Will They Ever Learn? Chat Rooms – Running With the Herd, Chasing and Paying Dearly For Rainbows!

There are two regular presences found on the chat rooms; they are dominated by the “living room day traders” whose chances for a loss are stacked against them with the odds playing 1080/1, and they are sprinkled with chat room investors. The first bunch think the stock market is nuts and that its primary purpose is to give each and every one an opportunity to buy and sell quickly and often such, seemingly, as to ensure to a maximum; the American dream the constitutional right to lose one’s money – albeit the losers will say, but the sweet and bitter adrenaline rush of talking big and talking day trade is well worth the pecuniary losses.

Meandering through the ever changing recommendations – stocks are usually promoted artificially on a mere say so, and this is particularly notable on the day trade chat rooms – one can see the pattern and it’s never good. The stress and dialogue is never on the company but on volume, chart, cryptic press releases and micro engineered pop ups to sucker the gullible all of which for the small companies being “discussed” are and can be easily manipulated. It’s exciting and that’s the point for the 1080 losers to every one winner: it’s great to be the one though!

Try an intelligent communication or posting some fundamentally and verifiable useful reason to buy a stock and the promoters (the 1 in the 1080 present on the chat rooms) download an arsenal of diatribe, even going to having the innocent soul “banned” from the site for suggesting some reading before letting loose on one’s dollars. Chat rooms are a sucker’s game designed to attract the unknowing gluttons for punishment who rather than Google a company to see what the press or news releases say, rather than Email the company and get some veridical information, will rush to buy on an unknown promoter’s – often moderator’s – say so. The feeling of owning hundreds of thousands, even millions of shares (of a stock selling for a fraction of a penny) simply is worth the loss.

The second batch believes the economy is doomed and so the overwhelming consensus triggers a reflex reaction since the end is near; let’s make a killing, what the hell. The selection process is simple, any one of the fraction of a penny stocks promoted to the herd grazing in the chat rooms. Drunk with greed, driven by the high, the participants mask the depression and dejection driving their internal mechanisms; they buy for the sake of buying, knowing that the promoter will soon drop the bottom out. Look at SPGN for one of thousands of examples I have documented all of which were heavily promoted on the chat rooms.

Personally, a swing trader right of Attila the Hun, I like stocks that sit in sideway trades slowly building their fundamental business rather than their volume and charts. The first will ensure the other and the market is full of small (market capitalization of $25 million or less) companies that meet exacting rules to justify investment. Let’s take one as a mere example of hundreds – Falken Industries traded on the OTC under symbol FLKI.

As a general rule I stay away from companies
(i) whose market capitalization is less than $ 10 million,
(ii) whose press releases are not backed up by articles and general industry press,
(iii) who are not rated “Current Information” on the Pink sheets, where most of these companies can be found together with Toyota and many other behemoths of international business,
(iv) that do not provide swing trade opportunities, not less than one and not more than three annually.

I like to see discussion about real deals at press conferences, not prospective deals. I like press releases that follow press conferences. I like to see products not pretty web sites neatly conceived by IR or promotion outfits. In fact the rule I usually find to apply in small cap situations is that success is generally inversely related to the size and complexity of the company’s corporate web page. I buy their products on their web store, touch them, feel them, use them and pepper their shareholder, info, or communications department with questions about products, products, and more products, a small company with less than 50 product conceptions and global distribution will not earn a right to my dollars. A small company that takes more than 48 hours to answer my Email will get no further attention either. FLKI passes all of these tests – and strangely enough, though it generated a juicy 1900% return for its investors in the last 52 weeks, it also generated 890%, 390% and 40% on three swing trades during 2009.

I am an analyst for the Automobile After-market industry. Consequently I admit to more familiarity (and a likely penchant) with companies such as FLKI who have a dominant global business in the industry. But the importance of the criteria is paramount and must be found, notably in a Pink Sheet stock, and this, whatever the industry you favor.

Of course one could simplify the advice for present chat room will be victims; as Keynes said, “the central principle of investment is to go contrary to the general opinion.” Good companies not unlike FLKI are of no interest to the dominant promoters which monitor the activity on chat rooms and spin their stock on volume and charts. You can be certain that when the chat room crowd sounds off on where a stock is going, that sudden burst is the center of the herd as it thunders toward a cliff.

