On Stock Blogs, or, When to Look A Gift Horse in the Mouth

[Foreign Tuffett]

I get email alerts to many value investing blogs. I especially like "Oddball Stocks" and "Alpha Vulture," both of which are run by members of this forum." The LT3000 Blog" is another favorite.

 

That said, some posts on certain "value investing" blogs frustrate me. Below is an example from "NoNameStocks" that this hit my inbox this afternoon.

 

http://www.nonamestocks.com/2018/08/pcyn-is-buy-and-heres-why.html

 

30 minutes of research revealed the following highly relevant items that were unmentioned in the blog's write up:

 

1) The Roy M Speer Foundation owns nearly 20% of the outstanding shares. The Speer Foundation (or related entities and individuals) have owned these shares since at least 2000. Given that the foundation is located just up the road from the company's HQ, it's pretty safe to assume that it's an ally of the controlling Anderson Family.  This means insiders + allies probably control nearly 70% of the voting power.

 

2) Contra the blog's claim that the company has "a couple of decades of solid performance" under its belt, shareholders' equity has barely budged over the last decade.

 

2008 FY: $1.985 million

2010 FY: $2.133 million

2017 FY: $2.287 million

 

3) Perhaps most egregiously,  the company has some "Series A Cumulative Convertible Preferred Stock" outstanding. Here's a quote from the most recent 10-K:

 

"Dividends in arrears on the outstanding preferred shares total $357,426 or approximately $2.02 per share as of June 30, 2017. So long as any shares of Series A Preferred Stock are outstanding, the Company is prohibited from declaring dividends or other distributions related to its Common Stock or purchasing, redeeming or otherwise acquiring any of the Common Stock."

 

The company appears to be unwilling to pay the preferred stock dividends. Why? It's simple: this company is run for the sole benefit of insiders, and insiders don't own any of the preferred stock.

 

4) Finally, while mentioning that the "youngest Anderson on the board is only 40" the blog neglects to mention that this person (Justice W Anderson) was just appointed CEO less than one year ago! This is exactly what we would expect to see in a family company that isn't for sale: the next generation taking the reigns.

 

All this said, IN MY OPINION, the purpose of this NoNameStocks' writeup was to pump an extremely small, extremely illiquid stock. It's up by nearly 40% on much higher volume than usual today. MISSION ACCOMPLISHED.

 

 

[NeverLoseMoney]

I disagree with your suggestion that the purpose of the author's blogpost was to pump that stock. From the posts I've seen on his blog and my interactions with him (I've e-mailed him multiple times), very speculative stocks like this are just part of his investment style. I personally don't like most of these "lottery ticket"-type stock picks, but if he wants to buy them with his own money and write about why he likes those stocks, that's his right to do so.

 

I've invested in a couple of, in my opinion, reputable companies that I've found through his blog. One of them, Comtrex Systems (COMX) was taken over this year and I did very well on that. Alpha Vulture, who writes a blog you say you like, invested in Hemacare (HEMA) which he also found through NoNameStocks. That's up ~4x since Alpha Vulture's post. He calls him "one of my favorite bloggers" in that post: https://alphavulture.com/2017/05/02/hemacare-deep-value-turning-into-growth-story/. So there were obviously a few gems among the NoNameStocks picks as well.

 

Many blog authors (including me) are non-professional investors. They make big mistakes, they miss very important stuff, they might be typing a post at the end of a long day while under the influence of a lot of alcohol. It's crazy to "clone" them and to not do your own work. I think the stock action you see after some posts on particular blogs mostly shows that people fear they're missing the boat on an illiquid name and just skip doing their due diligence. Them buying a stock blindly and causing a price jump is however their responsibility, not the blog author's. It's a very different environment from 6-7 years ago when many more investors were scared to death of all OTC traded stocks and many bargains were around.

 

If you disagree with an an author I think it's much better to just post a comment on their blog or to send them an e-mail than to post here and try to make them look bad. A comment or e-mail is a constructive way to share your thoughts and the blog author might learn something from you and appreciate you for it.

[oddballstocks]

Blogging about small stocks is difficult. I remember writing a post about a stock, and the whole thrust of the post was reasons why it was a bad investment. It was illiquid, and people saw the ticker and bid it up 50% on the day without reading.

 

That was a light bulb for me. I wrote about something that was “bad” and people still bid it up. That was some of my motivation to move the illiquid discussions to a newsletter a few years ago.

