Former hedge fund manager and author, Timothy Sykes, was nice enough to grant Benzinga.com an exclusive interview. Tim famously turned $12,415 in Bar Mitzvah gift money into a fully audited pre-tax sum of $1.65 million while studying Philosophy at Tulane University. He also ran the hedge fund Cilantro Fund Management LLC, which was ranked number one Short Bias Hedge Fund from 2003 to 2006 by Barclays.
Tim doesn't trade stocks like Apple AAPL and Bank of America BAC, he focuses on the high risk/reward penny stock arena - and he is one of the best.
In addition, Sykes has published a book titled "An American Hedge Fund," and appeared as one of the protagonists in the television show, Wall Street Warriors. He also was named to Trader Monthly's 2006 "Top 30 under 30" list which lists some of the top financial traders under 30 years old. Currently, Tim runs Timalerts.com, which offers subscribers stock picks, and Investimonials.com, which offers "honest reviews of all things financial." He also just started Profit.ly, which allows people to seamlessly tweet their trades, and aggregates the results of thousands of traders. Below is the transcript of our interview.
This interview is also available as Episode 7 of the Benzinga Podcast.
Q: Tim, can you tell people who perhaps don't know about you, what you do and what you are trying to accomplish?
A: My penny stock trading system is not necessarily to make people rich, but to teach people how a real trader can take a few thousand dollars into a few million over a matter of a few years. I just want to teach my strategy openly, and most importantly I want to cut through all of the BS, because I do see there are a ton of scams out there. I recently just created Investimonials.com which is kind of like a tripadvisor for finance. There are over 4,000 broker, newsletter, DVD, blog, and website reviews, all finance related. We are coming up on our fifth month in business and we have already had our 5,000th review, so it is gaining nice momentum. Just this past weekend, I created Profit.ly, which is where people on Twitter can post their profit and losses openly and honestly. Its all about making this joke of an industry more transparent.
Q: Sites Like StockTwits has gained a following and people often follow other people on StockTwits or on Twitter if they have a lot of followers. Is that a precursor of good results? Do you use that as a metric to follow people that could potentially be a good trader?
A: I don't care about number of followers. Again, most people lose money in the stock market. Ninety percent of traders lose money. So when someone's full time profession is to make money and they are losing money, do you really think I care what they think? Number of followers is absolutely worthless. Furthermore, all of these scams have lots of followers. Because if you are a scam, you are going to want to get as many followers as you can. So, number of followers does not matter. What matters is the same old thing - whether they are making money. There are some traders and some investors out there who are making money, and we just have to tweek through all of the BS to find them.
Q: So Profit.ly, which you just launched, is designed to allow traders to seamlessly show their results?
A: Thats it. Right now, you have to manually upload your entry and exit price, but eventually it will all be automatic. We are building out a lot of functions and features so that you are going to see who are the best traders, using a number of different metrics. You will be able to see who is the best trader with regard to money made, or percentage return, and also over timeframes.
Once you have the entry date and the exit date, you will be able to see who is the best over one day, three days, or seven days or whatever timeframe. So for example, we may have the statistics to see that a particular trader makes money 88% of the time over a 7 day time period, but he has made money only 10% of the time when holding a trade for 3 weeks. So it is probably a good idea to get ideas or follow him for 7 days, because that is his most profitable holding period. I want to find what a trader is good at - because all traders are different. Some excel at technology, others are great at short selling. We are going to find out who is the best at everything so that everyone who is following Profit.ly can see opportunities. That is what it comes down to - finding good, quality opportunities.
Q: What was the genesis of your push to make the securities business more transparent?
A: Everything comes from experience. I was the number one ranked hedge fund manager from 2003-2006, but it was in the short selling category, which very few people understand. So that did not get me much credibility, but it did get me in Trader Monthly and on CNBC. Trader Monthly kind of created a tiff between myself and them because my fund lost 35% and they said, "you know what, you're not good, you're not a good trader anymore." But they never did the research on why I lost the 35%. It wasn't because my trading was bad, or my TV show was taking off, it was because I invested in one illiquid company and I invested too large. I got away from my core trading strategy. It was my mistake.
