here u go boys and girls the way these guys played u all....
THE BIG LIE
By George Chelekis
Anyone losing money in their small cap stock speculations should understand they have
been, and probably are still being,
played like a fiddle. In case you hadn't noticed, you are SUPPOSED to lose in these
markets. The odds of your finding out
about a "really great deal" in the early stages are about 1 in 1000. By the time you hear
about this great small cap stock play,
chances are you should be selling instead of buying. Instead, you are playing a game in
which your outcome has already been
determined.
The worst trick ever played on speculators is the share price itself. The share price is
what traps the speculator into his
investment. THIS is what the small-time speculator watches and what ultimately causes
him to lose money. As with any magic
act, the magician convinces the audience to look at the WRONG hand. But, just like
magic, once you know how the trick
works, you can avoid getting trapped in a losing proposition.
Forget about the "storied stock." Forget about the geologist's report. Forget about what
your favorite newsletter thinks about a
particular company. Sure, those can help you understand your speculation, but more
often than not, you will still end up losing
money. There is only ONE way to get an advantage over the house odds. If I told you
right now, you wouldn't believe it. So
please continue reading so you understand that this is the way it is.
ME FIRST.....
You are not the first one into any deal and probably never will be. An insider's first
action is to accumulate as many shares in a
failed company. This is called "cleaning up" all the stock. Let's say that GM Oil & Gas
once ran up on speculative fever that
they would score a big oil discovery. They didn't. The stock sunk and then headed
south from there, over a period of years.
Management failed to attract new financing, could not find a great new project and
simply gave up. Shareholders continued
exiting the stock, aside from those who forgot they ever had any. Eventually, someone
needs a "shell." This is how the
professionals refer to a publicly traded company, lacking a project.
The new insiders quietly accumulate all the shares in this company, sometimes over a
number of years. It's kind of a tug-of-war
between the old shareholders and the new insiders. If the old shareholders found out
that some big new project was coming
into their company, a whole new set of promotion was about to begin and their shares
would suddenly become more valuable,
do you think they would sell out for peanuts? Of course not. So, over time and through
attrition, the new insiders take over the
old company. (Usually a few of the curmudgeons stick it out, refusing to let go of their
old shares for three, four or five cents.)
This is called ACCUMULATION (Accumulation/Markup/Distribution). The new
broom eventually sweeps out most of the old
shareholders and now owns the control block of shares in the old company. Imagine
how it feels to pick up five or ten million
shares in an old dog for $300,000 or less. Very risky business being the first one into a
play.
THE NEW PROPERTY
One quiet day, GM Oil & Gas announces a letter of intent with PK Jaguar Ltd.
(Bahamas) to acquire their interests in a Yukon
gold property. The insiders now have a new property. It may be just a letter of intent or
an option to acquire those concessions,
but they'll tell you they have a "new property." Sometime down the road.
GM Oil & Gas may then rollback their stock and do a name change or they may just
change their name in order to reflect their
new business. The new name might be Yukon Explorations. Financing may be obtained,
often to pay off the loan sharks or
others from whom the original $300,000 was borrowed. The company will soon have a
steady stream of news releases to
apprise you of the "joys of exploring in the Yukon." But wait, not quite yet.
THE SET-UP
The insiders could be anyone from ex-real estate brokers and ex-insurance salesmen to
sheep farmers and ex-stockbrokers.
Some may even have a degree. Some of the pedigreed insiders may actually be
geologists. Most have some close relationship
to current or past promoters, either through business or family ties. They probably know
absolutely nothing about the business
in which they are in. Often, the company will have someone on their board (who has
been granted options for the use of his
name) who does know something about that business. Whether he is actively consulted
is completely irrelevant to the insider.
Other directors may function solely as nominees for the insiders and also know nothing
about this business. (True story: One
pretty young lass in Hy's Steakhouse [Vancouver] was conversing with an elderly
gentleman and asked him as I was passing
by: "So, if I'm a director, what exactly is my job? What job do I do for all of these
options you are giving me?")