 

I also changed how I wrote. I integrated the names into the post like an article vs a stock recommendation or research piece.

 

Unfortunately if you write about small names (even on here!) people will eventually accuse you of pumping, or trading into volume or taking advantage of others. I became so sensitive about this eventually that I wrote and posted publicly before buying a position. That way there wasn’t even a way to assume I was taking advantage. And then of course people would email and say “how can I trust you? You wrote about names you don’t even own!”

[DooDiligence]

Blogging about small stocks is difficult. I remember writing a post about a stock, and the whole thrust of the post was reasons why it was a bad investment. It was illiquid, and people saw the ticker and bid it up 50% on the day without reading.

 

That was a light bulb for me. I wrote about something that was “bad” and people still bid it up. That was some of my motivation to move the illiquid discussions to a newsletter a few years ago.

 

I also changed how I wrote. I integrated the names into the post like an article vs a stock recommendation or research piece.

 

Unfortunately if you write about small names (even on here!) people will eventually accuse you of pumping, or trading into volume or taking advantage of others. I became so sensitive about this eventually that I wrote and posted publicly before buying a position. That way there wasn’t even a way to assume I was taking advantage. And then of course people would email and say “how can I trust you? You wrote about names you don’t even own!”

 

No good deed goes unpunished, right?

[Nelson]

I think poking holes in an investment thesis is fair game. Accusing somebody of perpetuating a pump and dump is not cool, IMO.

 

I also think the more appropriate spot for your concerns is the blog post's comment section, not this forum.

 

Personally, I'm grateful for every author who takes the time to post their thoughts on a company. Sure, it's important not to miss things. I'm sure the author doesn't want to miss stuff either. But it happens. Remember that specific piece of research cost you nothing but a couple of minutes of your time. I intentionally keep my expectations low and get my socks blown off regularly from authors who do good work. This attitude allows me to easily shrug and move on when they put out the occasional dud. 

[LC]

At the end of the day anyone buying anything needs to do their own research. A blog or newsletter may give you an idea, but you still need to investigate yourself. It's a good lesson to learn when you're young - a few folks here got burned a few years ago on ZINC - it hit all the right buttons and had respected investors behind it. This is no reason to invest. I'm happy that a 5% position then was a lot less than it is today - it taught me a valuable lesson that in this business you can only trust yourself.

 

It's the same thing they taught you in third grade. Do your own work.

[Jurgis]

Unfortunately if you write about small names (even on here!) people will eventually accuse you of pumping, or trading into volume or taking advantage of others. I became so sensitive about this eventually that I wrote and posted publicly before buying a position. That way there wasn’t even a way to assume I was taking advantage. And then of course people would email and say “how can I trust you? You wrote about names you don’t even own!”

 

Overall, I am surprised that people post about small names at all. Posting nanocap on any somewhat widely followed blog and definitely on CoBF will lead to price spike, which is bad for author if author is buying and is somewhat pump-and-dump if author uses the spike to sell. OTOH most of these names are not forever holds, so expecting the author not to sell on the spike is rather silly too.

 

IMO, people should not post about stocks that are less than XX market cap and YY daily volume at all. But of course it's their choice and sometime I benefit from it, so KEEP POSTING.  ;D

[StevieV]

Blogging about small stocks is difficult. I remember writing a post about a stock, and the whole thrust of the post was reasons why it was a bad investment. It was illiquid, and people saw the ticker and bid it up 50% on the day without reading.

 

That was a light bulb for me. I wrote about something that was “bad” and people still bid it up. That was some of my motivation to move the illiquid discussions to a newsletter a few years ago.

 

I also changed how I wrote. I integrated the names into the post like an article vs a stock recommendation or research piece.

 

Unfortunately if you write about small names (even on here!) people will eventually accuse you of pumping, or trading into volume or taking advantage of others. I became so sensitive about this eventually that I wrote and posted publicly before buying a position. That way there wasn’t even a way to assume I was taking advantage. And then of course people would email and say “how can I trust you? You wrote about names you don’t even own!”

 

This "talking your book" criticism seems prevalent, but is silly.  As oddball notes, when an author owns a position in the stock they are discussing, they are accused of talking their book.  When they don't own a position, they are criticized for not having skin in the game.  It's silly either way.  Better to just read and consider the strength of the analysis.

 

------------

I also wanted to say that I think this is a very appropriate venue to discuss, recommend and criticize investment blogs.  I don't see why any criticism should be limited to the comment section of a particular blog. 