Trader Monthly didn't do the research though, they just made assumptions. They were like "Tim's on TV everyday, he is not trading, and that is why he is losing." But they didn't do the research on what really happened, before they went to the press and started bad-mouthing me. That kind of got me into this whole mode of if people look at information honestly, they won't just make blind assumptions. And that is what too many people in Finance do and it's just stupidity. There is no other word for it, it is just blatant ignorance, and we need to combat that with good solid information.
Q: If you didn't have that one illiquid company that accounted for the losses in your hedge fund, would you still be running the fund, or would you be focusing on the things you are working on now?
A: I don't know. I don't know what could have been. The company that failed did help my hedge fund at first. So, would I have been the number one ranked hedge fund manager for three years without that investment? Probably not, I probably would have been number four or five. So, while the company actually lost me several hundred thousand dollars, it helped me get into the press world, it helped me get my TV show, and without the TV show I wouldn't have a newsletter or a blog, because no one would know me.
The loss on the investment, I view as a college education. A college education costs $150,000 nowadays, so this was my $300,000 college education. I saw exactly what penny stocks can do when you believe in them. The technology was good. The technology still exists, it powers SixFlags.com for online ticketing, but it was more about the skeletons in the closet with company executives. That was the problem. It taught me all of these lessons that I now practice for my penny stock trading and that I teach. I am an infinitely better teacher because of that loss. It is a difficult thing to explain that a loss can be the single greatest thing that can happen to you, but that's what it was in my case.
Q: Recently you were on the Disciplined Investor show and you had a debate with Jim Van Meerten. Could you tell our listeners about your disagreement with him and who he is, etc.?
A: So I primarily short sell penny stocks that have been promoted by stock promoters. Stock promoters, for those of you who don't know, they get paid by company's or shareholders to write these glossy advertisements. You might get them in the mail or email, saying "buy this stock it is going to go up 1000%." This is unique to the penny stock industry, because these penny stocks are so desperate for cash, they need to get their stocks up at any cost.
So they hire these promoters and these advertisements go out in spam and hard copies, and the stocks actually rise. If you send out a million spam emails and 1,000 people actually buy the stock, the price will rise. So I primarily bet against these promoted stocks.
Jim Van Meerten picked two companies that were promoted by the same group, and had the same part time CFO - yes there is such a position as a part-time CFO apparently - although I had never heard of it before. Jim Van Meerten wrote these two articles about these two horrible companies and we got into a fight on a disciplined investor podcast because he basically admitted that he had not read the SEC filings.
He was looking at the press releases, which you should never do on any penny stock, and he couldn't understand why I thought that I was right when I exposed the promotional mailers.
He thought that I had "shorted and distorted." That I had created lies. I didn't create any lies, the promoters created the lies, and they actually put his image and put his name on one of these promotional mailers. I said Jim, "are you getting paid by these promoters, or are you just too stupid to understand that they are using you?" He picked these two stocks CROH and NXTH two days before they each dropped 50%. So, I call it the Jim Van Meerten indicator. Whenever he writes about a penny stock that he hasn't researched, I am going to likely short it. He cost investors thousands upon thousands of dollars and I wrote about it.
Q: Where could listeners read what he wrote before the stocks crashed?
A: He wrote on Seeking Alpha and the Motley Fool. Neither of those sites did their due diligence on him or what he was writing about.
Q: Does Jim want to have a follow up debate with you or is he pretty much just convinced that he is right and you are wrong?
A: That is what it sounds like. I post facts and he says "Tim, you are a manipulator." He posts these blogs that say "Tim Sykes is a manipulator and he has a substance abuse problem" because he saw me have a drink or two on Wall Street Warriors back during my drinking days. Right now, I can't even have half a beer without getting bombed. I don't have a substance abuse problem, I have a work abuse problem, because I work too much. So when he calls me a manipulator, I tell him to back it up - and then he shuts up, because he can't back up the accusations with facts.
Q: Some would argue that these penny stock mailers and promotions are a way that a medium sized company may go to Raymond James to get rated and get exposure. What do you say to that? Do you ever think that these small companies that are being marketed and promoted are legit?