What the insiders specialize in, if they are any good, is finding a stock promoter. They
hold paper, which may or may not be
completely paid off. It is worthless paper, really. But, with a stock promoter, those
shares could be given a "perceived" value of
20 to 40 times greater than their present market value.
When the insider is setting the groundwork for his early stage promotion, his first action
is to tell his closest friends and family
members about his company. They probably already know about it and are sick/tired of
hearing about it. But, as soon as he
tells them that the company will be getting promoted, then their ears perk up. They'll
grab some shares. After they've told their
friends and their families and so on and so on and so on, the stock will have risen a bit.
Nothing dramatic. No outrageous
volume, yet. But, over a period of several weeks or a few months, the stock chart will
show steady buying volume.
Those are the early stage promotions. None of this really sends the stock soaring off the
charts. Generally, these early birds will
put in their bids and just sit on them, waiting for those nervous folks who have been
holding onto their shares for months to
finally unload.
THE PROMOTER
This is how the MARKUP stage works (Accumulation/ Markup/Distribution). Finally,
the insiders and stock promoter have
come to terms. If the promoter is any good, he has primed his best friends and
stockbrokers with the promise of a BIG play
coming down the road. "I can't tell you the ticker symbol yet," he will say to me, "but I'll
let you know real soon." Meanwhile,
the promoter will lock in a fantastic option agreement, nail down 500,000 (+/-)
free-trading shares or a combination of options,
stock and cash. As soon as he is locked in and has figured out how he will release the
"exciting news" about this particular
stock, he will begin making the phone calls to his closest friends. "Buy no more than
10,000 shares, please," he will warn them.
"Take a dip for up to 25,000 shares but don't pay more than 45 cents," he will caution
them. That is the kick-off and uniformly
how the trading volume is created "out of thin air." Most of the promoter's friends won't
even bother asking him what the
company does. Some won't even know the company's name. All they want is the ticker
symbol and the stock exchange. That's
all they need.
Once the promoter has loaded all of his closest friends into the play at the lower levels,
he will begin contacting his next circle of
contacts. Those who follow him but are not as privy to his machinations as the earlier
ones. Then, the next group gets a crack at
it. And so on and so on and so on. This is how volume is manufactured. A few simple
phone calls. You can actually see this on
the stock chart -- the trading volume goes up and so does the stock price. The greater
the size of his group, the larger the
trading volume. The reverse is also true.
At some point, a newsletter editor, Internet guru or talk show host must be enlisted. This
is a MUST. Many newsletter editors
have relationships with specific brokerage firms. Of course, the newsletter editors get
their crack at accumulating their shares,
often at the same price as, or a little higher than, the stock promoter. Sometimes,
newsletter writers will get stock options to
write about the company.
It can even be triggered to occur on a certain day or in waves of buying. A stockbroker,
having accumulated his position (either
through a nominee or offshore), will bring his very best clients into the stock after the run
has begun, allowing them to pay the
higher prices, because he knows they can afford it. Newsletter writer "A" sings the joys
of exploring in the Yukon, while
Newsletter "B" makes a comparison to the Klondike goldrush and Newsletter "C"
enlightens us as to the technicals which
clearly demonstrate that Yukon Explorations is a slam-dunk/sure thing.
The promoter will rent the mailing lists of other related newsletter writers or make a deal
with the publishing house to place an
advertising insert into a number of writers' mailings. Known buyers of such stocks are
bulk-mailed company brochures by the
thousands. Advertising is taken in the financial magazines and daily newspapers.
If this is done properly, a series of waves of buying come into the stock. The volume
looks phenomenal and the stock may even
go up a few pennies to yet another "new high." Somehow, though, the stock stalls. It's
not going higher. In fact, the stock may
be "coming off" a bit. This is the horror of the distribution stage.
