Should you “Lift Your Restrictions” for Super Penny Stocks?

Are there really 41 stocks you can buy that double every day? Looking at the latest WSD Insider pitch.

By Travis Johnson, Stock Gumshoe, September 3, 2013

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I like little stocks. I like small caps, I like to dabble in microcap stocks from time to time, and it’s definitely more fun to sniffle around the edges of the market and research stocks you’ve never heard of before than it is to read yet another article about Apple (AAPL) or ExxonMobil (XOM).

But I don’t think I’m as much of an enthusiast as Louis Basenese, who is making a pitch in ads for his WSD Insider that you should “lift your restrictions” and trade these little teensy weensy stocks that can double in a day — here’s the intro from a recent ad that many of you have been asking about:

“This is the only investment on earth in which the price doubles, on average, 41 different times each day. And every day, for that matter.

“In fact, when the Opening Bell sounds on the floor of the New York Stock Exchange at exactly 9:30 AM EST tomorrow morning…

“The next 41 price doubles will mint the fortunes of another 151,300 ordinary people. According to estimates derived from the latest trading-floor data, that is.

“The same thing will happen the following day, too.

“And again the next day. Like clockwork.

“By the end of the week, an estimated 765,500 people will have just enjoyed the best week of their life.

“And it only takes $50 to begin amassing a fortune.”

He includes a quote from CNNMoney as follows:

“You don’t need to put a lot of capital at risk to make a return.”

Which would make you think that CNNMoney, a respected brand-name publisher, endorses this idea of trading penny stocks — when the article they’re quoting is probably this one, “Penny stocks: Too fast, too furious” which was published near the March 2009 market bottom (it was about the wild trading in stocks like Citigroup and AIG when they were penny stocks after being crushed). I don’t know that this author is particularly correct either, but a more representative quote from the article might be this one:

“But before you think that active trading in stocks trading so low means there’s value there, think again. The flurry of activity is more likely the thrashings of a badly wounded company than the stirring of a firm rising from the dead.”

Just a reminder that a copywriter can find a good endorsement quote to support pretty much any position.

But anyway, the reason this came up again today, when I think I covered a penny stock pick of Mr. Basenese’s not so long ago, is that so many folks are asking about the latest “lift your restrictions” teaser.

Basenese teases that there are an average of 41 stocks that double every day on the stock market, and that’s quite likely true — there are thousands and thousands of stocks out there, many of them teensy and unlisted companies that trade over the counter, and an average day might lead to one stock that’s bigger than $100 million in market cap doubling on a takeover bid or a big clinical trial for a key drug or a key contract win … but for every stock that doubles for fundamental reasons there are probably a dozen or more that double just because they’re getting a big new wave of investor attention. Occasionally that attention comes from legitimate newsletters like Wall Street Daily that actually are trying to recommend good stocks to their readers … but more often, I’d wager, that attention comes from stock promoters who are trying to “pump and dump” their wares.

Stock promoters and pump and dump scams might make for great trading opportunities for the nimble and lucky among us, but trying to trade on a stock that someone else is manipulating means you’re taking a great risk that their manipulation won’t work in your favor — buying a stock because you think the promoter is going to drive it from 50 cents to $2 is exciting, and it might even work sometimes, but you run the risk of either starting to believe the puffery that the promoter is putting out (“the stock’s going up! It must be real!”) or you hold out too long and you’re still sitting there the day the stock drops from $3 to 15 cents after the promoters and pumpers sell their own shares and leave it to twist in the wind. I won’t go off on a tangent on this and I don’t mean to imply that Basenese is a stock promoter or a pump and dump guy — I’m quite sure he isn’t. If you want to see more of my ranting on this you can see a longer comment I shared about stock promoter Tobin Smith here a few months back. Just wanted to point out that the fact that 41 (I’ll take Louis’ word for it on the number) stocks might double every day isn’t necessarily a good thing for most of us.