[Spekulatius]

Unfortunately if you write about small names (even on here!) people will eventually accuse you of pumping, or trading into volume or taking advantage of others. I became so sensitive about this eventually that I wrote and posted publicly before buying a position. That way there wasn’t even a way to assume I was taking advantage. And then of course people would email and say “how can I trust you? You wrote about names you don’t even own!”

 

Overall, I am surprised that people post about small names at all. Posting nanocap on any somewhat widely followed blog and definitely on CoBF will lead to price spike, which is bad for author if author is buying and is somewhat pump-and-dump if author uses the spike to sell. OTOH most of these names are not forever holds, so expecting the author not to sell on the spike is rather silly too.

 

IMO, people should not post about stocks that are less than XX market cap and YY daily volume at all. But of course it's their choice and sometime I benefit from it, so KEEP POSTING.  ;D

 

From my experience , it depends on who post and about what. I have seen posts on absolute microcaps that dont trade every week and there was no discernible effect. This was true especially when the shares of said company were expensive ($1000 or more). I am guessing that no one noticed or it wasn’t interesting due to lack of trading. It also depends on who post, I am guessing that some people have alerts set for some bloggers and buy almost anything they is posted about in the hope that most stocks will gather than traction. One example was that a mixrocap bloggers posted about BSND (Boston Sand and Gravel ) on Twitter and thenstock started to move. Given that there are no financials out there, I can only assume, that some people bought this blind, without knowing what they bought.

 

I posted on another board about some microcaps and there was absolutely no movement. I”ll  run a test now and post it here : $QUCT

 

FWIW, I think it is Ok to post a about microcaps. If they move up, don’t buy it or wait until they come back down. It’s just a piece of information, nobody forces anyone to act on it.

[augustabound]

I posted on another board about some microcaps and there was absolutely no movement. I”ll  run a test now and post it here : $QUCT

 

Reminds me of this thread.

http://www.cornerofberkshireandfairfax.ca/forum/general-discussion/bots-scanning-the-corner

[writser]

Just my opinion, but that blog has been around for a while and has made some good calls (Hemacare amongst others). I'm inclined to give Dan some credit. In general I like what he is doing. The way I see it he brings up some interesting names that you can look into. If some clowns decide to buy a stock because of a blogpost then that's their problem.

 

It is difficult to blog about / post about / discuss illiquid stocks. Even if your analysis is completely sound, you'd be crazy to share it before accumulating a full position. And if you think people will like your blogpost - why not buy a few extra shares before publishing your post? I'm pretty sure an outfit like Citron Research is doing that too. Personally I think that's fine, but what if it turns out afterwards your analysis was faulty? It's a gray area. Are you intentionally being sloppy or not? My personal opinion is: post whatever you want, if it's crap I stop reading it and if it's _really_ crap the government can investigate it.

 

I personally don't really mind pump & dump's either - they can offer some good selling opportunities and apart from that you should never buy or sell something without doing your own due diligence. But on the other hand I think it's a bad thing to con an elderly couple out of their retirement savings with a horrible stock pitch. It's difficult to draw the line. To say it bluntly: up to what extent should (stupid?) people be protected from pissing away their money? An interesting question.

 

[Foreign Tuffett]

I'm going to try and briefly respond to some of the other posts here.

 

@NeverLoseMoney

Little of what you wrote has much, if any, bearing on the issue at hand. Whether the author of the blog has had successful picks in the past is irrelevant. Ditto for whether or not he invests in speculative situations.

 

Also, why would I post an comment on his blog or send him an email instead of using this forum? A blog comment can be easily deleted by the blog owner, and an email wouldn't be seen by anyone else.

 

@tombgrt

Yeah, pretty much.

 

@Nelson

I'm not accusing anyone of "perpetuating a pump and dump." In my opinion, the purpose of the blog post was to pump the stock, but I'm not making any claims about anyone's trading strategy.

 

 

I should have included in my initial post that the free float of the stock in question at a $0.18 per share price was something like $450,000. I think that's important in the context of thinking about this situation.

 

To be clear though, I'm not at all averse to people writing on the internet about illiquid stocks. I do it too! Even more, I'll probably be posting a short writeup on an illiquid stock on this board in the near future. What I am averse to is people claiming to do one thing which, on closer inspection, appears quite different than their claims.

 

I probably won't comment on this thread again as it (hopefully) has accomplished its caveat emptor-type purpose.

