Trading with Focus – Tipsheets are evil!
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Once upon a time, some guy bought shares in a little exploration company that was looking for dirt (with a few parts per billion) of gold in it, based on it being only a few hundred klicks from an existing gold mine.
Let’s call him Bort.
Bort was extremely confident with his decision to buy shares in that company and felt that he was going to make a lot of money. So that night at the pub he told his mates about it.
Can you see how wrong this is? No?
Later that night, his drinking buddy (let’s call him Griff) rang his broking mate and told him about the tip that he heard from some guy who could have been called Brett, but he wasn’t sure that was his name. But one thing he was sure of was that ‘probably-Brett’ knew his stuff about stocks. His broker mate, SanPietro, said he would call back.
This is some pretty shifty s..t, isn’t it?
Or is it?
SanPietro had a look at the company news on this piece of dirt (out in the middle of some weird country he’d never heard of) and called back his mate Griff (who had first started buying speccy shares just six months ago, but seemed to get some good tips) and said: “Looks like they’ll only find dirt, but in this market it will probably go up just because they are looking for gold, as the speculators will probably move in on the drilling.”
Which was more than enough for Griff to drop a hard $500 on it. Griff was definitely a player now.
Then, Griff mentioned it to some more of his mates, as he was in the ‘big game’ now – no more managed funds with safe stable returns for him. His mates then started buying a few of those shares too, based on the tip that some guy gave another guy in the pub, and no-one even remebers Bort being in the pub.
In fact, no-one really knew Griff (even his long-term girlfriend, as she was often heard to lament), or his broker who had allegedly anointed the stock. Well, ‘anointed’, according to Griff. Or was it Biff?
The stock starts to move up as more and more Griffs and Borts buy up the thinly traded stock. Then the Managing Director comes out and says he is feeling positive about the drilling and the stock runs harder. Anyone that has heard of this piece of sub-investment grade listed casino stock now thinks that the drillers are probably pulling out nuggets by the kilo. Stock runs hard.
The drill results come out. Lots and lots and lots of dirt. No gold though.
So the stock gets pounded and all of a sudden everyone who was shouting drinks (and checking the availability of the stock code as a number plate) is now pointing fingers.
“Where does that broker work? That Managing Director should be strung up! Someone should call ASIIIIIIIICCCCCCCCCC!!!!!!!”
Has someone done something evil? Or wrong? What if, after buying the shares, ol’ Griff gets on Hotcopper or ASX_Bets and starts talking about how good his stock choice is, behind a fake name?
What if people started following his analysis, as he has had a few good tips in a row?
A bunch of young smart guys and gals get into finance and investing, instead of ‘the Arts’ after they leave Uni. They quickly realise that the stockmarket is where it is at, and that there is more money to be made in the smallest, most highly risky end of the market. More Brainchips, less Woolworths. But also way more risk of loss for the uninitiated.
So they team up, to pool their talents. Lets call the promotion part of the business ‘Makon Money Pty Ltd’. They also register ‘Holdin Money Pty Ltd’ for their personal investment pool.
One of them is an analyst, one of them is a writer, one of them is an online guru, one of them is a corporate guy. They decide to pool their funds and start makong bank in the market.
The analyst looks for stocks with promise, pitches them to the corporate guy who makes contact with the company and offers to invest in the company. They like the stock. The company needs money as that is, after all, THE WHOLE EFFING REASON FOR THE STOCKMARKET TO EXIST IN THE FIRST PLACE!!!! (calm down, breathe…there you go…)
Anyways, where was I…
Ok, so they do a placement to help the company look for, or develop, or investigate, or build the thing that the company does or intends to do. Because the company doesn’t make money yet, and needs money to get from A to B. They haven’t found lithium or gold or oil yet, not for want of trying, so they have to dilute the existing owners each time they need to top up. So the Directors would really love to get the share price up a bit more before they raise, as they have a duty to the shareholders.