But hey, finding exciting little stocks with a real fundamental story and the potential to double for good reasons is worth a try — even if we accept that any kind of search for high-potential penny stocks means we’re going to be reaching for pitches and swinging for home runs and therefore probably booking a bad overall batting average. If you buy penny stocks that are recommended by a newsletter perhaps you find some that are a bit “pre-vetted” — but, of course, newsletter guys get ’em wrong a lot of the time, too, and your risk there is that there’s a captive audience of at least a few thousand investors (for some letters it’s more than 100,000) who own this stock because the newsletter told them it was a good stock. That likely means the stock is higher than it would otherwise be — and it also means that if the newsletter pundit changes his mind the stock could certainly have a few very bad days if those thousands of subscribers all try to sell. It’s not the same pernicious risk of the illegal or semi-legal pump and dump operations, but it does mean extra volatility when newsletters with wide circulations recommend tiny stocks.

Sorry, I seem to be having even more trouble getting to the point than usual today. Must be the harsh re-entry after vacation … or perhaps it’s the fact that the Little Gumshoes still haven’t started school so there’s a fair amount of ruckus here at Gumshoe Manor today.

And the point is — Basenese is telling us that he can find good candidates to be in the ranks of these “41 daily doublers” in the market — and he teases a few of ’em for us. Let’s see if we can name some and give you something to chew on. Here are the hints for one:

“Penny Cap Stock #1

“A ‘Growth Engine’ With a Fat List of Blue-Chip Customers…

“This San Jose, California-based tech company is one of the fastest-growing in the world, with sales ballooning 916% higher in the most recent quarter. Of course, immense growth is a foregone conclusion when 1) you’re positioned inside of the world’s hottest growth industry – wireless, 2) your superior technology is protected by 108 different patents, and 3) blue-chip customers are already beating down the door. With all the classic traits of a ‘Daily 41’ stock, this one is ready to double any minute.”

This one looks to the Thinkolator very much like GigOptix (GIG), a ridiculously small company that develops high speed networking chips and optical networking equipment. And they did have sales “balloon 916% higher” … but that was about a year ago. Since then, their revenues have been falling — apparently mostly because the 2012 spike was “end of product life” sales that weren’t going to be repeated. They do say they expect more growth to come as of the last quarterly report, you can see the quick fact sheet here. Don’t know if it will double, but Louis Basenese also touted it as a “take a small gamble” pick back in this “Special Report” in 2011 and, while it has bounced around some, the last two years have really just been a continuation of the slow decline the stock has had since it recovered from the 2009 crash. There’s also some kind of patent dispute going on with this company of late, I don’t know if there’s anything to it (and yes, GigOptix has claimed 108 patents in the recent past, so that’s another match for the tease.

Another?

“Penny Cap Stock #2

“A Precious Second Chance At Historic Gains…

“You’ve likely heard of 3-D printing by now, right? It’s an amazing breakthrough that turns a digital image into a three-dimensional, solid object. The technology is quickly having a major impact on the market. And my readers have already made a ton of money as a result. One elated reader wrote me and said, ‘I only had 200 shares, but I’m delighted with my $3,000 gain.’ With that in mind, a San Diego, California-based company is now ‘3-D printing’ the unthinkable. The technology is almost inconceivable. But I assure you that it’s very real. With all the classic traits of a ‘Daily 41’ stock, this one is ready to double any minute, too.”

This one is very likely the volatile and hotly-debated Organovo (ONVO), which is working on 3D bioprinting technology — “creating functional human tissue on demand.” This is a company that shows up as being profitable with a trailing PE of 40, but presumably that was some kind of special payment or non-recurring thing, their revenue of $1 million over the past twelve months, according to the summary at Yahoo Finance, wouldn’t naturally lead you to expect net income of $9 million. They are a decent size, with a market cap of about $450 million, and you can certainly find plenty of arguments for and against the stock — which has already seen short-term movements of 100% up and 40% down in just the last two months. It’s a great story, printing with biological material, but this is still very much cutting edge stuff in a field where approvals take years — you’re not going to be able to go print yourself a new liver next month if you’ve been spending too much time at the tavern on the corner.

