My guest on Hedge Fund Radio this week is penny stock trader and Internet entrepreneur, Tim Sykes. Every once in a while I run into a natural born trader, someone who crawls out of the crib quoting options spreads, price earnings multiples, and book values. His first spoken word was “Sell!” While other kids were practicing their ABC’s, Tim was pouring through prospectii.
During his college years, Tim skipped classes and turned a $12,415 Bar Mitzvah gift into $1.65 million by trading the market from his dorm room. By the time he graduated from Tulane in 2003, he was already running his own hedge fund. Barclays Bank rated it the number one short bias fund during 2003-2006.
Tim argues that if you cut through all the hype and manipulation in the penny stock market, it is clear that there are huge opportunities on the short side. Most of the companies trading there are frauds, and most will fail. Mini Enron’s and mini Madoff’s abound.
Defined as trading under $5 a share, these stocks are purchased mostly by individuals desperate for “get rich quick” success. Promoters buy lists of email addresses from major online publishers, sometimes paying millions of dollars, to launch a never ending onslaught of “pump and dump” schemes. Email barrages and Twitter spam have replaced the dinnertime telemarketing calls and junk mail of yore.
The SEC is so inundated with tips on Madoff copycats and competitors ratting out each other, they don’t have time to pursue gripes about $1,000 losses emanating from penny stock scams. It’s like expecting the FBI to pursue shoplifters of 99 cent items from Seven Eleven stores.
Some of the claims made by these bogus IPO’s boggle the imagination. Tim’s favorite was one company’s efforts to promote vitamins infused with stem cells. Another offered a solar spray that turned you house into an energy source. Then there was the BP Gulf oil spill that threw up innumerable crude eating forms of algae. As for my own experience, I’ll never forget the aquaculture farm in the middle of the Saudi Arabian desert. To separate out the obvious rip offs from the legitimate companies, Tim spends hours a day gleaning through voluminous SEC filings, some of which are blatant cut and paste jobs from earlier failed floatations.
Even though most of these companies are fake, prices can run away to the upside, wiping out the early short sellers. So some risk control discipline is required. When a stock truly rockets, “buy-ins” of shorts can also be a problem. A few hundred penny stocks are launched each year, but only about five a month catch on fire. And remember, Apple (AAPL), and True Religion (TRLG) jeans were once penny stocks.
To avoid being taken to the cleaners by unscrupulous con men, Tim offers some very basic advice. If it is too good to be true, it generally is. It also helps to read the SEC filings, which can be obtained online for free.
Tim claims to have a success rate with his short strategy of 75%, which has delivered a 56% return in 2010, proving he still has the golden touch. His problem is that the strategy is not scalable, and can only be executed with a small amount of money. No mega hedge fund for him.
That’s why Tim has turned to online education instead of ramping up a big hedge fund. Today, he is offering several subscription newsletters, trade alerts, chat rooms, along with a DVD course on making money in the penny stock market at his website at http://www.timothysykes.com/ .
To listen to my highly informative and entertaining interview with Time Sykes on Hedge Fund Radio, please click here at http://www.madhedgefundtrader.com/december-22-2010-time-sykes.html .
To see the data, charts, and graphs that support this research piece, as well as more iconoclastic and out-of-consensus analysis, please visit me at www.madhedgefundtrader.com . There, you will find the conventional wisdom mercilessly flailed and tortured daily, and my last two years of research reports available for free. You can also listen to me on Hedge Fund Radio by clicking on “This Week on Hedge Fund Radio” in the upper right corner of my home page.
10 Exciting European Startups from 2010
Europe’s had a bumper year for interesting startup ideas. The Next Web’s Hermione Way and I put our heads together to come up with this list of ten small tech companies from across the continent that have excited us in 2010.
Brainient
London-based Brainient makes it easy to add interactive elements to existing web video. A ‘Magic Script’ lets publishers add a few lines of code into a website’s Body HTML, enabling pre-roll ads, overlays or any other type of Brainient layers on any embedded video in the page.
The company launched its developer tools at The Next Web Conference in April this year and announced the first of a fresh wave of commercial partnerships, allowing video site SeeSaw to transplant Hulu’s “Choose your own ads” format to the UK for the first time.
