Long-time readers should note some significant changes in how I communicate in the public domain. The primary purpose of this forum is now to attract new contacts with professional industry expertise to share research and receive feedback (confirmation / refutation) regarding my investment theses.
Accordingly, this document should not be construed as an endorsement or recommendation of the companies or securities discussed herein. I am not an investment advisor and this is not an investment thesis. It is merely one part of the story, which I present for debate in hopes of determining all risks and upside potential. The disclosure at the end of this piece is critical to understanding the content of this document. Further, I frequently trade my positions and may buy, sell, or short the securities mentioned herein at any time, regardless of the facts or perceived implications of this article.
Losing (or Making) Money On Misinformation
One of my mentors is one of the best opportunistic traders I’ve ever encountered.
In my early days of investing (back in the early 90s), I would be astounded by how he could read an earnings press release and say something like, “The stock is down 10% in after-hours, but it’s going to be up 5% tomorrow.”
The next day, I would watch as the stock slowly creep its way up throughout the day and finish up. It might not be exactly 5% as he predicted, but it was usually very close.
I didn’t realize it at the time, but he wasn’t a magician. He was simply good (actually, great) at looking at a situation and knowing how the stock should react to it.
Most investors are not good at this. It’s not their fault. Most investors don’t have the 6+ years of education (undergrad, business school, CFA courses, etc), plus the real-world experience of working in a firm surrounded by the sharpest investing minds (who were trained by the sharpest investing minds).
Imagine how much better you would be if you had that advantage.
Unfortunately, it’s all too common for investors to misinterpret incoming information (or get misinformed) and end up making the wrong move.
This is most common with small cap stocks. With larger caps, more professionals are involved. They’re pretty good and pretty quick at digesting, analyzing, and reacting to incoming information. That’s the result of 6+ years of education and countless years of training/experience.
Small cap trading is often dominated by retail investors. Professionals are often managing or influencing the decision-making on billions of dollars. Most can’t be bothered with companies worth less than $200 million (roughly the threshold for being in the Russell 2000).
As a result, misinterpretation and misinformation runs rampant.
This has been a panacea for yours truly. I’ve made millions by taking advantage of this problem (even as I do my part to counteract it).
Those of you who have followed my HMNY research know this. For months I’ve been warning about the dilutive rounds of funding that would be coming. For me, it was easy to see and analyze. Quantitative data was abundant, as was the SEC filing that revealed the CEO’s bonus plan.
From that, I has a sense of what direction he would be taking the company… and I knew it wasn’t going to be good for shareholders.
The stock was around $12 at the time and I’ve been warning investors to avoid the stock ever since. Since then, things have played out almost exactly as I predicted… right down to the pricing I expected for this weeks round of funding:
|Pre-Deal Stock Price||$ 4.00||$ 2.38||$ 1.42|
|Deal Price (w/warrants)||$ 2.80||$ 1.67||$ 0.99|
|Money Raised ($M)||$ 100||$ 100||$ 100|
|Shares Issued (M)||35.7||60.0||100.9|
|Post Deal Stock Price||$ 2.38||$ 1.42||$ 0.84|
As you can see, I wasn’t 100% on target (especially about the amount raised), but everything else was pretty close… more than enough to justify selling the shares before Wednesday night’s news broke.
It’s not luck! It’s education, training, and experience… I thank God (and my mentors) for having put me in the position to receive it.
It’s not always as easy as HMNY. However, a few times per year, it is… and that’s enough for me to earn 7-figures of annual pre-tax income.
By the way, pay heed to the R2 and R3 columns above. As I reported yesterday, I foresee another $200 million of dilutive funding coming before the end of July. Barring a major change in the company’s direction, the chart above depicts what I think might happen to the stock in the months ahead.
By the way, you can get good at this too !
I was once a terrible investor. If not for my mentors, I’d probably still be terrible at it. If the proper training could turn me into a success, there’s surely hope for most of you.
There are three things that I did / do… and you can too:
1. Find and pay heed to a group of experienced professional investors. If you think that I do this all on my own, you’re crazy. One of my mentors is still nearly as invaluable to me as he was on day 1. Yes, I’ve learned a lot, but two knowledgeable heads are always more powerful than one.
2. Ignore most of what you see on the chat boards. Professionals don’t spend much time on StockTwits, Twitter, Yahoo, etc, except to scour the haystack for a few golden needles of information. Most of the people on the chat boards do not have professional training. Listening to what most of them have to say will only cause you to make mistakes. Instead, you should…
3. Invest time into learning how to read earnings releases, transcripts, financial statements, and SEC filings. It’s not easy, but building these skills is the easiest way to gain a critical advantage over the average investor. After all, who wants to be average?
FYI, in addition to my call on HMNY, I also provided some insight into an SEC filing that was released by SMSI yesterday (I’ve reprinted the analysis below).
In short, it was a standard filing to register shares issued in one of the company’s last rounds of funding. Registering the shares simply makes them available to be traded in the public markets. In fact, the filing states:
“We are registering the shares of common stock in order to permit the selling stockholders to offer the shares for resale from time to time.”
Had I participated in the round, my name would have been on the list of “selling shareholders” too… because that’s how an SEC form 424b3 is filed!
Anyone could figure this out, simply by going to Investopedia, where it says:
“The Securities Exchange Act of 1933 was created to help investors make informed decisions by requiring securities issuers to complete and file registration statements (including financial and material information) with the SEC before making an issue available for purchase by the public.”
