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One word pitches usually get you destroyed

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January 12, 2011 – Comments (35) | RELATED TICKERS: TSTC

               Look at what we have here, another Chinese stock being accused of fraud.  A company with 80% of its total assetts being its accounts receivable, and its DSO's out of control.  Do half of the people invested in the company know that? I would bet not.  Now, is it always neccessary to analyze balance sheets, income statements, etc.? Certainly not; I almost never do.  This is because I can usually see the companies I invest in.  My two biggest holdings are STD and BAC...I see BAC everywhere I go.  STD I don't, but it is very well known, and pays a real dividend.  Why on earth would a company that is the """""""""""""""""leader in their technology"""""""""""""""""""" need to raise capital a couple of months ago? I bet that some of these chinese companies don't even exist except on paper.

 

     There is a reason these stocks are consistently priced cheaply.  Not because of fear or because they are overlooked, but because they cannot be trusted.  If a company has a P/E of 2, that means their inverted yield is 50%.  Even if they only paid out 10% of their earnings as a dividend, you would get a 5% yield and still have 90% for growth.  A 5% yield would scare away the shorts.  Why don't the companies do this? Because they don't earn anything.

           So, what is with the title of my blog?  Because people buy these companies based on 1 word variations of the same origin...ready for the reason they do this?

"Ultralong"

"TMFBabo"

"TenMiles"

Now, obviously I am not knocking these guys at all.  But come on, I know for a fact some people put real money into a company they don't even know how to pronounce the name of because of a guy with a high caps score.  I know I don't do all of the DD I should, but avoiding chinese scams seems easy.

35 Comments – Post Your Own

#1) On January 12, 2011 at 2:28 AM, zymok (< 20) wrote:

+1

Those who take short cuts will eventually get burned.

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#2) On January 12, 2011 at 3:12 AM, Raambo20 (< 20) wrote:

Agree completely, those 3 you mentioned are probably very good investors in real life. This is, however, a game, and I'm sure they wouldn't touch some of the picks they have on caps with real dollars in a million years. 

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#3) On January 12, 2011 at 4:33 AM, valunvesthere (< 20) wrote:

@Valyooo

May I ask:

Why do foreign companies still do business with China and foreign investors keep a steady flow of invesment money to China?

If China has a corrupt and fraud culture, why doesn't India or other emerging economies pounce on the oppurtunity to grab as much or all of foreign companies businesses from China and redirect flow of investment money to India or other emerging economies?

Is China more strict (stiff punishment and on rare occasions death penalty)on corruption and fraud than India and other emerging economies?

Valunvesthere

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#4) On January 12, 2011 at 8:28 AM, TMFBabo (100.00) wrote:

@Valyooo: I agree big-time.  I understand if people follow others' CAPS picks with their CAPS portfolios just to see what happens, but I have a big problem with people following others' CAPS picks with real money - and I feel so many people do it that I almost don't want to pitch or blog anything.  

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#5) On January 12, 2011 at 8:53 AM, Melaschasm (58.24) wrote:

#3 I do not have all your answers, but here are a few interesting tidbits.

* India has much stronger environmental regulations, so high pollution industries are better off in China.

* If a multinational company builds and manages a factory, local corruption only matters to the extent that it increases bribery expenses.

* There are many great opportunities to invest in Chinese companies, and even if 50% go bankrupt, that still leaves many multibaggers to be had.

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#6) On January 12, 2011 at 9:35 AM, TSIF (99.96) wrote:

#3  valunvesthere   There are no safe country's for entry level equities.  Regarding India, ever hear of SAY?

There are some theories, here on CAPS and elsewhere that if you are open to risk, that a "basket" of the Chinese equities can protect you from a bad one.  It doesn't feel that way when you get hit by one, even if your profits from the "good" ones still exceed the bad ones.  Those that have been called out the past year, have for the most part, been reporting accurately on the China level which leads one to question why investors don't require the China filings, but in some cases these are apparently province based and difficult to obtain.

