I want to talk to you about what types things generate excitement in stock buyers.
Well, you have certain types of investors - day traders, long term holders, people who only like mining stocks, all kinds of things, so it is hard to generalize, but we are going to make the attempt here.
Being a stock picker is like picking which girl will be the beauty contest winner before the contest starts.
You want to guess which girl the judges will like the most.
A knowledge of who they picked in years past about be most applicable.
In fact, you want cheap stock that rapidly goes sky high, so you want to find the ugly duckling that will turn into a swan - fast.
Now most reverse merger shells are ugly ducklings at some point.
They had a business and failed, so now they are shells.
They have a business, but it is to small or so close to failing that someone wants to take them over and they are worth more as a shell than an ongoing company.
Or they have just plain been abandoned by management and some good-natured conservator has come in to try to give them another run at life and maybe rescue a little value for the poor shareholders.
Of course there are those shells that were manufactured as such.
Thus, when you are starting out with reverse merger material, you are starting with ugly ducklings.
When I was a market maker, my firm syndicated its underwritings to some 40 different other broker-dealers, mostly regional NYSE members.
These firms would invite me to their due diligence meetings for their underwritings because they wanted as many market makers as possible and as many buyers as possible.
I found myself attending on average as many as two such meetings a week.
This was very educational.
What happens at these "dog and pony shows" is that the underwriter gives the brokers a chance to drop their guard by having one or two at the bar in the back and then he jumps up and introduces the company president.
He gives a ten minute pitch or more, depending on how much he likes to hear himself talk, and then turns it over to the CFO.
There may be a technology guy if the company's tech is really hot.
After these well dressed folks finish their charts and graphs, the underwriter asks the assembled crowd for questions.
There were from 20 to 200 brokers there and they ask very good questions.
I have seen some deals die at that moment as the wrong answers are given and you can feel the air in the room sag.
Assuming everything goes well, when the questions slow down, the meeting breaks formally and the brokers hang around with the company guys and drink and chat.
When they get bored with that, they drop by the underwriter to thank him and perhaps give him the number of shares they might be interested in circling (reserving).
The underwriter naturally tells them this will be tough to come by due to the overwhelming demand for the stock and other lies.
Now the wonderful thing about going to hundreds of these meetings, is that you start to instinctively know what brokers will buy and what they won't.
This is highly specialized.
Do not try to make the same pitch to housewives, it will not work.
But you will be able to focus in on exactly those qualities that will be popular on Wall Street.
Giving you all this data about what people buy (and avoid) would be an eight hour course, but to summarize and make rules of thumb, here are the biggies in my opinion: Fast growth - as illustrated by a big market, little competition, an edge on the competition, huge backlog, fast growing historical sales, and the like.
Under an edge on the competition, you can put superior technology.
Add in at least the potential of big profits - as illustrated by large profit margins, low cost of goods or raw materials, unique technology that adds huge value to its users or saves large amounts of money and so allows the company to charge through the nose for it.
A big increase in the prices of your products, as if you are an oil company when the price of crude went up so fast, will not hurt.
Stability of customers and employees - I once recommended a company that had all its customers' information on a computer database.
You could stop being a customer any time you want, but that meant you would never see your data again and the data was vital.
None of the customers dared to leave.
On the other hand, if your assets are your key employees, as if you are an advertising agency, and they all go home at 5 P.
M.
That may not rest easy with investors.
Most penny stocks have some hot technology or they are in a hot industry.
These companies know that the public's imagination will run wild in a field that is being touted as the next big thing.
These stocks are easy to tout and promote.
I remember when Interferon came out as the next big thing.
It was going to cure cancer and perform all sorts of other miracles.
Investors went nuts and eventually some skeptic defined Interferon as a substance who operative effect was to drive stock brokers crazy.
Wall Street has its fads.
Wall Street is basically a fashion industry.
This year's hot ticket will be offered on sale next year.
So you want to spot the wave and ride it but only as long as it is moving.