So after a while, the gang at Makon start gaining a following as they are tipping some big winners, and Holdin is makong bank! Their analyst and writer get together to put pen to paper about how good these stocks are and give it to the online guru to distribute the story.
So now they are promoting the company, with positive research. Is this the line? Between good and evil?
What if they put all of their past successes on a webpage? Is this the line?
What if their investments now reached such a scale that they could bid for a placement directly to the company, and as is the standard practice, they could then get the ‘insto discount’ on the funds. Have we hit ‘pure evil’ yet?!
Or if they started talking about how the share prices have risen in the companies they invested in, and then promoted, to their band of loyal followers. Instead of people being locked out of research in small-cap companies, they could provide that research for the company. If the company pays for it, of course. Because they are also a business, that distributes stock ideas for un-covered companies.
I’m not going to say the name of the ‘author’ of the 12 x A4 pages and 5096 words (it was long, and detailed, so… kudos), because I can’t. The good people at Stockhead rightly believe that the C word that forms part of his/her reddit username is not for publication, regardless of whether it is defined as ‘Mutated’ or not.
But he called out a company that we could refer to as ‘Makon Money’, just to keep the gag going.
Anyway, I’m guessing ‘someone’ bought or held a stock in an oil and gas explorer that did not find oil. Even though the company was worth over a billion dollars at one point, even before the drilling was complete. Even though it was the highest price that the company has ever traded whilst under its current code. Even though the odds of actually finding oil anywhere in this day and age is about the same as winning a Powerball.
So fingers are being pointed.
Now, lets go through the list of questions posed. (Keep in mind I am not an analyst, or a lawyer or even care that much about all of this, so no-one should do or think or sue for any of this, because as you should probably know by now it is all mainly written for my entertainment…and promotion of our product!)
What does it matter? Honestly? People with no experience are giving (sometimes even 12 x A4 pages of) advice behind fake names on websites, and people are following them. What if it was GoldMan Socks, and what if that guy had an MBA from Hooverd? Still not going to know whether or not a drillbit will find oil before the drillbit comes out of the hole.
If you’re a stock-tip sheet, and you make the recommendation on a stock when it is 8c, tell people you recommended it at 8c. It would be wronger to say you got them on the cheap in a placement that they couldn’t go into, and then told people, and used, the lower price to make your ‘share-tipping’ look better.
Same thing. You are looking for shadows and finding shadows, then saying that shadows are bad. Everyone has shadows! They put out some research and/or entered a trade, but may have been in that stock or provided services before. So what?
Why do you need ‘Makon Money’? Are you looking for an investor for the listed company that you run? Most companies have a number of different financial entities that are all part of a conglomerate, they don’t all need to have a 24 hour telephone hotline for posters on r/ASX_Bets.
Ok. So. This is just down to inexperience, so let it be a learning moment. It is not illegal to have inside information, it is illegal to act on it – and to the best of anyone’s knowledge at this point, they don’t.
The law (again, note: I’m not a lawyer) allows for a company to put people behind a thing called a ‘Chinese Wall’, where they keep a register of people who ‘know’ things that the general market don’t yet know. If anyone were to act on that knowledge, there would be loss of AFSL, fines and probably jail time. (There’s more to it than this, but you get the idea and should read up on it before relying on it in a court of law…)
So, as soon as the announcement is out, in the public domain, everyone can then legally trade in the stock.
It is their job to comply with the law, not to wonder whether their behaviour is appropriate. There is little gray area, and getting foul of the law is terminal. No matter what you think, read or believe, ASIC are very, very good at their job when it comes to these sort of companies. And believe me, there are many of them, but few are as blatant about their disclosure of their business dealings as ‘Makon Money’ would appear to be.
The tipsheet/smallcap investor of which you speak, and others, provide two very important services to the small-cap sector. The big boys are covering all of the big stocks with research that is usually and suspiciously positive enough to ensure that they are kept in mind next time there is a big capital raise.
