Monday, December 1, 2008

The Sopranos' Over-the-Top Take on Selling a Sketchy Stock

In the comment thread of an earlier post ("Destiny Media Update"), a commenter's Sopranos reference brought to mind this scene, set in the boiler room of a 'boutique' investment bank, where an honest broker is disciplined for refusing to pump shares of a scam dot-com company called Webistics to his clients.


JK said...

Haha...Have you seen "Boiler Room"?

While that vid clip is over the top, there is a lot of organized crime involvement in penny stocks. It's actually not too hard to find these folks to inquire about employment pumping penny shares, if one is out of work and so-inclined.

That's why I assume micro-cap management are nothing but lying, filthy rotten scumbags out to make a quick buck, as an additional margin of safety when looking at filings and communications. Anything doesn't add up, I don't give them the benefit of the doubt.

DaveinHackensack said...

Yeah, I saw "Boiler Room". The funny thing, for anyone who once worked in a 'boutique' investment bank (albeit not one that sold stock in completely fictitious companies), is how authentic a lot of the dialogue was. I heard lines like that all time time from brokers in my office -- particularly from the ones who had migrated there from some of the sketchier outfits at the time, e.g., Stratton Oakmont, which was probably the inspiration for the firm in "Boiler Room".

Skeptical Pete said...

That said, why do you still seem to love buying shares of companies that have no unbiased, outside analyst coverage.

Few of your low-priced shares even have earnings estimates available on any of the major services like Yahoo, AOL or MSN finance sites.

Many of them are currently losing money but the companies themselves always say they are "on the verge of profits".

Why trust them?

Dr. Toothbroker said...

Unlike you I was careful to use outside analyst estimates when I recommended Ruby Tuesday last year, "A Hard to Swallow Bargain". It wasn't a low-priced stock when I recommended it at $15.73, but it sure is one now, at $1.13.

Why do I still trust Value Line? Why do I still base decisions to invest on past share prices, which have no relation to a company's future prospects?

Because I'm Dr. Paul Price, that's why.

The Doctor is ______ Out... of his mind!

Learns from experience said...

Ruby Tuesday was a error that was sold many months ago at a much higher price.

When your basis for recommendation has shown to be invalid you exit.

You don't wait for the delisting notice as is the case in Viet Nam.

DaveinHackensack said...

Skeptical Pete,

There is a potential advantage in investing in small stocks that don't have analyst coverage: if they eventually do get analyst coverage, that can be a catalyst. We covered this in an earlier post ("Why Worry about Small, Thinly-Traded Stocks"). In that post we wrote,

"...small stocks are worth paying attention to is that these stocks are more likely to be mis-priced, since they usually have no analyst coverage, little media attention, are ignored by most institutional investors, etc. This gives them the potential for higher returns than more widely-followed stocks. Recent academic literature supports this. See, for example, "Information Diffusion Based Explanations of Asset Pricing Anomalies", by Bolmatis and Sekeris..."

Regarding buying currently money-losing stocks like Destiny Media, the tack there, as followed by Edelheit and some other professional value investors, is that -- if the investment thesis proves correct -- you can buy the stock for less than if you wait until it is already generating current earnings. As I've mentioned a couple of times before though, in this market, there's probably a better balance of risk versus reward in sticking with currently profitable companies. In the case of Destiny Media, for example, if you don't own the stock already there probably isn't much harm in waiting for the company to produce positive earnings ('Trust but verify', as Reagan famously said) before investing.

Dr. Toothbroker said...

Dr Price, who the heck lives in Vietnam (Its a single word, not a phrase)? The other day also you were delirious about some Asian investors.Planning to move there like Jim Rogers or are you having delusions smelling fumes out of wrong cavities?

BTW not to pick on you, but that Ruby Tuesday pick was amazing. Still holding that stock Dr Price?

Dr. Paul Price said...

If you liked my Ruby Tuesday recommendation, click on my name to see some of my other winners including Sallie Mae, Countrywide Financial, and AIG. The key to my success with all of these picks was using unbiased independent research from Barrons and Value Line, and looking at the previous prices the stocks hit.

Stockdoc said...

Whoever keeps using my name for fictious posts should enlighten us with his own picks so we might see the wisdom of his ways.

It's not right to post B.S. under someone elses name.

Any posts I have ever made under Daniel's name were pasted dirtecdtly from his own blog and were HIS OWN WORDS - not made up crap.

Stockdoc said...

Also I would like to add that the main reason I posted whatever Daniel wrote in his blog was because he questioned the way I saw risk. May be I am wrong with my risk thesis , but it was really harsh on his part to point my defects on a public forum.

Dr. Paul Price said...

Forgive me everyone, my MPD is acting up again. Every time I soil myself, a new "alter" grabs control to help me cope with the trauma of my condition.

I seem to have lost my gabapentin and chlorpromazine. Time to write myself a new prescription.

Stockdoc said...

Whoever is doing this, please stop.

If things are going like this, I am never going to visit any of these blogs and leave comments.

Dave, my friend , help me (first time I am requesting something polite)...

DaveinHackensack said...


The sock puppeting (by you and others) is unfortunate, but I don't want to ban anonymous comments, since I realize not everyone has a blogger profile. Perhaps it would be helpful to try to steer this discussion in a more constructive direction. Let me do so by asking you a question about an earlier comment of yours in this thread. When you wrote that your investment in Ruby Tuesday was "an error", what (if anything) do you think was the error in your investment process?

Paul said...

As the economy tanked and credit markets froze it became obvious to me that i didn't want to own any companies that needed to access credit over the next few years.

That included anybody with debt coming due in the next few years. I actually went to 100% cash for a while for the first time in 30 years. That was the reason I stopped posting.

Now there are such good bargains in debt free or non-credit dependent stocks that I'm actively buying (and posting) again.

Because I sold everything and started from scratch again recently, I haven't owned any of those old stocks for quite a while.

Some of them are healthy enough (and now cheap enough) that I started buying again at the much lower prices available over the past six weeks.

WIlson Pickett said...

"If things are going like this, I am never going to visit any of these blogs and leave comments."

Promise or threat?

William Hussein Clinton said...

Sounds like a promise, but not sure if he can keep it.

Stockdoc said...

To whoever was using my name shamelessly:

gabapentin and chlorpromazine are drugs for bipolar disorder- Forget about writing self prescriptions, I am a dentist for heaven's sake!!

DaveinHackensack said...

"As the economy tanked and credit markets froze it became obvious to me that i didn't want to own any companies that needed to access credit over the next few years."

I noticed your new interest in cash-rich, debt-free companies in your write-up of eBay. Still think you're being a little too optimistic in predicting a reversion to double-digit earnings multiples (for any stock in this secular bear market), but I agree with you about the benefits of a companies having net cash.

DaveinHackensack said...

"That said, why do you still seem to love buying shares of companies that have no unbiased, outside analyst coverage."

Via e-mail, former commenter Daniel reminded me that there is analyst coverage of some small stocks (e.g., Hemisphere GPS) although it doesn't show up on sites like Yahoo! Finance (and Daniel has shared examples with me in the past, for example research on HEM by Canaccord Adams). He also points out that investors have easier access to management of small companies, which is true, and which I've provided some examples of on this blog (although Reg. FD can limit the utility of this somewhat).