OK, so this is not something in which I am an expert — and it’s not the kind of stock teaser I usually like to look at, because the service has nothing to do with company fundamentals or interesting stories or profits or price/sales ratios or new products or FDA approvals or fast-growing economies or any of that stuff that actually makes sense to me.
No, this is an ad for technical analysis software — and I can almost guarantee that you’ve seen the ads, they have been marketing their system very aggressively lately, and the ads have certainly been showing up on the Google ads on this site along with nearly every other finance site I’ve visited in recent weeks. They’re also really pushing their campaign to webmasters, so I’ve been sent lots of teasers to join their affiliate program and push their service myself (I have not done so, though the ads are often on my site thanks to Google).
They even have a cutesy little robot adorning their website, and a nice backstory about a computer programmer who worked for Goldman Sachs and then later had a brilliant idea for technical analysis software.
And frankly, I’m not sure if there’s anything of value that I can share with you about this service — but I will share my opinion. I would not be writing about this at all, but I have had huge numbers of readers send me notes asking whether I like the service, or understand it, or think it’s legit or a scam, and I thought it would be easier to talk to everyone at once here. My off the cuff answers, by the way, are, “no”, “no”, and “maybe, I dunno.”
So what do I think? Keeping in mind that I have not tried the service, even the free trial.
Well, I have a fundamental distrust of all quantitative and automatic stock picking systems — even though I’m quite certain that some of them probably work, and many big investors have quant systems that clearly work well for them (though not always, especially when too many of them try to run the same system at the same time). But I am not a technical analysis guy or a quant, or a short term trader or chart watcher of any kind, and I find it very hard to take the claims of stock picking software systems like this seriously.
Quantitative stock picking runs the gamut, there are many more theories and systems than any of us could possibly understand. You get folks like Navellier, who has a system that clearly works fairly well in many markets as long as you are disciplined and stay diversified, but his relies on quantitative analysis of fundamental factors to pick growth companies for relatively long holding periods, for the most part. Much different than the stock picking robot here.
And you have hedge funds that ply inefficiencies and temporary mispricings in the market — also more or less math based, and sometimes successful — as with some famous examples like James Simon’s Renaissance Technologies, which itself has also had some bad patches when quant funds got snookered by the unpredictability of the market.
Essentially, I think anyone who invests in a black box investing formula is probably asking for trouble, but that’s just me. Not necessarily the consensus view.
But my concern about Doubling Stocks runs a little bit deeper than just a general distrust of quantitative systems like this. My main concern is that we’re talking about a system that tracks only pink sheet and OTC stocks, which are almost by definition extremely small cap stocks that often have light volume, and that can be dramatically moved by a single newsletter recommendation or any other kind of similar impulse.
If you have a few thousand investors waiting to hear your recommendations, saying that you can predict a short term move in an extremely illiquid stock like these is like walking around the dog park with a sealed bag of meat and saying you can predict when the dogs are going to jump on you … all you do is say “now”, open the bag, and you’re right.
The example they give in the video on their website is Healthsonix, HSXI.PK — it was at around 13 cents on October 30 and jumped to a bit over 26 cents on the open on October 31, if I remember the video correctly. They jump through several hoops on the video to make it clear that they’re not cheating on the dates, which is just silly — if they want to cheat, they’re dealing with a historical example so it’s abundantly easy to do so. For what it’s worth, I expect this is a genuine example of their “system” at work.
So I worry that for stocks like this, it is extremely hard to tell when a recommender is really finding chart patterns that predict a huge pop the next morning — something I really am hesitant to believe — and when it is the recommender himself who is causing the pop.
Think about it: If a recommendation service has 3,000 subscribers, and the stock is a very light trader (HSXI traded just 3,000 shares today at 13 cents, according to Yahoo Finance, though that’s way below average), it is not at all unlikely that if they recommend the stock in the evening, it’s going to at least double the next morning. There will be enough readers who want to buy and place their market orders at the open that it wouldn’t be at all surprising for the stock to shoot from 13 cents to 26 cents almost immediately on the market opening, as this one did.
But … it strikes me that you’d better be nimble and get out before the Doubling Stocks enthusiasts move on, because there’s not a big natural market of folks who are otherwise interested in taking shares of these stocks of your hands. Even if today’s 3,000 share trade is an anomaly, the 3 month average of HSXI is 188,000 shares, which means only about $24,000 worth of the shares change hands on an average day. Any service with any number of subscribers could scare up a lot more than that amount of money flow any day of the week if they wanted to.
I imagine that these Doubling Stocks guys must also tell you when to get out, and fairly quickly — the shares held a gain for a week or two, but HSXI.PK today is right back where it was before “Marl” got on the case on October 30, just about 13 cents. The party has moved on.
I know nothing about how they pick stocks, and I haven’t scoured their list of past recommendations and successes that they claim in their ads. I simply know that this kind of thing — using technical analysis techniques for very short term trades on microcap, easily manipulated stocks — is absolutely something I’m not interested in. I’m not saying they manipulate these stocks, or that they intend to use their subscribers to manipulate them, I’m just saying these kinds of low volume, unlisted investments are extremely vulnerable to price movements that have nothing to do with either technical or fundamental analysis as most investors understand those terms. If I’m going to bet on something I don’t understand, I’ll go to Vegas — at least they’ll ply me with free drinks.
And not to put too fine a point on it, but if the system was this good and accurate a predictor of stock movements, why $50? Why the guaranteed money-back trial? Could it be that the system works best when lots and lots of people cycle through the program and buy these stocks on Marl’s recommendation? Or is that too cynical? I’m just wondering …
So there you have it — I’m not a math expert and I haven’t seen the program behind their special stock picking robot, “Marl” … I can’t tell you if their quantitative system holds water, or whether or not they have your best interests at heart. I can just tell you I don’t trust it, personally, and their claims and the market they choose to operate in make me suspicious. And if you read the disclaimer and note that they are paid by many of the companies they “choose,” I hope you’ll be even more suspicious.
Oh, and the “there are only 14 slots left for this service before we have to close it down” bit? That may well be a bald-faced lie, but it’s one that almost all newsletter providers trot out from time to time, and I have yet to hear about someone trying to sign up for an advisory service or a newsletter who was told, “Sorry, we’re full, your money’s no good here.” If you have had this experience, please let me know — I’d love to hear that someone is honest about this little trick that they appear to use to spur you to sign up, quick, before you let your logical brain have a moment with what you’re being sold.
And if anyone has tried this “doubling stocks” service, I’d be very interested to hear what you think. It’s quite possible that I’m way off base.
So … sorry for the side trip down an odd alley. Back to sleuthing out interesting (or not) teaser stocks next time. Have a great weekend, everyone!