Newsletter November 30, 2002 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 ResearchFor 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.

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.


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