Saturday, November 15, 2014

Stopping the Company from Uplisting

I believe short selling is an epidemic in the OTC markets just now.

While some listed companies can escape short sellers if they have merit, a low price, and are not otherwise suitable for attack, OTC companies generally are under a cloud.

First, the general opinion, not without merit, is that most OTC stocks are a short sellers dream because:

These companies are not managed by persons experienced in the treachery of the stock markets. These managers do not realize that a short attack means a life and death battle. Thus, the company sits there without taking any defensive action and so bleeds to death under the continual attack of a predatory short. Even if a defense is mounted, defense is a losing game -- only attacking back will drive off a short seller. I do not recall seeing any such attack on a short seller, although counter attacks are common in hostile takeover fights over listed companies.

These small companies often are not managed by experienced executives. Successful management of a growing company is a art and a very difficult one at that. One wrong turn and the company falls prey to the vultures.

The entire OTC market is under a cloud with investors and regulators because of frequent abuses by promoters.

Many institutions and other sophisticated investors will not consider low priced or unlisted securities.

The resources of the shorts often exceed the resources of the company.

OTC companies are often long on dreams and short on substance.

OTC companies often lack positive cash flow.

Generally, longs do not rise to the defense of an OTC company when it is attacked. It is their opinion that being sold short is a sign of something wrong and they do not want to take any unnecessary risk. Why swim upstream?

Thus, it is natural for a growing company to want to uplist, to go to a higher exchange or trading venue.

However, such markets require for listing a minimum stock price. Often the company's stock is well below this price. Management orders a reverse split to get the price over the required threshold.

The shorts, as with anything that would benefit the company, immediately try to kill the uplisting effort by blasting the stock back down below the threshold. This will prevent the uplisting. Hopefully, it will demoralize the longs and management as well and cause them to realize that the stock is caught in quicksand -- the more you struggle in quicksand, the more you sink in.

This post is written with one recent example in mind. I will not embarrass management by naming it or showing you the chart.

This was a Pink Sheet company, a product of a reverse merger. The operating company has millions in revenue and even paid a dividend. The idea was to get the stock over $1.00 and make the company fully reporting, a worthwhile goal for a worthwhile company.

A one for 50 reverse split was done and the stock traded over $2.50 per share. At that point the company must have figured they were all set to meet with $1.00 target.

Yet their joy was short lived. Seven months later the stock hit $0.25 -- dropping 90% and putting it below the $1.00 target.

And this company had a stock repurchase program!














Friday, November 14, 2014

Short Selling -- Stopping the Company from Raising Money

One of the great techniques of predatory short sellers is to keep the price of the company stock down.

Now you might think that a short seller would want to increase the price so he could increase his line at a high price.

However, for a company that has negative cash flow, or a company that needs to raise money, a los stock price will cause the company to raise money at lower prices causing more dilution and thus decreasing the value of the stock.

If the price is low enough, it may stop financing altogether. Some institutions have rules about avoiding low priced stock and if you push the price down below their lower limit, finance dries up.

A declining stock price can also cause morale problems among shareholders, employees, and even customers. A declining stock price or a low stock price is taken as evidence of some defect. Key employees with stock options are sensitive to the stock price.

Thus, aggressive predatory short sellers want the price to go down, to continue to do down and to stay down.

As the short seller only recognizes taxable gain when he closes out his position, he may not want the company to fail entirely, just to stay comfortably and surely in the land of the living dead with a price in the cellar and no chance of jumping back to life.

This was a wonderful technique in the days of naked short selling as you could short more than the outstanding stock and by using the laws of supply and demand push the stock into oblivion by destroying all attempts to get new money.

Personally, I find it too predatory to destroy companies with potential just by pushing the price down. We are here to benefit people, not hurt them. We only want to hurt scammers and bums.

This is why it is so wonderful to find some real crooks out there working a manipulation and crush them. You can attack without reservation. Where else do you have this license?