Some of these fads and some of these waves can be quite large and last a long time, as illustrated by the Internet boom, the gold stock boom of the 1980s, the oil boom after that.
If you look back far enough you can find the conglomerate stocks of the 60s, the earlier boom in computer related stocks in the late 60s, and the uranium stocks of the 1950s, not to mention the great decades of hot railroad stocks that the robber barons pushed after the Civil War for decades.
One way to do this, and I am not so sure it is a workable now, but I am sure it still has value is to look at what the knowledgeable venture capitalists are putting money in.
Also, if the industry or item is being featured all over the news, you can be sure there will be wild excitement as the public is focused on it.
I give you oil spill cleanup products after the BP oil spill, gold stocks when gold is skyrocketing and that is on the evening news all the time, cures for AIDS when that was a big item, security products after 9-11, etc.
If you are a real nerd, you can track the scientific literature and find out what technologies are coming down the pike.
There is always a pattern of knowledge in these things.
A real genius invents them, often many years ago.
He is overlooked but eventually some sharp scientists catch on and start developing more usable stuff and they publish in the scientific literature.
Then the more popular press starts catching on and that develops into a fad as more and more people become aware of it.
There was a time about 2000 when Linux stocks were hot.
What had happened before was that the nerds were looking to drop the garbage that a certain large software company was marketing under the lie "computers are supposed to crash.
" So they got on the techie websites and pushed the Linux solution.
Red Hat become red hot as it did its IPO and the rest of the world, seeing this, jumped on board Linux stocks.
The very smart money then shorted Red Hat and rode it down for a huge profit.
Some companies spot the wave and jump on.
When swine flu was big, some companies started doing what to me seemed to be dubious research on vaccine and swine flu related items.
They experienced substantial increases in market value, even though they might not have anything to offer for years, if ever.
When the swine flu threat died, so did their stocks.
What gets me is that Hard to Treat Diseases (HTDS) never got credit for the fact that it was actually selling swine flu vaccine while some of these biotech promoters pumped up their stock just doing inane research on the matter that would never hit the market in time.
I remember when gold first hit $800 per ounce, years ago.
All the gold stocks went up, including Scott's Liquid Gold, which experienced a substantial increase in price and trading volume.
As you may be aware, however, Scott's Liquid Gold is a furniture polish and has nothing to do with the precious metal.
While some companies ride the wave, some create the waves that propel them.
There was a medical company with that came out with a miracle beauty cream.
After a famous heart surgeon appeared on the Tonight Show to tout the cream (heart surgeon for a beauty cream?) the lines outside the stores were six deep the next day and the line of stock buyers around the specialist post were probably the same as the stock formed a chart pattern I have come to call an "erection.
" Undervalued assets are something stock buyers like, but they do not seem to garner the same enthusiasm as growth and earnings and technology related themes, unless, as in a mining company that makes a big discovery, some hot announcement surfaces.
Interestingly, and often sadly, enough, people would rather buy the blue sky that is found in their imagination then the actuality.
For decades, public biotech companies have known that it is the kiss of death to go from the wild projections of the start up phase into the phase of actually selling products.
The actuality never matches the imagination, it seems, and the stock goes down while making more money! Summing it up, look for fads, look for something that will capture the public press, look for fast growth or the promise thereof.
Using what I learned from these meetings, I helped an optical technology company's stock go from $1.
50 to $15 in eight months! The resulting fighting over the sudden wealth tore the company apart after I left.
The inventor came back to me and I helped him promote the next version of the technology.
Unfortunately, I did this so well that the partners in their extreme greed kept fighting over who would bet what stock even before it got started and the thing folded after two years of some of the most vicious infighting I have ever seen! You can kill the goose that is about to lay the golden eggs, but that is another story.
Interestingly, and often sadly, enough, people would rather buy the blue sky that is found in their imagination then the actuality.
For decades, public biotech companies have known that it is the kiss of death to go from the wild projections of the start up phase into the phase of actually selling products.
The actuality never matches the imagination, it seems, and the stock goes down while making more money! Summing it up, look for fads, look for something that will capture the public press, look for fast growth or the promise thereof.