So the big boys provide both a funding and research service, in almost exactly the same way, except they make the reader pay and get rewarded by the company with corporate fees. The difference is that ‘Makon Money’ do not have clients that pay for their research, they have subscribers who want to follow their buys, as they have a very good track record.
If we banned stock-tips where does it end? Would brokers have to stop providing research? Would BullsnBears, Smallcaps.com, Hotcopper and LiveWire have to shut down? Stockhead? Noooooo! What about r/ASX_Bets? Or Bort, down at the local, punching darts and slinging tips?
If companies such as these did not exist you would be in an information vacuum, hoping to bump into Griff or Bort at the pub before ASIC put a black bag over his head and jammed him in a dark van. Smallcap stocks would be perennially undervalued and struggle to raise the capital required to build the next Fortescue or the next Z1P.
Trying to get the share price up is an unspoken part of management’s job, especially if they need capital on a regular basis, so explaining that they have done a deal with a company to promote the stock, who also put their own personal skin in the game is so much better than the shady backroom shit that used to happen. And still happens.
Is it “highly predatory on retail investors”? Well I would suggest that the whole monetary system is! Everyone is so focused on getting theirs that they buy lotto tickets or download a sports-betting app or run to the speculative end of the stockmarket instead of investing wisely. If you’re at the high risk end of the market, and if you are not savvy enough to understand the risks of an oil explorer then you should not be buying shares in anything!
And, “this creates unhealthy market cycles, where prices for their stocks surge violently upwards.” No. You do. And you. And you. And that guy over there. We are all chasing the big pay-off, but holding an oil explorer with a billion dollar market cap through the drilling because you read about it on a tip sheet is not the markets fault, or the tip-sheets, or the people who run the company looking for oil. Its yours.
“When you combine this with their media propaganda empire, this causes retail investors (the <awful deleted word> on here) to FOMO into peak prices, and short term become left holding the bag.” Yep. Sorry. This is what happens when a whole lot of no-experience gamblers enter the market for the first time during a hyper-bullmarket. Don’t hate the game. Be better at it.
So my good man or woman, you’re not going to get a response from ‘Makon Money’ to your name-less post calling them out. ASIC isn’t going to call them about your deep-dive discoveries. And people are still going to keep following them, right up until they start getting a run of bad luck.
Then the dream will end…and you’ll all be looking for the next tip-sheet, or trying to find out where Bort is at. And if it all turns normal again and valuations based on profit come back, you’ll be carrying horrible losses on stocks you know nothing about and swearing never to be so stupid ever again. This I promise you.
So, MC… Let’s not make this a war. If you can be chill about this clap-back instead of clapping-back, I’ll offer you free access to our live-streaming, charting and trading platform for 12 months as an olive branch for using your post as fodder for my rant this week. And as you are now an ‘influencer’ I’ll even pay you in 10 free trades if you then do a positive review for us. Just don’t forget to disclose your payments at the bottom!
Because having the right trading platform, not one with delayed data, or that is a free clunky website, or that pools your investments or that overcharges you on each trade to maintain a bearded guy as their mascot, is the first step to being your own ‘Makon Money’ and ‘Holdin Money’ and to stop following the herd blindly. Trading isn’t easy, but when a stock goes parabolic before the results of the well are known, then, you should have….? Should have what?!
And as a company that needs both distribution and marketing of our ‘best in breed’ ASX trading platform – and some capital at some stage – I would welcome any investment or partnership with an investor/promoter with the kind of stock picking skills that these guys have displayed. In a world where people would buy a muesli bar just because they saw Kanye eating one on Instagram, in that world I’d love to be aligned with and promoted by a successful investor!
Someone hook me up?
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This article was developed in collaboration with Marketech Stockbroking Pty Ltd (AFSL 486148), a Stockhead advertiser at the time of publishing. This article does not constitute financial product advice. You should consider obtaining independent advice before making any financial decisions.