“Penny Cap Stock #3

“It’s ‘Game On’ for This Ingenious Tech Innovator…

“This Toronto-based innovator has brilliantly positioned itself on the frontline of an industry forecast to explode into an $82-billion behemoth by 2015. It’s a videogame company – one whose brilliant move to piggyback major cable providers is allowing them to tap consumers previously thought to be unreachable. Such an immaculate, untapped market impressed Intel enough to pump a half-million dollars into the company. And with heavyweights like Activision, Electronic Arts and Disney already having inked deals, this one could explode any second.”

This one is almost certainly TransGaming (TNG in Toronto, TNSGF on the pink sheets). They would have called themselves a “Smart TV” company back in 2008 when that seemed like a cool “up and coming” idea, but now they’re calling themselves a “social gaming” company. Their basic product seems to be called “GameTree”, which looks like it’s “video games on demand” through your cable service or online. And Intel did indeed invest half a million dollars in the company through their Intel Capital venture capital arm, though that’s a small investment and that was four years ago.

TransGaming says they’re well on the road to reorganizing and rebuilding themselves as of their last report (last week), I have no idea if that’s true or not and had never heard of them before today — this is an absurdly small company, with a $9 million market cap, and they’ve been doing poorly for years after peaking at a dollar a share or so not long after that Intel Capital investment. The stock is now down to about 12 cents, and they also have about three million in debt, so there’s clearly still plenty of uncertainty about whether any of their products will have any traction … if there was a clear and compelling business case for the stock, or a unique and desirable technology, it would be awfully surprising if they hadn’t been bought out by someone by now — anyone you’ve heard of could buy them without blinking an eye, INTC generates enough free cash flow to buy a $12 million company like this in about 14 hours.

Worthwhile or not? You really can’t tell with tiny companies like these — they do appear to be real companies at least, distinguished from the pointless pump and dump operations by the fact that they have productive employees and actual operations and revenue, if not necessarily profits, but companies of this tiny size in competitive industries have a tough row to hoe and none of them have glowing financials that make you stop and drool. If you like them after researching them, then enjoy. I’m unlikely to look much more closely at stocks of this size, though I’m sure Organovo, with it’s cool bioprinting story, will find it’s way into future teasers at some point.

I don’t have time to look into the other few he pitches in that ad right this moment, but in case you’re ready for some more blather from yours truly, I’ll share a few more points they make in the ad that caught my attention as I was reading through it:

“Data we used to prove that, on average, 41 different stocks in a certain corner of the market will double in price every single day…

“And when you also consider a known methodology exists that helps pinpoint exactly which 41 stocks are ready to double…

“A methodology single-handedly responsible for amassing Harvard’s $34 billion endowment, the largest in history…

“… we built a proprietary screening process capable of pinpointing exactly which stocks will be among the 41 that double in price tomorrow.

“And then publish the results to our readers.

“The screening process is entirely systematic.

“Human emotion is completely left out of the picture.

“No hunches. No guesswork. And hot tips or hyped-up circumstances are absolutely eliminated from the equation.

“The filters are modeled after the ones Harvard uses to manage the largest endowment in the world.”

OK, that’s just hooey. Harvard’s endowment has done extraordinarily well over the decades, with market-beating returns, but it does not follow a single methodology and it’s also the largest in history partly because … they’ve gotten a lot of huge donations for decades. Harvard’s endowment management company clearly and obviously doesn’t have a methodology that can predict which microcap stocks will double every day. They do, I’m sure, keep emotion out of their decisionmaking process when deciding which hedge funds and alternative investment managers to hire, and when deciding how to allocate their funds, so perhaps you can stretch and say that your screening strategy is similar to theirs.

Basenese also talks about and quotes from the “Princeton Study” about these “restricted stocks” …

“We verified it, of course, by means of the Princeton study I’ve been referring to…

“The study, dubbed ‘The Restricted Portfolio,’ confirmed everything, concluding that…

‘Tiny stocks tend to be less well-covered by analysts.’ – page 16, line 6

“And that…

‘Institutional investors and institutions tend to avoid the smallest stocks.’ – page 16, line 9

“That is, they ‘tend to avoid’ ever recommending the smallest stocks to the public.

“They have no reservations about stuffing their own house accounts full of shares, which happens with great frequency.”

