Today’s ad is yet another one that claims a newsletter editor can provide safe passage through the stormy shoals of government data, and lead you to the soft, warm beaches of the millionaires on the other side.
It’s for Inside Strategist, a Stansberry and Associates publication that’s edited by a former FBI employee. Here’s how he introduces himself:
“… my name is Brian Heyliger… and I’m the newest editor at S&A Research. I’ve been hired to share a little-known trading strategy I’ve been using for 5 years now, mostly in my personal account – where I’ve made 4 times my money.”
He holds out the same kind of promise we’ve heard from dozens of other trading services — acting on information before others know it, and making huge gains:
“It’s a way to learn information about almost every publicly traded company in the U.S. – before it affects the stock price. Gains like:
• 572% gains on Fieldpoint Petroleum (FPP)
• 469% gains on Patriot Coal Corp (PCX)
• 362% gains on Iomai (IOMI)”
I wouldn’t turn down my nose at a 500% gain, certainly — I’m lucky to get just one or two of those a year, personally, though they haven’t been thick on the ground in this particular year.
So how does he do it? Or how does he say he does it, at least?
Heyliger is a former FBI employee, and that’s part of his nice little spiel — not that it has anything at all to do with his new profession of professional trading advisor, but that this history helps to sell his services as somehow an unmasking of secret government information.
Which is a bit silly, really, but it works — we’ve seen ads like this for years, from the “anonymous” advisors who don’t want their name to get out because they’re spilling the secrets of the foreign exchange markets or the trading pits, and they fear the vengeance of their former colleagues, or even from higher profile newsletter editors like Mark Skousen, who makes sure to mention his years at the CIA in his newsletter ads (he was a economic analyst there, sadly, not a covert operative).
The lesson? Mystery sells. So lets see if we can unmask a little bit of the “mystery” behind Heyliger’s trading strategy, and give you a fighting chance to understand what’s going on before you throw any of your hard-earned money his way.
That is, as always, the Gumshoe mission: Learn first, pay later.
Some of these newsletters are great, but none of them are as great as their ads make them appear … and the bad ones advertise just as well as the good ones. Our only defense is knowledge — learn what you can about the newsletter, uncover the facts, see if it has the potential to be a good fit for your needs, then make an objective decision about whether or not to subscribe. And if they hold out the name of a special stock that you must own now … well, that’s what the Gumshoe is for, let’s find out the name of the stock first, and research it a little bit, so you can make a decision about the newsletter with a clear head.
All of which should serve to remind you of the Gumshoe’s other mission: to blather on incessantly without getting to the point. A problem I’ll rectify now …
This is how Heyliger describes how he got to this point:
“A Federal Trading Secret
“Five years ago, I learned a secret while working at the FBI that’s made me and my family a lot of money. You see, for 7 years, the Bureau paid me a handsome sum to set up clandestine networks around the globe.
“In 2004 I visited NATO’s joint headquarters in Lisbon, Portugal. There I installed a high-security network known as “Black Communications.”
“In 2003, Special Forces in Bogotá, Colombia needed my support for an anti-narcotics mission…
“I also spent time in what might be the most heavily monitored complex in the world: Quantico, Virginia. It’s a laboratory with hidden cameras in every single room.
“That’s when I discovered a secret way to make a fortune in the markets…
“In short, it’s made possible by accessing information directly from the Government – about every publicly traded company in the U.S. – before it affects the stock price…
“And the truth is, I’ve been using it for myself…
“You see, in March 2003, I used it to find a mid-sized firm called Telecommunications Systems (TSYS). I was still working for the FBI, and I bought hundreds of shares…
“By August the stock had doubled, and by April 2004, it was up nearly 425%. I made a killing.
“Soon afterward, I left the FBI to learn even more about this secret way to make money… and in particular, how the Government gathers such valuable information in the first place.”
So this all somehow relates to information that the government compiles about publicly traded companies, and the ways in which you can profit from that data. Heyliger (or, one assumes, his copywriter) does a nice naivete act — recounting his shock about the information that the government was compiling about citizens, and about private companies …
“The question is, why would the Government pay any attention to these no-name stocks?
“The more I thought about it, the more it confused me. There hadn’t been a single news story in the media about any one of these companies…
“Then it hit me. In short, it’s not the company itself that the Government monitors… but something inside the company… deeper than I’d ever imagined…”
And he goes on to tell us that, of course, it’s not the companies that “the government” is watching, it is the influential employees of those companies. He implies that this is some top-secret information by adding in that the government also knows about their vacation homes, their political parties, etc. (All of course true — vacation homes would be reported to the IRS and to local government for property taxes, political party is registered with the government for elections). All of this is beside the point, however, because this “secret” information he’s talking about is actually the publicly filed insider trading data that the SEC collects and disburses every day.
Specifically, this is all about the Securities and Exchange Commission and Form 4. Form 4 is the SEC form that company insiders have to file when they trade in their own stock.
And academic research has shown that when a number of insiders are buying their stock during a relatively short period of time, and when those insiders are highly placed executives and they buy in quantity, that the share price of that stock tends to outperform the market over the next 6-18 months.
No big surprise there. You’ll often hear it said that insiders sell stock for lots of reasons, but they buy stock for only one reason: Because they think it’s going up. That’s probably an exaggeration, since the proliferation of insider trading data and financial media means that executives get a fair amount of media attention when they make insider buys, so that might be a second motivation for them (as with the recent case of Michael Dell buying a big chunk of shares of his eponymous computer maker — sometimes an insider buy is the only great news an executive can muster).