It's about Risk/Reward, but investors can minimize their risk by some analysis and gut checks.  I agree with TMFBabo, that if anyone is doing real life investment from a CAPs call then it's rather Foolish. While you might have some CAPS players you "trust" more than investment bankers, no CAPs player can keep up with 200 company's. Some CAPs players blog or indicate a real life investment in a company, but even that shouldn't guide anyone directly.  All of our metrics should be different, especially risk/reward and portfolio diversification.  Also, new information can become available that needs acted on quickly and there is no time to give a CAPs callout.

I actually like to see some of my CAPS calls "LOSE".  That's when I dig deeper if I'm serious about a company.  Was my original thesis wrong, or is the equity in value level.  If my thesis was  wrong, however, and I agree the company was a LOSER, I still might not close my CAPS pick if I think a catalyst, short term or otherwise might get it back into the green for accuracy reasons.   I know many other fools do the same.  So if a TOP FOOL is 30% underwater on CAPS does that mean something is an even better play for someone just checking it out??

Thanks Valyooo,  good discusion.

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#7) On January 12, 2011 at 10:25 AM, JaysRage (89.07) wrote:

I agree that people shouldn't blindly follow other people's picks with real money.   They shouldn't even blindly follow someone else's real money portfolio.  They should do their own due diligence.

However, I do think that there is too much generalization in the China small cap space in terms of the risks involved (see my most recent blog).    Due diligence is necessary, but I'm not a fan of throwing out a whole sector, just because there is some risk involved. 

Stocks are NOT always priced to their risk level.   Sometimes a P/E is 4 and it's stupidly low for no reason.   That's value.  Sometimes a P/E is 4 and it's over-priced relative to the risk.   You have to do your own fundamental risk analysis.  

Now, is it always neccessary to analyze balance sheets, income statements, etc.? Certainly not; I almost never do. 

No due diligence on BAC?  REALLY?  Bear Sterns and Merrill Lynch were pretty well recognizable brand names.   Name recognition isn't a safe haven either, especially with the delicate bank balance sheets that still exist. 

Dividends are not practical for growing companies.   It sucks the life out of the growth engine by pulling out cash.   Dividends are for mature companies that can no longer maintain the growth of their youth.  

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#8) On January 12, 2011 at 1:06 PM, chaimyl (92.99) wrote:

I agree and I myself lost money that way even though i did research it was very basic without even looking through their quarterly reports however Jakilathehun write the best research reports out there and based of those reports you can do research fairly easy 

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#9) On January 12, 2011 at 1:07 PM, Pennyperson (< 20) wrote:

@Valyooo  #4 and #7

I agree that people shouldn't follow other people's picks with real money and if they do- well - it's their mistake and not yours. However, I and a few of my friends have came across some real winners from Caps Stock Pickers, Pitches and Blogs. And I'm not talking only picks from All Stars. Bottom line  - you get turned on by someones pitch - then zone in and complete your own due diligence.

China stocks - I have a really hard time buying them becuse of lack of trust. The only china stock I own is CRTP and I'm watching it like ***hawk*** = lack of trust. And it's a small % of my PF.

PP

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#10) On January 12, 2011 at 1:50 PM, Option1307 (29.74) wrote:

+1.

To be fair, if people blindly follow "top Fools" it's their own fault.

TMFBabo 

...I almost don't want to pitch or blog anything.   

I would really really REALLY hate to see Fools take on this strategy simply bc others blindly follow their advice. The community would be losing a lot if people stopped making pitches/etc.

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#11) On January 12, 2011 at 1:53 PM, NorCalTrader (< 20) wrote:

Funny that you mention fraud and companies that can't be trusted and then admit that one of your biggest holdings is BAC.

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#12) On January 12, 2011 at 2:34 PM, TMFBabo (100.00) wrote:

@Option1307: I'm glad I included the word "almost" - I've felt this way for months now, but I'm still here blogging and pitching from time to time.  I have no idea how UL does it - he gets asked a million questions from people who intend to trade on whatever he says. 