I provided a link to my analysis on Facebook, Twitter, and StockTwits. Despite this, there were people who posted things like this (name removed, because I don’t want to single anyone out)…
This person thought that the 424b3 filing was a signal that a bunch of shares of SMSI were about to be sold. He/she believed that it was a sign that something was wrong at SMSI.
I can understand that line of thinking. However, this person clearly didn’t understand the purpose of a 424b3 filing. Instead of asking, he/she ended up spreading misinformation to other investors. Heck, for all we know, it could have been done intentionally to push the price down so he/she could buy.
Either way, the answer to these questions were all answered in my report. Yet, some investors got head-faked into selling in the AM. The stock spent the rest of the day climbing back, as opportunistic investors (including me) took advantage of the misinterpretation and misinformation.
Those who made the right move had the choice of keeping the shares or selling in the afternoon for an easy profit. That’s always a nice choice to have.
The lesson is simple — Wall Street is full of sharks. Some just swim around eating the fish, but and some go after the people. Gotta be careful.
Appendix: SMSI “Offering” Reprint
Did SMSI Announce An Offering? In a word, “NO!”. This morning’s SEC filing simply registers the shares that SMSI issued in a previous offering. This is normal, was expected, and isn’t news. This is pretty clear from reading the filing, but many folks are either too busy, lazy, or daunted to read them.
In conjunction with this morning’s filing, many folks are wondering why SMSI is pulling back instead of shooting straight toward its 52-week high of $3+. There are a few reasons, most of which can be tied back (directly or indirectly) to the filing:
1. The stock dropped more than 5% this morning. I saw many posts inferring that it’s a new offering.
2. That drop broke the stock below the flag formation (a technical chart pattern) that I expected to form. Those who trade of technicals may have chosen to sell out. This is why I don’t like technicals — they cause people to make the wrong fundamental move in favor of a technical move (and miss out on profits, as a result).
Back in the early-90s, I learned this the hard way. Nonetheless, many people still focus on technicals, so I keep an eye on them. For those interested, here’s how I see it now:
Assuming that their recent business momentum continues, I still expect the stock to make its way toward the upper end of this risk/reward channel.
3. Some of the investors who participated in the offering were clearly in it for the quick buck. You could see it in SMSI’s trading action when the deal was announced. The offering involved about 3 million shares and the stock traded 3 million shares over the 3 days that followed.
For the record, I strongly believe that this is the source of the 700,000 share spike in short interest that occurred in March. Participating shareholders often short a stock against the shares they purchase in an offering. They are not supposed to do this, but it produces a quick-flip profit, so many find sneaky ways to do it without getting caught.
In any case, what we’re seeing in the stock now is a normal shifting of ownership from quick-flip shareholders to those who are excited by the story. Assuming SMSI’s business momentum continues, the latter should soon overwhelm the latter, leading to the next leg up in the shares.
In the meantime, I’ve been buying some more shares almost every day since April 11, including today. In fact, the only day that I haven’t bought more shares was Tuesday, when I spent the day volunteer-coaching athletes on the Miami Beach High School Track & Field team 🙂
It adds up to 33,500 shares over the course of the past 8 days. It doesn’t put a dent in my overall portfolio but it’s a welcome addition to the 100s of 1000s of shares of SMSI that I already own.
Up Next: Could SMSI Become A Ten Bagger (Again)?
- Sprint FINALLY Ramping Up SMSI’s Product!
- Videocast: AEHR 10-Q, MoviePass Update
- AEHR Grows 175% — Beats On The Top & Bottom Line (Buying More)
- GAIA vs. MoviePass: CAC Shows Which One Is A True Mini-NFLX
- Major Update on SMSI
- SMSI’s Safe & Found App: 100,000 Downloads & Counting
- MoviePass Projected To Burn $600M In 2018
- SMSI: Riding A New Trend & Making Its Latest Comeback
- Mark Gomes Research
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Disclosures / Disclaimers: I am long SMSI. However, this is not a solicitation to buy, sell, or otherwise transact any stock or its derivatives. Nor should it be construed as an endorsement of any particular investment or opinion of the stock’s current or future price. To be clear, I do not encourage or recommend for anyone to follow my lead on this or any other stocks, since I may enter, exit, or reverse a position at any time without notice, regardless of the facts or perceived implications of this article.
I am not a financial advisor. Nor am I providing any recommendations, price targets, or opinions about valuation regarding the companies discussed herein. Any disclosures regarding my holdings are true as of the time this article is written, but subject change without notice. I frequently trade my positions, often on an intraday basis. Thus, it is possible that I might be buying and/or selling the securities mentioned herein and/or its derivative at any time, regardless of (and possibly contrary to) the content of this article.
I undertake no responsibility to update my disclosures and they may therefore be inaccurate thereafter. Likewise, any opinions are as of the date of publication, and are subject to change without notice and may not be updated. I believe that the sources of information I use are accurate but there can be no assurance that they are. All investments carry the risk of loss and the securities mentioned herein may entail a high level of risk. Investors considering an investment should perform their own research and consult with a qualified investment professional.
I wrote this article myself, and it expresses my own opinions. I am receiving no compensation for it, nor do I have a business relationship with any company whose stock is mentioned in this article. The information in this article is for informational purposes only and should not be regarded as investment advice or as a recommendation regarding any particular security or course of action.
The primary purpose of this blog/forum is to attract new contacts with professional industry expertise to share research and receive feedback (confirmation / refutation) regarding my investment theses.