investorsfriend.com newsletter November 30, 2002
Free Report
In the coming weeks and months, I intend to add a number of reports on Income
Trusts (and Limited Partnership Units, which are similar in many ways). The
first one I have analyzed is a Pipeline Limited Partnership Unit that offers an
attractive yield, tax advantages and has some potential for growth.
I am providing this report on FortChicago
Energy Partners free to all subscribers.
I also added some material to my article on
Understanding Income Trusts, to deal with why the yields are so disparate
and to comment on the liability issue.
Research For Sale
On an exclusive basis, subscribers to this newsletter have access to my
Research For Sale. (Click link to access) Currently
there are 19 recent reports. I'm trying to update and add as many as I can in
the next month, and there will be more updates each month.
You can access everything I post through to February 28, 2003, for a one-time
fee of $30.00 which you can pay by credit card or check. If you are interested
in these stocks, this is a good deal.
You can also purchase individual reports for $5 each.
A number of you have asked in the past about a subscription fee approach, so
I'm hoping to see a good response to this offer.
If you are not interested in purchasing, I'd be interesting in knowing if
there is anything I can do to make the research more appealing, you can
email me with comments.
Membership (Subscribers)
This Web Site and newsletter needs many more subscribers to justify the
effort I put into it. Most visitors recognize that I am providing useful insight
and research that is very independent and that displays thoughtful analysis and
ethics, rather than the usual hype and hot air commonly found elsewhere.
Please continue to let others know about this site. Subscriber referrals are
always very powerful in bringing in the type of intelligent and thinking
investors who appreciate this type of analysis.
Drilling rig states
I notice that oil and gas drilling rig counts have recently began a very
sharp recovery. For more see this useful link.
http://www.iadc.org/rigcount.htm
The Canadian rig count is really increasing fast, this is seasonal as the
frozen ground allows better access, but it also well ahead of last year's
numbers in spite of mild Western weather.
Included in my stock reports for sale is a drilling company and an oil field
service company. Both should benefit from the higher rig count.
It Always Pays to Review the Basics
Every successful professional athlete in every sport knows that it is
important to constantly review the basics. Athletes always have to execute well
on the basics.
It's the same for investing. I don't think you can ever review the basics too
many times.
With that in mind, I have developed a new article on basic asset
allocation and also updated some important older articles that graphically show
historic returns and risks from stocks versus bonds. It's interesting to review
the graphs with updated data that includes the market crash of the last three
years.
One of the most basic decisions in investing is to decide what percentage of
a portfolio should be in stocks, versus bonds and money market funds. I think
virtually all investors will benefit from a close read of the following
articles. You may not agree with my conclusions, but a review of the data and
graphs should be useful.
Determining the Proper Asset Allocation
Graphical Historical Performance of Stocks
versus Bonds, versus Cash
Are Stocks Really Riskier Than Bonds?
Trading Strategies (and booby traps) for Thinly Traded Stocks
On November 26, I noticed an interesting trade.
One of the stocks I follow is Clemex which is extremely thinly traded. It had
last traded at 24 cents on November 22 and then on November 26th a trade went
through at 16 cents.
It's not really all that unusual to see such volatility. But this trade was
for only 1000 shares at 16 cents or a total value of $160.00. In many ways this trade made no
sense at all. If both parties paid a $30 commission, that works out to 3 cents
per share or 19% of the trade value to each trader.
I imagine the buyer had a low-ball order in for say 10,000 shares and
unfortunately got filled for just 1000 shares. So the buyer is not crazy, he or
she
just got a very small partial fill.
But the seller seems a little crazy, why sell a puny 1000 shares for $160 and
take a $30 commission?
I was wondering if the seller is "crazy like a fox". What he could be trying
to do is "prime the pump". Maybe he sells 1000 at 16 cents and then hopes that
others will panic and he can buy a bunch at around 16 cents, which is far
cheaper than the 24 cents that the shares were at when last traded. In this
case, it may not have worked, the next trade went through at 24 cents. So, if
this was prime the pump strategy it failed this time. (Or maybe not, a few days
later it was back at 16 cents then at 20 cents.)
Maybe the shares deserve to be at 16 cents. That's not the point. What is
interesting is that it may be possible to more-or-less manipulate the market on
a very thinly traded stock by selling a few shares cheap and then hoping to
panic someone into selling a lot of shares on the cheap. This would be a
dangerous strategy but could work on some stocks. I personally would not be
interested in this sort of thing. The same thing could possibly work to drive
the price higher, except you really have to know the depth of the market, there
are typically too many other people ready to sell if the price goes up, and the
manipulator might not get a chance to sell at the high price after he primes the
market by buying a few at a higher price.
This type of possible manipulation strategy can only work when there are quite wide
bid/ask spreads. You can't buy at 40 cents if there are sellers lined up
to sell at 30 cents, the market will fill you at 30 cents in that case. Wide bid
/ ask spreads are very common on thinly traded stocks, so that is where the
"manipulator" will go.
On very thinly traded shares, I don't get too excited about big price
movements. They are often meaningless. Just because a few shares go through at a
certain price does not mean you can get some or sell some at that price. I would
not panic at seeing a few cheap shares go through. It could be someone trying to
panic you into selling. Or maybe it's just some plain stupid trading.
Portfolio Management
I may possibly be joining a licensed Portfolio Management Firm in the near
future. Although many of you do your own trades and research, if some of you are
interested in potentially working me as your Portfolio Manager,
email to let me know. Unfortunately, I expect to be restricted to accounts
over $100,000 in this business. (This is not a solicitation, simply an
expression of interest).
Future Topics
I expect to have articles on Income Tax issues, asset allocation and exchange
traded funds in upcoming editions.
End