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#13) On January 12, 2011 at 3:03 PM, Pennyperson (< 20) wrote:

#12)

I have no idea how UL does it - he gets asked a million questions from people who intend to trade on whatever he says. 

But, he always adds complete your own due diligence or get an F-

 

 

 

 

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#14) On January 12, 2011 at 3:19 PM, Pennyperson (< 20) wrote:

Actually Baboo

I've completed my own DD and then asked him his take on the stock and I didn't agree at all with his answer/reply. But, hey!!! it was free =)

Sorry about the OT Valyooo

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#15) On January 12, 2011 at 3:53 PM, rexlove (99.44) wrote:

I've been burned on a few chinese stocks to know better now. I did jump on the bandwagon and bought some shares in my RL portfolio based on recommendations from some of the names you mentioned.

All I can say is - I learned my lesson. 

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#16) On January 12, 2011 at 4:17 PM, Valyooo (99.36) wrote:

I am not saying that its anybodys fault except the people who blindly follow.  I actually buy a lot of stocks based off of peoples pitches....when they are long, thorough pitches, and then I follow up with my own research.  The worst thing about it is they can tell you when to buy, but you wont know when they sell.

@ Norcaltrader...when was the last time that they had to be investigated by the SEC for accounting problems?  None that I know of....the whole mortgage thing is not the same as a fraud.

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#17) On January 12, 2011 at 5:03 PM, TMFBabo (100.00) wrote:

@Pennyperson: I wasn't targeting you or other people doing their own research, but let's say 300 people ask a question...30 of them might intend to trade on the information.  That's 30 too many! I do acknowledge most people aren't gonna trade on it.  I was thinking about answering a question myself - I forget if I did or not.

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#18) On January 12, 2011 at 5:25 PM, JaysRage (89.07) wrote:

@ Norcaltrader...when was the last time that they had to be investigated by the SEC for accounting problems?  None that I know of....the whole mortgage thing is not the same as a fraud.

You mean about things like this (which are still going on, by the way)

http://finance.yahoo.com/tech-ticker/bank-of-america-says-its-lehman-style-bogus-balance-sheet-manipulation-is-a-okay-447982.html?tickers=bac,xlf,gs,jpm,ms,c,spy

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#19) On January 12, 2011 at 5:34 PM, outoffocus (22.83) wrote:

TMFBabo

A fool and his money are soon parted.  Period.  It doesnt matter if they do it by blindly following someone else's CAPS pick because of score or they blindly followed their Uncle Sally's hot stock tip.  Either way they are going to lose their money so let them lose it. In the end its still their fault.  Your blogs and pitches are for those of us who have done our due diligence but are looking for someone who may have some expertise in the sector that we may not.  Therefore to stop blogging or pitching because of a few idiots would be doing a huge disservice to the Fool and its purpose as a whole. 

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#20) On January 12, 2011 at 5:39 PM, Valyooo (99.36) wrote:

JaysRage- yeah, but two differences 1) I am completely down for them being more leveraged than they say 2) I've got the Fed on my side in the case of the banks, I don't with the chinese RTO's. 

Idk about you, but I want to be on the side where corruption is allowed

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#21) On January 12, 2011 at 6:05 PM, Momentum21 (93.91) wrote:

Valyooo (97.94) - I don't disagree with you on the premise of following someone blindly...of course that is bad policy. But hindsight makes everyone a genious. Five years ago if you were doing your DD and investing your hard earned coin in BAC you would have 70% less than you do right now. I saw many ATMs then too! : ) 

We tend to fall the hardest when we don't recognize the risk associated with the reward we are reaping. Bad things can happen to good investments.   

Any bet on 1 stock is risky no matter how well researched. Based on what I have seen give me 20 green thumb "TMFBabos" and I will probably be OK over time.     

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#22) On January 12, 2011 at 6:07 PM, Momentum21 (93.91) wrote:

Five years ago if you were doing your DD and investing your hard earned coin in BAC you would have 70% less than you do right now

One would have 70% less of his/her investment today of course. 

