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Truth About Bull

The Forty-Seven Sides to Every Argument

People that think there are two sides to every argument, two ways to interpret every set of data, haven’t met many stock promoters and haven’t read many corporate press releases. In financial markets there are thousands of different factors at work, hundreds of different interest groups, tens of potential interpretations on the information that actually makes it through the screening, omissions, and exaggerations. And most importantly, there is only one you. It is you who has to filter and summarize the facts and opinions that reach your ears, discard they misleading, ignore the unimportant, isolate the lies…

With success at interpreting all of the overwhelming amounts of information you receive about a stock, you could be very good at picking winning stocks. But who can you trust? What sources of information are honest, and which are blatant lies. And of course, the hardest to spot are those slight exaggerations.

Let’s start with a look at the least dangerous information sources, The Media, and progress towards the most vile, purposeful, and persistent terror in the world of penny stocks, The Promoter.

But The News Said So!

If you learned all the hidden forces at work in what the media screens and puts out, and knew of all the interest groups and advertisers with their hands on the strings, your jaw might drop. Spend 10 minutes talking to a public relations specialist, and ask them how the magazines, newspapers, and television shows decide on what to publish. The truth is that the media are not even close to being partisan or unbiased, and while they often base things on fact, they derive their influence, and thus their danger, through the spin they put on their stories, and more importantly the facts that they leave out of them.

Unfortunately most people think, “I saw it on the news, so it must be true.” That car review you read in the national newspaper – a paid advertisement. The pre-Christmas hype about the shortage of Teletubbies, or Play Stations, or Pokemon… purposeful and well planned. In fact, almost all newspapers and television networks have a certain political alliances, and act and report accordingly to support their interests.

As well, media likes to jump onto similar stories all at the same time. For example, when the Internet was in its days of unbridled growth, all you could read about was the successes that the dot coms were having. When the party was over and the Internet companies began to collapse, all you read or heard or watched was about how the sector was crashing down. But what about those Internet companies that were doing badly when most were soaring, or doing great when most were collapsing. There were many of them, but it wasn’t considered newsworthy at the time.

How does this relate to penny stock investing? In the dot com example above, it is likely that the media helped produce both the irresponsible buying frenzy that drove prices to ridiculous levels, and helped exaggerate the subsequent selling which sent many dot coms to unbelievable bargain levels.

The bottom line is that it is important to interpret what each separate media corporation decides to feed you. They are all independent companies that are going to act in their best interest. You need to do the same.

We Prefer To Call It “Down-sizing”

CEOs and corporate representatives have an incredible way of putting negative things into a positive light. You say, “You aren’t making any money and are laying off 40% of your staff.” They say, “We are very optimistic that our corporate restructuring will help us achieve our goals.”

You say, “The additional stock offering will dilute stocks, and per share values.” They say, “We are excited to increase liquidity and raise additional funds.”

Also be aware that even audited financial statements can play with numbers, and attribute costs to different categories and offset costs, etc… For example, a company that sells an asset for a one time gain can suddenly be showing that income in earnings, giving the appearance of a trend, or masking a drop of earnings when the external item is not factored in.

I Heard a Great Stock Tip at Work

No you didn’t. When you are in this business every one you talk to suddenly becomes an expert. These are people, some of whom have never even traded a stock for a gain, or traded at all. Literally, 9 out of 10 tips are bad, especially if it involves a tip from a guy who knows a guy, or someone “on the inside.” In fact, insiders do not relinquish vital information for everybody to profit from. They keep it to themselves.

So then where do this stock tips come from? There are actually hundreds of professional promoters out there whose jobs are to instigate and fuel these ‘tips’, and it is amazing how the ‘hot tips’ spread like viruses.

It has proven difficult for professional traders to turn consistent gains and uncover winning stocks, so how could the guy at the water cooler be very good at it, especially when he hardly invests?

Take the advice of these people if you want, invest in the hot tips if you want. Just do yourself this one quick favor: next time someone is giving you a stock tip, ask them what the company’s revenues are at, and how much long term debt they have. If they can answer these questions, ignore all our comments presented here. If they can’t, read these comments one more time.

Where Information Goes To Die

We highly discourage even visiting the message boards. Never in the history of civilization has there been a greater forum of mis-truth, inaccuracies, and uneducated commentary. Only a tool as powerful as the Internet, and with the reach of the world wide web, could have the capability to accomplish this. It is kind of like the “Hell” of information.

Promoting Their Own Best Interest

There are promoters out there who get paid a huge amount of stock options with one goal in mind – drive the share prices up so that the option values make them rich. How they drive the prices up is besides the point to them, and the problem. Often dishonest practices come into play.

The worst of the bunch are the high-pressure sales people who call you in person on the phone and try to get you to buy. Their tactics are well-honed, and they leave you feeling frenzied, excited, and impatient to dump your life savings into whatever miracle stock they are touting.

There are a hundred things wrong with buying these stocks, so we won’t even entertain the concept of discouraging you through explanation. Just to give you a quick comment to demonstrate what we mean, try and sell the shares you bought off of a telephone promoter. Good luck.

In fact, we highly recommend the following items if you are interested in the work of promoters: The movie (now available on video) called “Boiler Room,” and the book “Rampaging Bulls” by Alexander Taadich.

So What Can I Trust?

You should judge each individual piece of information on its own merits, as long as you keep in mind to not accept everything you hear without question. Do your own due diligence on every stock you want to invest in. Call the company up, get the investor relations contact on the phone, have them fax you their financials, read their press releases.

In the end, it comes down to a simple acid test. Assume you bought a stock that went down strongly. If you would you be mad at someone else about it, like the person who gave you the tip, you didn’t do sufficient due diligence. If you only had yourself to blame, then you probably did enough due diligence.

by Peter Leeds

Website: http://www.PeterLeeds.com

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