Manic speculator is too kind a word for the 1080 / 1. They are a credulous kind easily parted from their money. Volatility, volume, charts and madness are the order of the day. Chat room moderators, all too often promoters pushing their wares sit around salivating – banning from their sites any participant polluting the environment with logical and edifying information: there should be no sunshine cast upon the goings on of their chat room.

Some will argue that the 1080/1 should have to pay for their sins of greed and leverage. I have to concede that this is tempting at least for the knowing, but chat rooms would have nothing to exploit if they were populated by anyone other than those noteworthy for their distinct credulity.

After every crisis one can find predictions abound that the crisis will be followed by a rebound and then a long period of sideway trading. I don’t buy it. Sure this is backed by past performance, but if the past was a a real component of the future, I and all other industry analyst would be rich.

Prudently I consider alternatives. As a contrarian I run from obsessions – much like those regularly found on chat rooms.

As for now my best gem in the rough, fundamentally sound, globally present and with more than 160 product conceptions out and an equal number in the pipeline, trading sideways for a time, rising bit by bit, I sound off on FLKI. Of course I know that because as you guessed it I touched it, felt it, smelled it, and confirmed it all before I put the whole dollar it took to buy 5 shares at the current 20 cent price.

Falken Industries Ltd OTC: FLKI is a diversified industrial conglomerate that operates in Chemicals, Wet Wipe and Biodegradable Technology. Falken Industries Ltd is the concept behind more than 160 products distributed through a network of global platforms and the recipient of trade awards for innovations, biodegradability and environmental and health quality standards.

Bang, We’ve Hit Bottom – Fasten Your Seat Belts For the Trip Back

As an objective analyst for the Automobile After-Market Industry as a whole, I am often asked to pull a rabbit out of my bag. Well I don’t have that bag and even less the rabbit to pull from it. That said, my twenty five years in the industry have taught me to never take advice from a poorer man.

Now why would someone ask me? On the salary of an industry analyst I am undoubtedly among the poorest of them all. However, as most readers know I have covered every gem and laggard in the industry. Laggards today are plentiful in this industry, and that includes the affiliates of behemoth corporations.

As part of my assignment I must also peruse investor hang-outs. I see a lot of talk and actions from these sources which fully define the rush syndrome. The rush syndrome is also called the herd syndrome because it relates to the attitudes and behaviors of such investors to that of a stampeding herd of cattle rushing clear over a cliff – it is axiomatic that this is not a successful course. The day traders that fill pages and pages of chat room screens don’t trade for the money but for the adrenaline rush that powers their veins every time. As luck will have it, sometimes they hit on a winner feeding their excitement. The statistics however tell a different story; The ratio of losers to winners is 1080/1.

Of the 30 day traders I interviewed, none indicated any notion of understanding the concept of weighted average yields. Most answered “that’s how it goes” when questioned on the high level of loss. Bottom line it’s a game. Much like the chat rooms they participate in.

So then how do you really make money in this game?

Well, I went to three expert full time investors (they shun the title of trader). There is a pattern in their thinking which I will share with you. Each called the method pursued for investment; “Fundamentals Trading”.

Here are the rules for Fundamentals Trading as they outlined them to me;

1. Stay under the radar, off the chats and the message boards. Stay anonymous during interviews; use the media only to read, never post on either chats or boards. When plowing through them, look for reasoned presentations or comments.

2. Unless you have multi-million dollar resources and can involve sophisticated measures there is no such thing as a successful day trader.

3. Don’t bet the charts except; (i) to marry volume with trend and trend with volume. High volume and a declining price over a period of one month, absent negative news, means profit taking often performed in a massive way. This is a very positive signal which should be followed to the bottom. (ii) A sudden stop in the volume and an unchanged stock price means a bottom. The stock will often do nothing or trade sideways for a time. (iii) An uptick of.125 or more confirms that bottom. Don’t wait for it.

4. Don’t be an amateur. If a trade or investment is worth doing, its worth doing for a fraction of a penny more. Don’t put in orders at round numbers. For example if an offer is.19 put in your bid in at.18.3.