A: I would say 99.9% of them are frauds. And that number is high enough for me to round up to 100% and I will never get burned assuming the worst of everybody. I would never compare them to any other kind of marketing, because think about it, why would someone pay $400,000 or $700,000 for an email campaign when these companies have only $100,000 or $200,000 in cash a lot of times. Instead of paying for the promotion, why not triple your cash position and invest in the company? Well the answer is because they don't care about the company, they only care about the stock.
This is a difficult thing to teach, that a company and a stock are two completely different things in the penny stock world. If you assume every single promoted penny stock is a fraud you are better off. If you can find shares to short of one of these penny stocks that is up 100% or 500% or 1,000% in a matter of a few days, the chances are pretty good that the stock will fall and you will profit. Literally, the only promoted penny stock that I have followed that took off and became a solid company was True Religion Jeans TRLG.
Q: Could you quickly tell people about Investimonials?
A: Again, this comes down to sharing your experiences openly and honestly. If you use a broker that you like, like I do Thinkorswim, you can write a positive review. I want to promote the good products, because I use them, and know they are quality and I want to trash the products that I hate. I want to help people find the best products and week out the worst products. We have nearly 3,000 members in our first few months.
Q: In some sense aren't penny stock promotions good for your business? Don't some people buy the stock when they get the mailer because they know it will go up for a brief period of time and then short them when the insiders start dumping shares? Do you think they should be illegal?
A: Clearly stock promotion should be illegal. Do I want for it to be illegal? No. I made my first million buying penny stock pumps not knowing what they were, being blissfully ignorant, and just riding the chart patterns. I made my second and third million shorting them, and now I am teaching others. So, I have played the game, and I have been one of the lucky ones in that I have profited in a number of different ways off of penny stocks. Do I think that the SEC will make it illegal? No. I think the SEC is incompetent and you might as well profit from it. Stock manipulation will never go away.
Q: Do you ever get scared that someone will come after you for exposing these scams?
A: No. I am not an enemy of stock promoters. They know what they are doing is wrong. They know it is unethical, but I am not trying to send them to prison, I am not an exposer. I could write 20 times as many articles as I currently do if I really wanted to expose all of these promotions, but I only touch on the situations where it can be profitable.
Q: Can you briefly tell our listeners about Spongetech and what you had to do with it?
A: Songetech SPNG was a paid promotional stock that I was trading. I began writing about it in June 2009, after it had gone from half a penny per share to $0.30 per share, so it was up 60 times within a few weeks and it was pretty much all due to coordinated press releases and paid stock promoters. It was a pump and dump, and I used the words "pump and dump" in June 2009 and I shorted the stock at $0.18 and covered at $0.11. It was just one trade and I made $600.
I kept writing about it because it kept doing the same things that promoted stocks do, so I think I wrote two or three dozen articles even though I never traded the stock again. Then in September or October, the New York Post started covering Spongetech (SPNG). The New York Post article said that most of their revenue was from fake companies. The writer did all of her own research, I never talked to her.
People thought that I was feeding her information and the message boards were going crazy. I just kind of ignored it and the New York Post kept writing their own stories. I contacted the journalist, because she quoted my blog, and I asked her why she didn't contact me. She told me that she did not have my contact information.
I was kind of angry, but now it looks like a blessing in disguise, because now in early 2010 I hear from the message boards that Spongetech is suing myself and the New York Post for colluding together to "short and distort." When you get sued its scary, but I have not been served yet. I haven't seen the lawsuit.
Most importantly, the SEC just accused SPNG executives of running a massive pump and dump. I have to quote the SEC, they said "Spongetech ran a massive pump and dump scheme." Apparently the executives had been falsifying press releases and data, and the companies were made up.
They tried to hide the made up companies during the SEC investigation. They actually created a fake lawyer. The SEC is suing them for fraud, both executives are out on $2 million bail each. It was a classic pump and dump. So, it is kind of funny that they sue me and then a week later they get charged by the SEC. It makes me look kind of good.
*Jim Van Meerten is not a paid contributor to the Fool.com. He posted on The Fool's Caps system.
Embed this podcast:
© 2024 Benzinga.com. Benzinga does not provide investment advice. All rights reserved.
Comments
Trade confidently with insights and alerts from analyst ratings, free reports and breaking news that affects the stocks you care about.