DOWN SHE GOES
Gravity overcomes greed every trading day. Nothing goes up forever. At some point,
cracks appear in the play. And it comes
down. Hard. Painfully hard. Suddenly, no one wants to write about Yukon Exploration.
"Hey, it's winter, whaddya expect?
Drilling ain't coming around 'til Spring. Gimme a break." The story changes. The
promotion has evacuated this play. The stock
is not going higher. The trading volume has dried up. A new one emerges a week or so
later, which catches your eye. You kick
yourself for having jumped into that last one so high. Perhaps the next one is the "right
time" to get in...
THE BIG LIE
If the above describes what you have gone through, believe me, you are not alone. Even
I have been suckered into such plays
and watched my speculation become utterly worthless. And I was supposed to know
more about this company than YOU
were.
The big lie is simply this: The Share Price. That is the big lie, nothing else. While you are
watching the magician's right hand, he
is giving it to you "where the sun don't shine" with the other hand. You are not looking at
the MOST OBVIOUS clue: The
Liquidity.
All an insider cares about is having someone create for him enough trading volume so he
can distribute his paper onto innocent
bystanders who were deluded into thinking they could make a "fast buck." This is called
self-financing, or self-funding, a
company. The insider hires a promotional team to generate enough trading volume so he
can offload, or distribute, a large
number of his shares at higher prices so he can finance his company.
Unless you are a merchant banker, or venture capitalist, and someone who understands
the mechanics of the deal, the total
long-term risks involved, the strengths and weaknesses of the property, the management
and the business/geological plan, you
should have NO long-term commitment to any of these small-cap stock plays. If you
are the member of a huge buying group,
how come you didn't get a seat on the board of directors, stock options and into the
play far earlier? If you are a speculator,
though, you have a place and purpose in the scheme of things. And, you probably don't
even know what it is.
Your purpose is to make money. If you have confused this purpose with actually
believing in any of these plays, then inevitably
you will lose money in your speculations.
THE RULES OF THE GAME
There are really only three rules for beating the small cap stock market game. If one is
to play this game, for some purpose
other than making money at it, then you are a fool. If you have a guilty conscience, then
you will lose. If you become devoted to
the story or the play, then you will lose. If you become a believer in any play, then you
will lose. Sorry, but the whole small cap
stock market depends upon suckers and losers to keep it going.
The ONLY three rules of this game are as follows:
Rule #1: Enter a stock only when the trading volume jumps above its normal liquidity
pattern.
Rule #2: Exit a stock when the stock's trading volume has skyrocketed.
Rule #3: There really aren't any other ways to play this speculative market with any
degree of ongoing success unless
you are either an insider or own a brokerage firm.
You should not even LOOK at the share price if you want to profitably speculate. It will
actually confuse you to myopically
follow the company's minute-to-minute share price. Your only concerns should be: (a)
getting into the stock BEFORE the
trading volume skyrockets, and (b) getting OUT of the stock when the trading volume
has gone through the roof.
The tell-tale sign is a steep increase in daily trading volume, about FIVE times the
previous day's trading volume. When the
trading volume skyrockets beyond that, you have found an exit point. How long it takes
depends on the stock promoter. If he
botches the job, it can take weeks and weeks. Sometimes, it can happen in one to four
days. Look for high-trading volume on
a Friday. This generally catches most off guard, particularly late in the afternoon. Then,
on Monday, Ka-BOOM! The trading
volume really kicks in and the stock soars. That is, of course, your exit point. If you
suffer from speculative fever, telling you all
of this will probably do no good at all.
There is really only one sure way to cure one's speculative fever -- lose all of your
money in one or more of these "investments."
By going utterly broke, and deeply into debt, the speculator can cure his gambling illness
for at least a few years. Until the next
bull market comes along and he's bailed himself out of the previous tragedy. If that
sounds unappealing, a better way is to play
this game with a "fast and furious" attitude--take profits during times of liquidity and cut
losses as soon as your speculation
begins to lose its liquidity.
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