5. Don’t be a foolish amateur. Bid your trade at the lower of 120% of the highest Market Maker bid or 110% of the lowest offer posted. Then apply the rule and finalize your bid by adding.003.

6. If trading stocks under $ 1 don’t work on percentages but on real cash. Don’t underbid 1 cent to save $20. You’ll do yourself and the stock more good bidding up 1 cent then adding.003 because that will lead to more interest and better performance for the stock. It will also clean up the lower un-posted offers.

7. Chat room traders are famous for their propensity in ignoring rules. In so doing they keep chasing the trade, and lose their money most of the time.

8. Hold the stock until you have an objective confirmation of fact. For example, if the volume dries up to near nothing after a run-up of more than 20% and the stock fails to up tick over seven consecutive days, don’t sell, watch it instead. If the stock down ticks 3 or more times in a row and only then to a level 90% below its price at that run’s high with no negative news apparent, a sell decision would be appropriate.

Never sell on a sudden down tick even if it goes below 90% because that might just be a large block trading on an AON (All of Nothing) at a favorable price. You must have dried up volume and three consecutive down ticks before a sell should be contemplated. Don’t violate the rule of three consecutive down ticks, any uptick in between or side trading at the same price interrupts an restarts the rule of three.

Too often, traders underbid as a matter of principle and sell or buy on impulse (for example, if you are buying 2000 shares at.20 cents a 1 cent increase in price will cost $ 20. If $ 20 is of concern to you, you have no business trading stocks.

Emotions have no part in successful trading. The object is to maximize profit, and in that pursuit patience is a virtue. These rules are particularly applicable to small cap or so-called penny-stocks.

What is success I asked and to that I received a unanimous answer: “Well success is finishing each quarter on the plus side with less than 10 trades”. All three of the traders agreed that less is more and that “Fundamentals Trading” means you are buying into something real, not hype or a theory on what might happen.

Fundamentals trading is investment trading. There is no need for quick sales to make money. Most of the money is made by those who buy into small companies with good fundamentals supported by excellent press and news releases. Good companies are also good world citizens – a failing in that area suggest short term outlooks by management that could lead to a disaster sufficient to take the air out of their balloons.

I left and pondered about which of the publicly traded companies in this industry might meet these rules. Much at the demand of the industry to trade associations have been about upcoming about a small company ($ 15,000,000 market cap), which trades on the OTC under symbol FLKI. Taking that direction, it took little research to confirm that the company meets each and everyone of those rules. Consequently, the company should prove of interest to those that care that their investment be backed by an operating on-going business, an apparent rarity in these over-the-counter markets I was told. By operating I mean here; substance behind the trades, a real business, real products, real sales, you know the story. Barring that I bear no qualification to recommend a stock which is a personal decision to be made by the investor based on criteria he himself will establish.

Reporting for the industry press and since 1997 on this non-conformist company has been a pleasant challenge. The company is incredibly successful, it’s a global leader in product development, has a barn full of more than 160 product concepts distributed globally and as many in the pipeline. Its unique management has created a company whose counter-cyclical business is crisis proof.

Hype is plentiful n the environment of the OTC and Pinksheet stocks. SPGE was the latest of the stocks recklessly pursued by the chat room day traders. The press including the New York Post claimed in recent articles and editorials that all the hype over this outfit was just that; hype. Its stock has been suspended and the SEC is taking an interest amongst other things on how a company claiming $ 30 million plus in sales only has $ 34,000 in the bank.

Not claiming any distinction in math, I asked the gurus I was interviewing to demonstrate an application of their rules against FLKI the company I had concluded met the standards. Refering to their background check (called “dd” in the jargon of the trade) they pointed out that the company’s stock rose 896% from 5 cents to over 50 cents to make number 1 on CNN’s Money “Best Performing Stocks”, that it had been hit with massive profit taking on rising volume depressing the share price dramatically. All of that stopped suddenly however. The volume dried up to a few thousand shares, and the stock stayed put. A confirmation of the bottom required a close on an uptick of.125 or more. That occurred and the bottom was confirmed at.19 cents. All of these facts are historical and of public record – “dd” which stands for due diligence, has for a purpose to gather these facts.