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#23) On January 12, 2011 at 6:23 PM, Pennyperson (< 20) wrote:

Babo

#17

We’re good!!   My only thought is that you’re over thinking the stock pitch deal. I have great respect for you simply for the fact that you put a lot of effort into a pitch. Unfortunately – I don’t go into fine detail like you--my brain thinks faster than my typing skills, so I don’t even try. LOL

I may throw a ticker out there and add a few words and leave it to the fools to complete their own DD. However, you are correct sir – some do purchase stocks without any DD just off a pitch that someone has added. My father is a good example with MCZ. He read what UL had written, looked at the chart and slammed down the buy button and it paid off. And I “sold” NBG for a loss because UL said that he didn’t expect any near term movement. But, I didn’t care - because I was already thinking the same thing. So, I added more C instead and got out of the Euro Zone (for now). Although STD is real tempting, I almost pulled the trigger on that one Monday.  

Bottom line you do a great job with all that you contribute no matter how small or great it is. So thank you!!!

MF is great place for the everyday investor to get started. I’ve had more pro’s give my dad bad advice with stock picks than anyone here on the fool and that's a (fact). 

BTW I asked you a question on your blog..when you get around to it  =)

P.S. But, my dad is a DD guy. MCZ was cheap and he had deep pockets that day.

 

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#24) On January 12, 2011 at 7:19 PM, Valyooo (99.36) wrote:

Momentum,

I am not saying BAC was always a good investment...but it was at 10.96 when I bought it a couple of months ago.  Banks were way too risky 3-4 years ago.

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#25) On January 12, 2011 at 10:38 PM, Momentum21 (93.91) wrote:

Valyooo,

My point is that many would say that your "investment" in BAC is pure speculation. There is nothing wrong with it as long as you recognize what you are risking. Those who chose to follow one word pitches might not be all that different.  

USB is an investment. BAC is still a risky trade until proven otherwise. Short-term USB will underperform while BAC plays catch up but if the market corrects...well you have yourself an issue...esp if it makes up a significant portion of your portfolio.

How many folks give a rats *ss about the move from 11 to 14 if they still own it at a cost of 45? They are long gone I bet...  

I'll take USB all day long. If the market corrects there is less downside and you still get paid a dividend. Come back in a year or two and we can compare the charts. Just like going back 1 or 3 or 5 or 10 years. 

All the due diligence in the world on BAC is useless IMO. You are betting on a macroeconomic tailwind and fears of scandal being overblown. Probably a good bet...but still speculation.

There are many things that can get you destroyed playing this game. It is better to acknowledge that we are all along for the ride is all I am saying...if you want to speculate with your favorite Fool's advice so be it. If you don't know the difference between investing and speculation you are eventually going to get what you deserve. And I would prefer Babo, UL or Porte to the Yahoo message boards. 

 

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#26) On January 13, 2011 at 12:09 AM, JaysRage (89.07) wrote:

I agree with Momentum21.   

You can't have it both ways here.   BAC is speculative, and it's every bit as risky as a Chinese small cap.   It's current valuation is based upon a series of assumptions about profit and the economy that are only true because of the EXACT CURRENT SITUATION where they are able to write loans and sell them all to Fannie Mae and Freddie Mac and take free government money and invest it in the stock market and take debt leveredge and hide it on their balance sheets.  Ecomomic recovery is not necessary good for BAC's near-term profits, because it could mean a government rate increase, privatization of Freddie and Fannie, increased government regulation, which would mean their investment carry profits are at risk and they actually have to make money by writing and carrying their own loans.   Heaven forbid.   Economic depression isn't good either, obviously, because their bad loans from Countrywide get worse, and their leveredged investments all hit the crapper.    Only the current situation is a clear win.     