Which is more exaggeration, and includes more quotes from a study that isn’t particularly germane to Basenese’s point — you can see the original article here if you like, it’s actually entitled “Thy Neighbor’s Portfolio: Word-of-Mouth Effects in the Holdings and Trades of Money Managers.” And it basically just makes the point that mutual fund managers tend to buy the same stocks as other mutual fund managers … the part about “avoid the smallest stocks” is just that, institutional investors and mutual fund managers almost never pay a lot of attention to them because they can’t build meaningful positions and they can’t enter and exit the stock without impacting the shares substantially.

So yes, there probably are 41 stocks that double in an average trading day — with some regularity there are also stocks that jump by 1000% in a day. That doesn’t mean they’re the kinds of stocks you want to look for or to build a portfolio around — these teensy stocks are at least as likely to be cut in half in a day as they are to double in a day, I’d wager, and they’re probably best thought of as candy bars — spending a buck or two on one every now and again probably won’t hurt you much, but if you’re eating four Snickers bars for lunch every day you’re likely not doing yourself any favors. If you’ve got opinions on any of these little teensy stocks feel free to share them with a comment below.

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31 Comments on "Should you “Lift Your Restrictions” for Super Penny Stocks?"

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Ventureshadow
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Ventureshadow
September 3, 2013 10:05 pm
PUDA is such a stock. It doubles or halves on most days, between about 3 cents and 6 cents. Accordingly, Its average volume of 20000 shares traded per day amounts to between $600 and $1200. As an OTC (pink sheet) stock you should expect that most to nearly all the trading profit is kept by the market maker. The company behind this stock (Puda Coal of China) has uncertain value because the CEO defrauded stockholders and has escaped accountability. The question–and the mystery is–are there any stocks that double in a day and represent honest companies? Until proven otherwise the… Read more »
pbswigert
Member
3
pbswigert
September 3, 2013 10:29 pm
Way back in the dark ages of the 70s-80s when I was with a brokerage firm in the La Jolla/San Diego area, our firm was acquainted with some of these “pink sheet” market makers. Quite a few of them made markets in more than one of these small stocks. Anyway, by the time you subtracted the shares owned by the Directors, Officers and all the relatives and friends they had bludgeoned for bucks to get the company started, the float(shares available for trading) was pretty darned small. Like everybody else, the market maker has kids to feed, so he’d give… Read more »
chris
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chris
January 26, 2014 9:41 pm

Super post and clarification of the market making process in this whole penny stock ripoff campaign. Cheers.

who noze
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0
September 3, 2013 10:54 pm

yer attn. is drawn to dr. frost latest aliqipa [[alqa] seven cents dr. frost has ahedge fund holding lts opko among others he is chairman o the bd TEVA phar.

davidtwlee
Irregular
0
davidtwlee
September 4, 2013 12:12 am

Thank you Sir. I am beginning to learn more everyday with STOCKGUMSHOE. I would recommend to anyone who are interested.

Subhuti
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0
Subhuti
September 4, 2013 3:53 am
Today’s email from WSD promised that they would mail a check for over $500, (forget the exact amount). Without bothering to read the whole blurb, it is an offer to join something like a president’s club, for close to $5000, which entitles the buyer to a lifetime of the type of touts suggested in today’s issue, no doubt. Let’s see, give them roughly $4500, to get an immediate return of $500+ back, and a lifetime of touts. Sounds like a good deal to me. But then, I usually lose money in the stock market, so what do I know?
blue5
Member
3
blue5
September 4, 2013 6:12 am
It seems to me that most people in the stock game are out to game the system and entrap the weary. What’s the difference between that and gambling in a Mob casino? Most of the newsletter writers I follow are big time looser just like me. Unless you have a few million to play with where you can actually buy a real part of a rising company, you are really at the mercy of the bankers and uber investors who control most things from politics to markets, wars to the Olympics. I make well-researched investments in mostly energy-related stocks. Explain… Read more »
Malcolm Jensen
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Malcolm Jensen
September 7, 2013 10:40 am

Well, Stephen, small cars would not be a worry if there weren’t many like you who insist on driving gas-guzzling tanks to protect themselves while gladly blocking the sight and threatening the lives of those in reasonable size cars.

topcat
Irregular
7
topcat
September 7, 2013 12:05 pm
Just to balance Malcom’s comments: I drive a 4-door coup/6 cyl that gets 25-30 mpg but has weight from metal (i.e. not a gas guzzling tank that can’t be seen over) that I bought specifically so wind couldn’t blow me off the road or put me in a death trap in worst case wreck. It’s a 2000 model & I refuse to sell it because the new cars have yet to meet those criteria and get significantly higher gas mileage at any kind of reasonable price. Stephen, I agree that most with power use it to make the most off… Read more »
Tim
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Tim
September 8, 2013 1:54 pm

Bet your airbags will no longer function!