Tastebuds
If music be the food of love, the Tastebuds is on to a good thing. This Last.fm-powered dating site that we profiled earlier this year matches you with others who share your taste in music.
It’s a simple idea that the site carries off incredibly well and as a niche dating idea we love it. Music taste can often say a lot about a person’s outlook on life and if nothing else, it’s an excellent conversation starter. The service may be a little too reliant on Last.fm from a business point of view, but as a concept it’s beautifully realised.
Skimlinks
Affiliate links are a major revenue stream for some online publishers. Taking all the effort out of this type of marketing, Skimlinks gets rid of the long URLs that often put users off clicking links. The fact that the publisher is getting a cut from sales of the product they’re linking to is completely invisible, as a Skimlinks URL looks just like a normal non-affiliate link.
It’s a model that has won Skimlinks major worldwide publishing clients. This year the London-based startup launched Skimkit, a product that makes it easy for writers to add affiliate links to their articles, even suggesting items that might be suitable to link to.
Shutl
As satisfying as it is to conveniently order shopping online from home, the wait to get it delivered can sometimes make a trip to a bricks-and-mortar store seem like a better option. Shutl aims to improve on next-day delivery by offering products to your door as soon as 90 minutes after you place your order.
The service works by aggregating capacity across local courier companies into a single web-service that retailers can use to speed up deliveries. A GPS tracking facility in partnership with Bing Maps allows shoppers to track their deliveries in real-time via the Shutl website. The UK startup is currently trialling its service with certain Argos stores in the London area.
Paper.li
It was hard to ignore Swiss startup Paper.li this year. The “Twitter newspaper” startup saw rapid viral growth thanks to the automated tweets it sent out each time a user’s daily newspaper was published.
This annoyed some Twitter users, who found their reply stream filled with announcements that they featured in their followers’ Paper.li publications each day. Still, the service is still growing at a reported 1000 papers per day, with plans to expand beyond Twitter and Facebook and offer users the chance to make money from their newspapers in 2011.
Nuji
When we covered Nuji‘s launch earlier this month, we described it as “Instagram meets Instapaper” for shopping. This social network sees you sharing things you like, be they items in shops or objects you spot online, as a way of demonstrating your taste. A mobile app lets you scan barcodes while you’re out shopping, making adding items to your profile easy.
As it builds a network of tastemakers, Nuji plans to monetize by offering relevant shopping deals to users based on their interests.
Flattr
This Swedish startup from Pirate Bay founder Peter Sunde offers publishers an “online tipjar” that can easily monetize any Web page.
After adding money to their Flattr account, users click the ‘Flattr’ button on pages that they like around the Web. At the end of the month, the money in their account is divvied up to the publishers of the content the user ‘Flattr-ed’. Thus far the service’s most high profile signup has been Wikileaks, which added the button to its Afghanistan war logs page as a way of accepting donations. The service remains one of the few income sources that hasn’t been closed off to the controversial whistleblowing website in recent weeks.
Moshi Monsters
Moshi Monsters from London’s Mind Candy became an online phenomenon for children this year. Youngsters can adopt a pet monster, and solve puzzles to earn virtual currency that can be spent on items to help kit out their monsters’ world with food, furniture treats and the like.
The virtual world has seen real-world spinoffs galore. A deal with Penguin Books was followed by toys, mobile apps and video games in what is set to be a highly profitable year.
Stupeflix
France’s Stupeflix offers a browser-based online video suite and this year launched a service to automate the creation of videos, for example, in the online retail sector where a video of a pair of trainers created from a bunch of photos might be more appealing to potential customers than static photos.
Stupeflix also offers an API to automate the processing and generation of video content for third parties.
Screach
Screach aims to make all sorts of screens interactive by way of a mobile app and a highly customisable development platform. TV shows could use it to allow real-time interaction from viewers, bars could use it to run quiz events with instant on-phone rewards for winners and it’s already being used to enhance a museum exhibit in the UK.
At present there’s little to try out Screach’s mobile app on, but that should change next year when the UK start-up is set to announce commercial partnerships.
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