But yes, insider buying, if it follows a pattern, tends to be good. Not in every case, but on average.
Heyliger gives some examples, too. Here’s one:
“Experts in every industry always know more than outsiders – but in public companies – where innovations can make or break the stock price – these folks are20by far the most important.
“Like Dr. Russell F. Warren, MD – a high profile employee at Regen Biologics, a medical device company.
As a former FBI man – I can tell you that the information the Government has on Dr. Warren is pretty impressive…
“• They know his wife’s maiden name… where he graduated from college… his favorite pro football team… the make of his first car… even where his parents got married!
“But what’s amazing is, in addition to all that… the Government also follows exactly what he’s doing for the company… and how that might trigger a huge stock jump.
“Consider last December 11th and 12th, for example. Dr. Warren and his research team had just announced the completion of a new knee-implant device…
“At exactly that time, the Government compiled 2 full pages of information about him and his activities…
“Since then, the stock has gone up an incredible 188%. That more than doubles your money.”
Of course, the FBI connection and the assertion that the government knows his favorite football team are pointless — they serve to make Heyliger seem important, but have nothing to do with the actual trading information.
But that trading information is true — Dr. Warren did buy shares of his company in December 11 and 12 last year, and he reported that purchase on December 17, as required. He filed this on SEC Form 4, sharing the date of his purchases, the amount, and his overall holdings. (You can see the online copy from the SEC’s Edgar database here, if you like).
And the shares did go up by 188% — they’ve since come down quite a bit, but they’re still above the prices that Warren paid.
Does that mean anything? Well, not particularly — you can mine the data to find hundreds of companies like this, where insider buying predicted a big move in the share price, but very often the move is not as impressive, or as quick, or as positive. Insiders do make mistakes, too, with one of their fairly common mistakes being an abundance of optimism about their own company — as we could have seen last Summer and Fall, when insiders at financial firms were buying up their own shares hand over fist, shares that have since continued to fall further and further into the crater. So while on average insider buying is a good indicator of future performance, in any specific case it can be meaningless.
The letter goes on and on, as these ads are wont to do … and Brian continues to imply that his experience in setting up secure computer networks for the FBI gives him the insider’s edge at interpreting SEC data. He says that in the old days, you used to have to go to an office and page through filing cabinets to get to this data, but that you can now do it on the secure computer networks run by the government.
“So… what exactly do I look for?
100 F Street…
Put simply, I focus my attention on just a single form that is published by the Government, at 100 F Street in downtown Washington, D.C. – 3 miles from the White House.”
Well, as those who are frequent visitors here will know, 100 F Street is the headquarters of the Securities and Exchange commission. We’ve seen ads before, from other services, touting “100F” documents as their secret store of information (most recently, for Dan Amoss and his Strategic Short Report), and that’s the same basic stuff we’re looking at here.
That single form is the Form 4 for insider trading. This service, in fact, used to be teased as a way to access “secret USG-4 government stock tips” back when the newsletter was edited by Graham Summers (who has moved on to publish his own international investing newsletter).
And the secure government computer network is is, of course, the SEC’s Edgar database — their public database, accessible from their website, that includes all company filings, including quarterly and annual reports as well as things like the Form 4 insider trading forms. And the government does publish those forms, technically, but all they’re really doing is taking the electronic forms filed by corporations and individuals and making them publicly available. This is not government information so much as it is public information that is made more easily available by the government.
And it’s powerful stuff — this openness and public reporting of information is part of what makes the US financial markets among the strongest in the world. But you certainly needn’t be a former G-Man to track down an SEC filing, any investor can do it with a modicum of patience.
But it’s not a secret that’s owned by Brian Heyliger, or by any of the other newsletters whose claim to your money is that they can access this sensitive government data — Form 4 is no less available to you than it is to Heyliger, or to Dan Amoss, or to any of the other newsletters who build their portfolios based on insider trading. And the other interesting SEC filings are also yours for the taking, of course — Ann Sosnowski’s secret tools for tracking the moves of big investors are as available to you on Form 13F as they are to her.
The value that any of these newsletters can add is their ability to sort through the data, find the companies that have the most compelling pattern of insider buying (research has shown that you want it to be executive suite employees who are buying, and you want it to be at least three of them buying, and in large amounts relative to their existing holdings), and avoid the cases where the company is a train wreck with or without insider buying.
Some of these editors may be able to do that, though Heyliger’s tenure at this particular S&A newsletter is fairly short and I have no idea how his trading has progressed so far. If this is the kind of trading that appeals to you, it may be worth your time to delve into one or a few of them for a trial period, but be careful that you understand SEC filings first — if you don’t know what they are and have never looked at a Form 4, the tendency will be to infer God-like powers to these newsletter editors. Know what you’re buying before you buy.
I’ve written several times about some general ideas for investing based on Form 4 filings, including some tips on a few of the online services that are cheap or free that track and collate Form 4 data for you, so I won’t rehash all that info here — if you’re interested, you can go ahead and read these old Gumshoe Goodies:
Enjoy, and feel free to let us know if you’ve got a favorite insider who you like to follow, from Aubrey McClendon to Michael Dell … who knows whether we can ride their coattails to riches, but we can at least see what they’re doing without paying anyone for a newsletter. And if you’ve tried Inside Strategist either under Brian Heyliger or Graham Summers, or have another favorite service or newsletter for sorting out insider buying opportunities, feel free to let us know what you thought of them.