Well, you have certain types of investors - day traders, long term holders, people who only like mining stocks, all kinds of things, so it is hard to generalize, but we are going to make the attempt here.
Being a stock picker is like picking which girl will be the beauty contest winner before the contest starts.
You want to guess which girl the judges will like the most.
A knowledge of who they picked in years past about be most applicable.
In fact, you want cheap stock that rapidly goes sky high, so you want to find the ugly duckling that will turn into a swan - fast.
Now most reverse merger shells are ugly ducklings at some point.
They had a business and failed, so now they are shells.
They have a business, but it is to small or so close to failing that someone wants to take them over and they are worth more as a shell than an ongoing company.
Or they have just plain been abandoned by management and some good-natured conservator has come in to try to give them another run at life and maybe rescue a little value for the poor shareholders.
Of course there are those shells that were manufactured as such.
Thus, when you are starting out with reverse merger material, you are starting with ugly ducklings.
When I was a market maker, my firm syndicated its underwritings to some 40 different other broker-dealers, mostly regional NYSE members.
These firms would invite me to their due diligence meetings for their underwritings because they wanted as many market makers as possible and as many buyers as possible.
I found myself attending on average as many as two such meetings a week.
This was very educational.
What happens at these "dog and pony shows" is that the underwriter gives the brokers a chance to drop their guard by having one or two at the bar in the back and then he jumps up and introduces the company president.
He gives a ten minute pitch or more, depending on how much he likes to hear himself talk, and then turns it over to the CFO.
There may be a technology guy if the company's tech is really hot.
After these well dressed folks finish their charts and graphs, the underwriter asks the assembled crowd for questions.
There were from 20 to 200 brokers there and they ask very good questions.
I have seen some deals die at that moment as the wrong answers are given and you can feel the air in the room sag.
Assuming everything goes well, when the questions slow down, the meeting breaks formally and the brokers hang around with the company guys and drink and chat.
When they get bored with that, they drop by the underwriter to thank him and perhaps give him the number of shares they might be interested in circling (reserving).
The underwriter naturally tells them this will be tough to come by due to the overwhelming demand for the stock and other lies.
Now the wonderful thing about going to hundreds of these meetings, is that you start to instinctively know what brokers will buy and what they won't.
This is highly specialized.
Do not try to make the same pitch to housewives, it will not work.
But you will be able to focus in on exactly those qualities that will be popular on Wall Street.
Giving you all this data about what people buy (and avoid) would be an eight hour course, but to summarize and make rules of thumb, here are the biggies in my opinion: Fast growth - as illustrated by a big market, little competition, an edge on the competition, huge backlog, fast growing historical sales, and the like.
Under an edge on the competition, you can put superior technology.
Add in at least the potential of big profits - as illustrated by large profit margins, low cost of goods or raw materials, unique technology that adds huge value to its users or saves large amounts of money and so allows the company to charge through the nose for it.
A big increase in the prices of your products, as if you are an oil company when the price of crude went up so fast, will not hurt.
Stability of customers and employees - I once recommended a company that had all its customers' information on a computer database.
You could stop being a customer any time you want, but that meant you would never see your data again and the data was vital.
None of the customers dared to leave.
On the other hand, if your assets are your key employees, as if you are an advertising agency, and they all go home at 5 P.
M.
That may not rest easy with investors.
Most penny stocks have some hot technology or they are in a hot industry.
These companies know that the public's imagination will run wild in a field that is being touted as the next big thing.
These stocks are easy to tout and promote.
I remember when Interferon came out as the next big thing.
It was going to cure cancer and perform all sorts of other miracles.
Investors went nuts and eventually some skeptic defined Interferon as a substance who operative effect was to drive stock brokers crazy.
Wall Street has its fads.
Wall Street is basically a fashion industry.
This year's hot ticket will be offered on sale next year.
So you want to spot the wave and ride it but only as long as it is moving.
Some of these fads and some of these waves can be quite large and last a long time, as illustrated by the Internet boom, the gold stock boom of the 1980s, the oil boom after that.