 

 

 

 

 

 

 

[LC]

To say it bluntly: up to what extent should (stupid?) people be protected from pissing away their money? An interesting question.

 

Agreed - great question. It will be difficult to get an unbiased answer on this forum because members here are, in general, more educated than the layman about investing.

 

To get to the heart of it, imagine something you have no special knowledge on - let's say heart surgery. What protections should be in place when finding a qualified surgeon?

[NeverLoseMoney]

I'm going to try and briefly respond to some of the other posts here.

 

@NeverLoseMoney

Little of what you wrote has much, if any, bearing on the issue at hand. Whether the author of the blog has had successful picks in the past is irrelevant. Ditto for whether or not he invests in speculative situations.

 

Also, why would I post an comment on his blog or send him an email instead of using this forum? A blog comment can be easily deleted by the blog owner, and an email wouldn't be seen by anyone else.

 

@tombgrt

Yeah, pretty much.

 

@Nelson

I'm not accusing anyone of "perpetuating a pump and dump." In my opinion, the purpose of the blog post was to pump the stock, but I'm not making any claims about anyone's trading strategy.

 

 

I should have included in my initial post that the free float of the stock in question at a $0.18 per share price was something like $450,000. I think that's important in the context of thinking about this situation.

 

To be clear though, I'm not at all averse to people writing on the internet about illiquid stocks. I do it too! Even more, I'll probably be posting a short writeup on an illiquid stock on this board in the near future. What I am averse to is people claiming to do one thing which, on closer inspection, appears quite different than their claims.

 

I probably won't comment on this thread again as it (hopefully) has accomplished its caveat emptor-type purpose.

My impression was that you were trying to portray the author of NoNameStocks as a pump-and-dump operator. Most of my comments were with that in mind. Apparently you were just venting your frustration about something that you thought was wrong on the internet. Fair enough.

 

It should be obvious that the best ways to provide feedback on someone's blogpost is to either comment on that post, or to contact the author directly.

 

A comment on a blogpost can be read by all other readers and would be much more effective in warning people if that was your purpose. Why automatically assume that your comment will be deleted? That seems a bit cynical. If the author deletes your comment, that tells you a lot more about him. Then you actually might have a valid complaint and that would be a much better reason for a post here.

 

Commenting or e-mailing can help a blogger learn and they can improve their posts based on your feedback. The overall quality of the blog might improve as a result and fewer complaints about that blog would appear on message boards in the future. All investors have lots of things to learn and bloggers are no different.

 

Accusing someone of pumping a stock on a message board is pretty bad form IMO, but perhaps that's just me. If I disagree with someone I'll just say it to them directly. I'm not posting on Twitter to say I disagree with you.

[Brice]

I should have included in my initial post that the free float of the stock in question at a $0.18 per share price was something like $450,000. I think that's important in the context of thinking about this situation.

 

To be clear though, I'm not at all averse to people writing on the internet about illiquid stocks. I do it too! Even more, I'll probably be posting a short writeup on an illiquid stock on this board in the near future. What I am averse to is people claiming to do one thing which, on closer inspection, appears quite different than their claims.

 

Seems like you haven't read much of Dan's blog as he specifically says that he does little of research into specific names and instead fills out his portfolio with a wide net of situations he thinks are attractive in totallity.  Sounds like you uncovered an interesting tidbit regarding addresses but chose to gripe about it here instead of informing his readers and him.

 

I think bloggers create more value when they introduce their readers to names they haven't heard of before than when they offer a new perspective on a known name.  Then I can at least start tracking them even if the valuation isn't compelling to me at the time.

[wachtwoord]

I just want to add that Dan added a comment on his post linking to this thread and ad verbatim copied the critical arguments of the OP for everyone to see.

 

I think Dan's blog is fair and ethical. Of course I don't always agree with his purchases but he brought some gems under my attention with this blog and people should decide for themselves which are gems and which are not.

[rukawa]

I like Dan's blog. We have stock pumpers on threads in this forum and there are conspicuous things they do that I don't see Dan doing. I outlined them here:

http://www.cornerofberkshireandfairfax.ca/forum/investment-ideas/bewhere-holdings-(bew)/msg305062/#msg305062

 

In particular I have never seen Dan only make optimistic points and never acknowledge the negatives of an investment case. I don't see him spamming the internet with his case in multiple boards and multiple forums. I don't see him repeatedly posting about the same stocks again and again and again.