"Investing" in a risky stock like BAC with only the justification that it is well-known and that it has ATMs everywhere and not justify the risk-reward of the macro-economic dependencies on current government regulations and policy is short-sighted and dangerous.   Is it a better risk/reward at 10 than there was at 50?  Yes, sure, with proper due diligence.  But that's not what you were arguing.   Are they any less risky than they were 3-4 years ago?    NO.  It's just a better risk/reward ratio, and if you don't understand the risk/reward ratio and you made money anyway, you got just as lucky as anyone who blindly followed UL, Babo or TenMiles.  Chinese small caps trading at P/E values of 4 and revenue and earnings growth at 50% is pretty darn good risk/reward too.  

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#27) On January 13, 2011 at 1:51 AM, Valyooo (99.36) wrote:

1) I never would have invested in a different situation...I don't know why this keeps being brought up.  I would not have bought at $45, I also would not buy without the current state of the Fed.

2) I am not saying whether or not the company does risky stuff...I am saying look at how often the government lets BAC fail compared to how a slght fraud ruins a stock....0 to a million.  Risky given the situation....I am playing the situation.

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#28) On January 13, 2011 at 1:52 AM, Valyooo (99.36) wrote:

The point I made with BAC being everywhere is that I know it exists.  There were questions about whether or not CCME was even a real company...how the hell can you invest in something that may not even exist?

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#29) On January 13, 2011 at 3:10 AM, TMFUltraLong (99.95) wrote:

You know...if I knew that people sat on the edge of their seats waiting for my every word I'd have begun the remove Barney Frank from office campaign a year ago!

TMFUltraLong

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#30) On January 13, 2011 at 9:47 AM, JaysRage (89.07) wrote:

Well, there are questions as to whether or not BAC is solvent.   GM existed, right up and through bankruptcy, and there were people right up to the very end that kept investing because the government would "never let GM fail".  That doesn't mean they won't let GM investors fail.  

If you do some research and collect some evidence, CCME is one of the easier ones to cross off the fraud list.   They have institutional investors.   They have well known global partners.   They have a top-4 auditor.    

When Forbes China listed them as their #1 stock for the year, there were shorts on a message board that actually had the audacity to claim that Forbes China didn't exist and that CCME had made it up to pump their stock.  Seriously.  You've got to have a bit of a filter, my friend.  

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#31) On January 13, 2011 at 9:53 AM, Momentum21 (93.91) wrote:

There were questions about whether or not CCME was even a real company...how the hell can you invest in something that may not even exist?

Goldman Sachs and Vanguard haven't pulled them out of their funds yet.  

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#32) On January 13, 2011 at 12:23 PM, Valyooo (99.36) wrote:

Woops, I didn't mean CCME.  Actually, CCME looks like one of the really good buys out of that sector. I meant ONP.  The muddywaters report looked stupid but yeah I saw some comments on people who had bought it questioning whether or not they even had a factory...which is ridiculous, you know what I mean?

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#33) On January 13, 2011 at 2:54 PM, JaysRage (89.07) wrote:

I've been lucky enough to have some near misses in the past two years.  I had ONP and RINO both on my watch list at one point.    I've owned SEVERAL stocks that have diluted with seemingly no apparent reason.    But that is one of the reasons why I wrote the blog that I did recently.   Looking back, I see patterns in the behavior.    I see common red flags.    There are some pretty solid ways to filter through this stuff.   

I have ZERO confidence in my own ability to predict government policy or macro-economic movements, on which so much of the success of BAC is founded.

If there were small cap U.S. companies showing up left and right with great potential and reasonable valuation, I'd be all over that.   They are just few and far between.   I had a nice run with EBIX for a while.   I've been in and out of BWLD a couple of times.   To me, it just seems that they are harder to find. 

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#34) On January 13, 2011 at 4:58 PM, Valyooo (99.36) wrote:

Yeah, I know what you mean.  The point of this blog wasn't supposed to be me picking on China, more just saying if you don't know if a company exists or not, don't just buy it because "ultralong". I remember one person commenting on one of those asking ultralong if he should sell his shares because he didnt know if the company was a fraud or not.

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#35) On January 13, 2011 at 4:59 PM, Valyooo (99.36) wrote:

By the way, BWLD...I dont know much about the stock, but the wings are AWESOME.

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