Mark
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0
Mark
September 5, 2013 9:30 am

To the Gumshoe readers. I bought a stock (SBOTF) and it doubled, am I in the middle of a pump and dump. I know Travis might not be able to give comment, as it might be considerd giving personal advise, however any opinions I would like to hear.

Wayne
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Wayne
September 7, 2013 9:37 am

Paid $850 for Sweet Lou’s MicroCap subscription.
Very fair return policy because I cancelled for full credit which processed without a hitch.
Recommended stocks were BLUF and IWSY.
Needless to say I took a $300 dollar hit on the hype.

Gene
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Gene
September 7, 2013 12:26 pm

Well, you say you bought it a stock. Remember, you haven’t made a profit until you sell it.

robertvince
Irregular
32
September 13, 2013 11:15 am
Stellar Biotech (SBOTF) is in NO WAY a pump and dump. It is probably the only company in the world that can extract KLH from the Keyhold Limpet without killing it. KLH is being used in many vaccination/cancer/etc trials and as soon as one of these vaccines gets approval using KLH, the stock will most likely take off. Yes it did go down a bit after their financing announcement, but look… its right back where it was. Will the company be a huge success? I’m not a fortune teller, but my money is on it and has been for a… Read more »
robertvince
Irregular
32
September 13, 2013 11:27 am
A gumshoe writer did a nice blog about the company recently, here is what he had to say: Hello Evryone: Thought I’d follow up my comments re ”Great Expectations” now that the conference presentation by Stellar Biotech has concluded. If you missed hearing/seeing it, go to the SBOTF website and do so. First, as I suggested in that previous post, no ”news” at all was presented. These conference presentations are used for publicity, not announcements. So no surprises there. In fact, since the presentation concluded about 1 1/2 hours ago, the stock price has dropped a penny. Whoopee doo! But… Read more »
Kevin
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Kevin
September 29, 2013 9:25 am

Wayne, I know about Louis MicroCap about IWSY. What about this BLUF BluForest . And did you hear about the latest add DSNY Destiny Media Tech. Also anyone here on #5 and #6 in the Penny Stock Index ( answers)

Vic
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Vic
September 7, 2013 1:53 pm

I recently bought ONVO and DDD after reading about them in the last issue of PopSci and seeing them mentioned on Gumshoe. I’m up a little on both but ONVO seemed to be a long term investment. If they can make the tech work the way it’s described they will be a big winner. I would guess that the PopSci article peaked the interest in the 3D modeling arena. XRX is starting to enter this area as well.

Rick
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Rick
September 8, 2013 5:15 pm

All is not roses with the Harvard Endowment Fund:

http://www.edwardjayepstein.com/Harvard2.htm
http://harvardmagazine.com/2009/09/sharp-endowment-decline-reported

I would also be interesting to know how donations (which are huge) and support to the students (loans, grants and who knows what else factor in) is also huge fits in with their performance calculations. . I believe that they support half the costs of their student body.

I applaud the Shoe for coming up with some of the names Wall Street Daily came up with, to only to see that their recommendations are languishing with performance that doesn’t equate to their come-ons.

