activity. We are not condemning MBHC
for this at all. In fact, it may indeed have been looking after the best
interests of *most* of its shareholders by initiating this dynamic.
Huh? See, MBHC, as we pointed out several times, gave the world advance
notice that it was going to seek financing to carry out some business
plans. Told us all very plainly. All one needed to do was read what the
company officially DISCLOSED, as distinct from what was getting said ABOUT
the company from WITHOUT--such as the talk on SI.
Keep in mind that many of those folks came to the party very late--after
the stock had run--and so had downside to protect.
But back to the company: it said it needed to raise money to execute plans.
Let's say it needed $5m. Would it not be in the interests of its
shareholders to sell 5m shares at 1, than 20m at 1/4? Clearly, the dilution
would be far easier to live with.
So, it 'facilitates' a flow of information, designed to move the stock
price higher. Sudden spurts of information tend to create buying sprees in
microcaps, and buying sprees lead to dramatic price increases. Whisper
numbers were indicating a value at 2 or 3 or something, which, for example,
may have enabled the company to sell 5m shares at $1 (we are pulling
numbers out of a hat here, and don't know the specifics). The company would
have a higher quality financing, the capital to move forward, the
shareholders would be less diluted. Everybody happy, right?
Glitch.
The very same process that begins as if it will succeed often fails
miserably. The attention attracted by the 'buzz' among neophytes and those
with clear profit agendas also attracts attention by skeptics, and assorted
folks who just plain "know better.'
These parties ask questions. These parties note the divergence in company
supplied information and the Wishful Thinking of the Silicon Lambs.
Suddenly, the rally stops. The stock never gets anywhere near the whisper
targets. Even the lambs cease, as it were, counting sheep and chickens
before they hatch (ouch...sorry....get me an editor<g>) and wake to begin
asking some questions. Some don't like the answers. Some sell. No one is
lining up to buy anymore. The price collapses, as micros tend to be
illiquid, and the past 6 months has been berry berry bad to both micros and
selected financial services sectors. Cramer's 'houses of pain' are just so
many funhouses in comparison to holding a diving microcap.
So, what's the company to do? It started out with good intentions: to raise
capital required to implement strategies designed to grow the company,
increase sales and earnings, and benefit all shareholders. To do so, it did
what it had to do, as virtually all public companies had to do at some
point in their entrepreneurial paths. It's unfortunate, but not criminal.
Decision time: it still needs the bucks. It's plans may still be viable.
But it will cost more to make it happen. It will need to sell more shares
at a lower price. The company has an obligation, after all, to persist as
an ongoing venture. It must think not only of its shareholders, but
employees and creditors, all of whom deserve their paychecks. Everyone has
kids and bills and dreams.
So, sharpies see that either a financing has been done near where the
company wanted to do it originally, and see an opportunity to help
unscrupulous funders short the stock to hell and not back to guarantee a
profitable exit, or they know that the financing in the works is going to
represent substantial dilution, and short the stock to hell and not back,
or some holders see the stock dropping, and they dump what they can, which
drives the stock to hell and not back, and folks who bought into the rally
and especially those who bought near the top are selling, or holders of
past financings are suddenly holding shares now free-trading, and sell what
they can, which drives the stock to h.... and all the while no one is
buying...
What's the cliche about the best laid plans?
Cliche's get to *be* cliches in the first place because, in part, they
reflect a truth.
Ever go to a palm reader? They often purport to tell your future. They do
so by looking VERY closely at your hands. They claim to be able to foretell
your future by looking at what you have, RIGHT NOW, in your hands.
NOT what might be there sometime later, but that which is in your hands
right NOW.
What was *actually* in MBHC's hands when the stock price was near 50, or 80
cents? We questioned it here several times.
What is *actually in* any company's hands during its 'buzz' periods? Is
that worth what the market is suggesting? Who is behind the market making
that suggestion?
Answers to the above are one way to distinguish traders from investors, and
should influence the timing of any transactions made within either approach. |
