Great post, Cliff! I agree with 90% of what you say, and your post is very educational, especially for newbies. I do want to clarify a couple of points, though:
>> Over the past you have seen them shoot 100%, 200% and sometimes even 300% in a single day! I know I don't have to say this, but the same can happen on the downside.<<
True, but the rocketeer "system" offers some protection against downside risk. A BB stock can run up 300% for two reasons: pump/hype, or fundamentals. We pick the fundamentals. What happens is that a company can be severely undervalued becuase it has been shorted, because it is new and unknown, or both (as for ICVI). So if we buy a significant amount of the float in such a company, it will shoot up and reach its fair market value, not a hyped up price. ICVI is far from its fair market value yet, BTW.
On the downside, a BB stock can fall 300% for two reasons: dumping, or fundamentals. Again, we focus on the fundamentals. Dumping is obvious, and comes from professional P&D groups or from MM/shill scare tactics causing nervous investors to sell. By trying to form a solid group of strong hand investors, we guard against this. On fundamentals, they don't usually change overnight. However, BB companies are hard to get good reliable info on, which is where a lot of hard work and DD comes in. As I have said repeatedly, I like MTEI's fundamentals more and more. But if they were to change for the negative, I would tell everyone and reduce my position correspondigly. It is the only honest thing to do.
So because of the above, the companies we invest in have a lot of upside potential with limited downside risk, which is highly unsual in the BB world. That is why we have such few picks, they are hard to find.
>>First off, we hear a lot of people curse and complain about the MMs and wish they were not here. Simple fact is that if they were not here then there would be zero, nadda, zilch trading.<<
NASDAQ would like us to believe that, but it is a bunch of crap. The reason that is a true statement today is beacuse nasdaq made the system to perpetuate itself. To paraphrase from another system that went bankrupt through lies, the nasdaq BB MM system carries within itself the seeds of its own destruction and must die. Unfortunately, it will not die anytime soon, so it will not affect ICVI/MTIE, but let me explain my reasoning if you are interested.
Take the proverbial lemonade stand run by a kid. The kid produces great lemonade, but suppose he can not set his own prices. He has to go to a big bully with a lot of money to "create a lemonade market." The bully buys the kid's lemonade for 20 cents and sells it for 25, keeping a nickel, a nice proit. But there is NO CHECK AND BALANCE. So human greed takes over, and the bully tells the kid that his lemonade is now only worth 15 cents, but he still sells it for 25, making 10 cents. By fixing the spread, the bully makes whatever killing he wants. Now he tells the kid the lemonade is only worth a nickle, and he sells it for 20 cents. Even greater profit even with a drop in price! And he keeps dropping the price bit by bit, to convince the kid that his lemonade is not worth very much, and he should sell it to him cheaper and cheaper. Eventually the lemonade customers go away because they think there is something wrong with lemonade this cheap. In the end he buys the kid's lemonade for a penny and sells it for 2, and it stays there until the kid gives up and closes his stand. The lemonade was still great, but the bully stole all of the profits from everyone. Then he has the audacity to say he is needed in order to create a lemonade market!
Now, the above was just an analogy and is far from perfect, but I use it to illustrate a point. MMs were indeed needed before the financial world was automated, when these little BB stocks were only known to local brokers and were only traded in the local area of the company. But now we have the power of the internet and instant communications and transactions, so why do we still need these guys? Just as etrade and others made revolutionized brokering, so must electronic transactions revolutionize the MM system. If it does not, either one of two things will happen: American public entrepreneurship for small businesses will die, or nasdaq will die. There is already a billion dollar lawsuit against nasdaq in the courts, and I'm sure there are many more to come.
With modern high speed data bases and communications, why do we need an individual sitting in some office calling around to see if they can find shares to borrow in order to rip off an investor? Why can't there be a system that tracks the float and does automatic transactions as in the banking business? Suppose your banker had to call around to find out where he could get money before he cashed your check?
The overwhelming majority of BB stocks are well under a dollar in price. The overwhelming majority of BB stocks are undercapitalized companies teetering on the brink of bankruptcy (not the ones we invest in, BTW). Now, either (1) The overwhelming majority of American public microcaps are undercapitalized, with bad ideas and bad products, or else (2) the majority of American microcaps are being squashed by greedy MMs with no check and balance, who are sacrificing the entrepreneurship spirit on the altar of their own greed. Heck, the only check and balance they have is the 3-day covering rule for shorts, but by wash sales and all kind of tricks you know how well they violate that!
So, does that mean that we are at the mercy of the system and can not invest in any BB company? Absolutely not! Let me leave you with a positive note. ICVI/MTEI, as well as DGIV and INFE, the companies we are currently invested in, have what it takes to succeed in spite of nasdaq. That is huge revenues, or at least the promise of huge revenues based on everything we know. And revenues combined with strong hands means that they will eventually leave this rathole called the BB world, and move into a fairer system, the national nasdaq marketplace. Still will have MMs, but with more checks and balances. By investing now and holding, we will reap the rewards of the full ride. If you want a safer vehicle, wait until they are listed but be prepared to pay a huge premium over today's price.
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