That done, and applying the rules presented, the stock, according to the gurus, is a strong buy up to.204 (its was offered at.19 cents). The high bid is.16 cents which would produce an entry bid of.176 +.003 or.179 tested against 110% of the lowest offer, i.e. 19 cents which results in a bid price of.209 +.003 or.212. Thus following a perfect application of these rules, the stock should be purchased I was told at.212 cents with anything less being considered a benefit of volatility.

I like the stability of rules that work and the proven home runs that the rule “never a negative quarter” espouses. I’m a believer. For the gurus, the company is a model target for “Fundamentals Trading”. Incidentally from its latest press releases which were similarly consulted as part of the training “dd” I underwent, it seems to follow the rule of never a negative quarter!

I’m Sitting Back Watching That Time When Everyone Will Rush OTC-FLKI

The market is not happy, it kicked and moaned most of the time as the news went from bad to worse and people decided to feed up a nasty correction. Everyone is moving to solve the issues which ail the world and this from both sides of our planet. Where’s the sensible approach?

Lucky for all, I am neither a political analyst nor a guru of any sort preaching one thing or another. I am but a humble industry analyst and cover the most mundane of industries, the Automobile After-Market Industry; but mundane it is no longer. There’s money to be made here, and the big one’s are handing out both their money and market share to the small industry gems not unlike Falken Industries Ltd, a small company (market cap $ 25 million), brain child of a young Norwegian MBA and traded under symbol FLKI.

Very prudently, the company has been making its moves, it launched in 1997, and since its award winning product conceptions have lined the walls of award winners and the shelves of retailers and users globally. The company is responsible for more than 160 products currently in production. Through the thick and the thin this company moves early and has become an industry model at cost controls and in stemming the flow of its liquidities. Free of debt, it nurtures its business and as it names implies, from high beyond, it pinpoints a market and sweeps upon its unsuspecting prey. All too often, the hard won, century old markets of complacent monster sized competitors – but only a little bit will do you for this flexible instrument of creativity.

We don’t have year ends yet of course but we do have an Internet full of useful information. Just Google “FLKI” (without the quotes) and read on. Management, which tends to be right of Attila the Hun in my humble view, suggest that preliminaries might indicate that sales accelerated 1.9 percent for the month of December – a normally dismal period for that portion of its business dealing with auto-care products, this from 0.6 percent the previous month. My own bet is that sales climbed 10.7 percent in the fourth quarter.

For the first time since 1997, FLKI doesn’t deny acquisition or merger invitations or interest. It’s incredibly creative management doesn’t seem to take lightly its fall into major corporate America but the scuttlebutt suggest that at the $3 or $4 a share people are talking, the company is a done deal. Moreover there does not appear to be a controlling block so that astute competitors could quietly finesses at least positions of up to 4.9% (about 392,000 shares – a whopping $ 80,000 at these prices) before they sprang. The stock a basic unknown to the trading community is selling at 20 cents.

Let’s no forget that FLKI sits with the technology, skill, and purchasing knowhow to tackle a 9.5 billion dollar industrial segment.

As I see it, the market’s inaction, unwitting ignorance of this opportunity can’t last. It is possible because the hapless competitors circling have no possible interest in putting a light on it, and the investment community are too busy licking their wounds or for the smaller part wasting their time on chat rooms. Hapless I say about the competition, because given FLKI’s commanding global lead in product conceptions and branding, its is outrageously cheaper for them to buy the company than to try to take back the market share they have lost, let alone acquire FLKI’s or that of its collaborators.

To me, the market’s reaction is pretty entertaining – I’m sitting back watching that time when everyone will rush – the herd is on its way paying dollars for what they could have acquired for pennies today. I’m similarly amused from my reading of chat room commentary crafted by the know it alls who claim all the wrong thing as a prerequisite to a buy. Result a 1080:1 loss ratio. But say they, it’s the adrenaline rush that counts.

Falken Industries Ltd OTC: FLKI is a diversified industrial conglomerate that operates in Chemicals, Wet Wipe and Biodegradable Technology. Falken Industries Ltd is the concept behind more than 160 products distributed through a network of global platforms and the recipient of trade awards for innovations, biodegradability and environmental and health quality standards.