If you look back far enough you can find the conglomerate stocks of the 60s, the earlier boom in computer related stocks in the late 60s, and the uranium stocks of the 1950s, not to mention the great decades of hot railroad stocks that the robber barons pushed after the Civil War for decades.
One way to do this, and I am not so sure it is a workable now, but I am sure it still has value is to look at what the knowledgeable venture capitalists are putting money in.
Also, if the industry or item is being featured all over the news, you can be sure there will be wild excitement as the public is focused on it.
I give you oil spill cleanup products after the BP oil spill, gold stocks when gold is skyrocketing and that is on the evening news all the time, cures for AIDS when that was a big item, security products after 9-11, etc.
If you are a real nerd, you can track the scientific literature and find out what technologies are coming down the pike.
There is always a pattern of knowledge in these things.
A real genius invents them, often many years ago.
He is overlooked but eventually some sharp scientists catch on and start developing more usable stuff and they publish in the scientific literature.
Then the more popular press starts catching on and that develops into a fad as more and more people become aware of it.
There was a time about 2000 when Linux stocks were hot.
What had happened before was that the nerds were looking to drop the garbage that a certain large software company was marketing under the lie "computers are supposed to crash.
" So they got on the techie websites and pushed the Linux solution.
Red Hat become red hot as it did its IPO and the rest of the world, seeing this, jumped on board Linux stocks.
The very smart money then shorted Red Hat and rode it down for a huge profit.
Some companies spot the wave and jump on.
When swine flu was big, some companies started doing what to me seemed to be dubious research on vaccine and swine flu related items.
They experienced substantial increases in market value, even though they might not have anything to offer for years, if ever.
When the swine flu threat died, so did their stocks.
What gets me is that Hard to Treat Diseases (HTDS) never got credit for the fact that it was actually selling swine flu vaccine while some of these biotech promoters pumped up their stock just doing inane research on the matter that would never hit the market in time.
I remember when gold first hit $800 per ounce, years ago.
All the gold stocks went up, including Scott's Liquid Gold, which experienced a substantial increase in price and trading volume.
As you may be aware, however, Scott's Liquid Gold is a furniture polish and has nothing to do with the precious metal.
While some companies ride the wave, some create the waves that propel them.
There was a medical company with that came out with a miracle beauty cream.
After a famous heart surgeon appeared on the Tonight Show to tout the cream (heart surgeon for a beauty cream?) the lines outside the stores were six deep the next day and the line of stock buyers around the specialist post were probably the same as the stock formed a chart pattern I have come to call an "erection.
" Undervalued assets are something stock buyers like, but they do not seem to garner the same enthusiasm as growth and earnings and technology related themes, unless, as in a mining company that makes a big discovery, some hot announcement surfaces.
Interestingly, and often sadly, enough, people would rather buy the blue sky that is found in their imagination then the actuality.
For decades, public biotech companies have known that it is the kiss of death to go from the wild projections of the start up phase into the phase of actually selling products.
The actuality never matches the imagination, it seems, and the stock goes down while making more money! Summing it up, look for fads, look for something that will capture the public press, look for fast growth or the promise thereof.
Using what I learned from these meetings, I helped an optical technology company's stock go from $1.
50 to $15 in eight months! The resulting fighting over the sudden wealth tore the company apart after I left.
The inventor came back to me and I helped him promote the next version of the technology.
Unfortunately, I did this so well that the partners in their extreme greed kept fighting over who would bet what stock even before it got started and the thing folded after two years of some of the most vicious infighting I have ever seen! You can kill the goose that is about to lay the golden eggs, but that is another story.
Interestingly, and often sadly, enough, people would rather buy the blue sky that is found in their imagination then the actuality.
For decades, public biotech companies have known that it is the kiss of death to go from the wild projections of the start up phase into the phase of actually selling products.
The actuality never matches the imagination, it seems, and the stock goes down while making more money! Summing it up, look for fads, look for something that will capture the public press, look for fast growth or the promise thereof.