3. PR~s containing weasel talk (continued)

Other common phrases you see in PR~s include, “The company intends to…”, “The company foresees a profit of…”, “The company has signed a contract with…”, “The company anticipates $20 million profit from its contract with…”.”

Any phrase announcing their intention to do “such and such” is not binding by law.

If a company intends to…. “Well, our plans changed.”

If the company foresees a profit of… “Errr, sorry, it didn’t work out as we expected.”

If a company signs a contract with… “We did but after a week, the other company canceled it.”

The company anticipated… “Gee, we really over-estimated our profits on that one, didn’t we?”

Companies can to some extent be held liable for specific declarations that they don’t accomplish. For example if a company says, “We will buy back 200 million shares of stock by the end of this month,” and they don’t, then stockholders may (possibly) have a valid grievance.


4. Failure to live up to, within a reasonable time frame, actions and goals the company said it would accomplish, accompanied by the lack of a logical explanation why it failed

A company that accomplishes nothing, or appears never to do so, indicates one of four possibilities, the company is incompetent, lazy, is in the wrong business, or is a pump and dump. Any one of these makes it a risky investment.


5. Pinks failing to file (voluntary) reports to the SEC
Agreed there are reasons why a pink may want to remain so. It’s a red flag for me however – one strike automatically against them – because there’s very little verifiable information about pink companies. The pinks are where most of the abuses in the stock market occur. I don’t especially like trading the pinks but so often that’s where the action is.


6. OTCBB companies failing to meet their filing deadlines

If a company can’t get their paperwork done on time, how competent is it in its business? It can also be an indication the company is hiding something.


7. Previous reverse splits, stock symbol and company name changes, sometimes accompanied by changes in the business they’re in

This is a serious red flag for me. A company that pulls a R/S is likely to pull a second and third one. Reverse splits are almost always done with a stock symbol change. A stock symbol change makes it more difficult to trace the history of the company.

Companies that pull reverse splits, change their stock symbol, the company name and re-invent themselves with a new business are demonstrating they haven’t been successful in the past. Successful companies don’t pull reverse splits, change their stock symbols and re-appear as new companies. A company re-inventing itself in this manner often makes it extremely difficult to trace its history. Usually, in my opinion, companies that do such are pump and dumps and nothing more.


8. A continual increase in the size of the float (dilution)

Such is an indication that stock from somewhere is being bled into the float. That’s what a pump and dump does, sell stock.

9. An increase in the A/S, especially a large one

Companies do not increase their A/S, unless they intend to use the additional stock, else why increase the A/S in the first place? There might be legitimate reasons a company needs to increase its A/S but all too often those increases end up in the float, which is not good for stockholders. Pump and dumps that are really successful will increase its A/S, several times if it can get away with it, as long as its scheme is still functioning. The folks running the scam will continue as long as they can, selling stock into the float until the PPS totally collapses.


10. SEC filings indicating the sale or transfer of stock for employee compensation programs and other entities, especially if they’re frequent

Distribution of stock is just another method of selling it, to employees or other individuals. When this happens there may be several sources dumping stock into the float at the same time.


11. Mumbo-jumbo financial statements that no one understands

Financial statements are difficult for most of us anyway because we aren’t CPA~s. Still, when you read one that has a lot of vague language in it, and seems very unclear as to the actual status of the company’s finances, it’s likely just a game of smoke and mirrors. An honest company will report its finances accurately and clearly.

12. CEO~s who have had past or have pending difficulties with the SEC over alleged violations of SEC rules and/or Federal Statues

This is obvious. Zebras don’t change their stripes and rarely do humans. A CEO with no past problems but with current ones is of course, innocent until proven guilty. We are investors however, not a jury, so when you encounter a CEO with legal problems such as these, take a look at the charges and information available and see if its likely he’s innocent or guilty. Remember, you aren’t deciding whether he goes to jail or not, you’re simply trying to keep the weasels out of your pockets.