David Brown
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0
September 13, 2013 1:16 pm
Stellar Biotech is the real deal–huge upsides for many vaccinations including many cancers. They have extremely limited competition. It has the inherent risks of a microcap and depends solely on one tiny sea creature–but the upside is tremendous–do your homework and you will see what I mean. I am in for about 12% or both my IRA and regular portfolio and have already locked in some profits to hedge my bets. When you find that rare diamond in the rough like Stellar that is def. not a pump and dump–find your comfort level (whether that be 2% of your portfolio… Read more »
Mark
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0
Mark
September 13, 2013 4:40 pm
Thanks to all that commented on (SBOTF) I think I’m going to add a trailing stop. maybe 15% or so. However (KTOS) I bought it, It went up And I got stopped out on a tight stop. I thought it would run. Then it did after I got stopped out. What’s a good trailing stop %. I’m trying to invest/trade better. If I think I got a good trade, I buy it If it goes up I throw in a stop. What is a normal % to let the one’s you like run on. It seems It saves me from… Read more »
David Brown
Guest
0
September 13, 2013 7:43 pm

More great news for Stellar Biotech–read the latest blog by Jim Skelton on this site (search under Stellar or the word tulip and you’ll find that blog thread). The bottom line is that Taiwan’s 6th richest man and the owner of Amaran Biotech just plowed $5 million into Stellar in the Private Placement. That’s some serious money from someone who knows biotech and knows how to make money.

David B
Guest
0
September 18, 2013 9:27 pm

In my opinion, Stellar Biotech is The penny stock to own–since I posted on Sept 13 the stock has rocketed up more than 33%–yes, you read that correctly. The trend for about three weeks now has been consistently up–with the worst days being up 2-3% and the best days up 11-12.5% You might consider getting on board at least with a small portion of your portfolio if you have a stomach for some risk. It’s been quite the ride and has my portfolio crushed the S and P.

Rich
Guest
0
April 17, 2014 8:08 pm

Robert Williams

David
Guest
0
David
November 20, 2013 2:17 pm

One other thing I’d like to point out about this teaser, is the repeated use of the word POISED. As in They’re POISED to double. However, that phrase is a lot like some in sports, particularly like “runners in scoring position”, just because they’re there, doesn’t mean that they’re going to actually cross home plate.

Also, as a minor correction, Louise Bensake was not the presenter of this teaser, his name was Robert…something. Bensake was just his “big name” analyst.

greenfire67
Irregular
30
December 2, 2013 12:10 pm
OK, back to Lou Basenesse; NO! Don’t buy it! 5k is a TON of money. You can figure most picks out here for 1/100th the cash. I own micro cap tech & oil & energy. Won’t do it again. Lou touts “double over night” & “did you ever see a stock triple in a month” – mostly horse dukey. Some of his picks are good, but not 5k! No way. AWRE, as we figured out, is actually a good one, no 5k spent there, IWSY, also good & found here, ONVO, ect, ect. Plus you get leads from MANY other… Read more »
lilita
Member
0
lilita
December 30, 2013 9:23 pm
Hi travis: I am new to your service and so far you are spot on as to Louis basenese latest picks. I signed up for his wsd insider micro cap trader and here are the latest 4 additions to the penny cap index: 1 gigoptix inc 2 organono holdings 3 transgaming inc 4 hopto I may as well share with you and everyone else since I already paid for the service. I am not however buying any of these stocks but I will put them on a watch list just for kicks. I want to thank you for your skills… Read more »
Carol Dean
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Carol Dean
February 26, 2014 1:53 pm

Are there any sources of information where we could find out what stocks the investment banks are holding and not reporting on? Or does the SEC protect this information for them?

brucewill
Member
0
brucewill
March 16, 2014 5:20 pm

Love this company! I’m willing to bet we see a double or triple by year’s end.

regina
Guest
0
regina
March 24, 2014 11:36 pm
Which company are you talking about? I signed up for Louis Basnese WSD Penny stocks that double. Supposedly 5 stocks that double areto be given each day. It can’t be done, can it? I got scammed again.I must have misunderstood. . I am such a sucker. I plan to cancel. I have yet to see five recommendations daily and the first five he gave. have yet to double. It has been at least a week. They were supposed to double in a day and grow $50 to $600,000.00 in a week. I told you I am a sucker. The one… Read more »
michaelhairston
Member
0
michaelhairston
April 30, 2014 3:06 pm

What did WSD cost you and how did you get the picks?

michaelhairston
Member
0
michaelhairston
April 30, 2014 3:07 pm

Did any picks win?

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