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I am a part-time college student that has been facinated the stock and commodities markets since I was about 12. I am currently looking for dividend safe havens (the word safe is used loosely as I prefer riskier investments, however I understand I need to protect as well as grow my money) but... More
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  • Short Selling And Emotional Investing

    So far in my short time spent in the investing world, I've noticed a disturbing attitude that "longs" have against "shorts". It seems on speculative stocks the long side tends to get emotionally attached to the company. This emotion then blinds the poor soul into hating all who oppose their investment thesis instead of simply disagreeing, which in the end can be incredibly costly.

    Short-selling: An Overview

    Short selling has been around as long as stock exchanges, the goal being to make money off of declining securities. It helps the market by providing liquidity, and uncovering fruad. It hasn't always been, but it is perfectly legal. However, many people cannot abide by someone else making money while they are losing it.

    A History of Hatred

    Short-sellers have almost always been hated. When someone else's money is set to directly profit off of another person losing money, they tend to take it personally.

    After the South Sea Bubble collapsed many people blamed short-sellers, despite the fact that the company was run by inexperienced management, inventories were rotting, and the stock market as a whole was overvalued.

    Napoleon, in response to the uncertainty that gripped the stock market following the French Revolution, declared short-selling to be unenforceable gambling contracts, punishable by imprisonment. By betting against France the speculators were considered treasonous and unpatriotic.

    In the panic that followed the crashes of 1907 and 1929 in the U.S., people searched for someone to blame. When news broke out that the famous speculator Jesse Livermore was short the market and profited from the crash, the public found their villain and nicknamed him "The Boy Plunger".(Livermore took his own life in 1940 without leaving a note or explanation. Though unproven, some people speculate it was the belief that he caused the Great Depression that pushed him to such an action.)

    In 1995 the Malaysia Finance Ministry proposed caning as punishment for short sellers, thankfully the ban on short-selling was lifted altogether. (Short-selling is debated in many Muslim countries as Sharia law prohibits one from selling something they do not own.)

    Two Case Studies

    We will now look at two pharmaceutical companies with devoted followers and dedicated opposition. While each company falls under a different rating under the risk spectrum, I consider them both speculative and thus applicable to the presented argument.

    Questcor Pharmaceuticals (QCOR)

    QCOR is a pharmaceutical company whose business is based on its single product, Acthar gel. Acthar is used to treat multiple sclerosis, infantile spasms, and nephrotic syndrome, and is approved for 19 different indications including rheumatic disorders, collagen diseases, dermatological diseases, and respiratory diseases. As a whole the company has used Acthar and its huge margins to deliver outstanding results for shareholders:

    EPS 2011-2014
     2011201220132014
    Q1$.20$.61$.76$1.40
    Q2$.23$.69$1.35-
    Q3$.37$.97$1.68-
    Q4

    $.47

    $1.09$1.67-

    QCOR Chart

    QCOR data by YCharts

    If one spent $10,000 on QCOR in the beginning of 2010 that investment is now worth over $190,000, or over an 1,800% return. The story of Questcor is close to its conclusion however. On April 7th, 2014 it was announced that Mallinckrodt (MNK) was buying QCOR for $5.6 billion. Shareholders will receive $30 cash and .807 shares of MNK for each share owned.

    Questcor of course wasn't without its risks. The company was investigated for downplaying insurance risks in 2012 and "unethical marketing practices" in 2013, and Citron Research had QCOR in its crosshairs. Whether or not the above mentioned risks would affect the value of the company is a decision for the individual. However it is foolish to completely ignore (and in some cases not even read into) these risks and allegations.

    Quoth the Raven has by far been the most vocal short-seller on Seeking Alpha regarding Questcor. With 13 articles critical of Acthar, management, and the merits of the business, he/she has attracted a flood of attention from the devoted longs. Many of the points presented in the articles are genuine concerns: Acthar itself is a 60 year old drug that was acquired from Aventis, who claimed a "dwindling market for the drug", possible intentional mislabeling of Acthar which could be construed as fraud, and possible shady transactions with the Chronic Disease Fund being just a few. Instead of acknowledging these risks, making a decision, and stating their disagreement, QCOR shareholders lashed out against the author, reverting to accusations and in some cases childish tantrums. Here are just a few comments from the articles:

    Is there some way that we can petition to SA to ban Raven from releasing any more articles?

    Bottom line is Andrew left is a twice convicted fraudster. In addition you birdman emulate his actions in every possible way, even to the extent of reproducing his felonious materials in your supposed "original works". You most certainly do not rate nor gain any respect for your less than erudite opinions. I would suggest that you watch your back because this whole package of lies and sham may very well come back to haunt you. Look for another nest away from AL/Citron's snake pit of deception.
    Note to SA editors...we are talking about a convicted fraudster to whom you gave a stage here at Seeking Alpha. Shame shame on you.

    We love your dogged determination. I'm guessing atleast three more "articles" from you on QCOR in the next several days... Have you done a cost analysis to see how much your time is costing you relative to how much you've lost on QCOR? At least I know I'll be entertained by reading the comments section in your articles. Kind of like watching Jim Cramer: lots of hot air, occasional substance, but really just self-serving "advice" with some marginal entertainment value.

    Watch out shorts, word on the street is the SEC is asking shorts to cover before they're cited in stock manipulation.

    Birdie! Crying wolf again?
    Tired, non true hot air

    YAWN

    After the news of the buyout was released, these comments emerged:

    I am so happy right now. Such gratification. What a massive gain today. Maybe Quoth and his buddy Left will end up in debtor's prison. Good riddance.

    One can dream....

    Quote the Raven...Ouch !!!!! this will drain you financially and morally too...All your short thesis goes down the drain....

    I hope QTR and Citron had a good supply of KY

    Let me be clear, this does not represent the majority of the comments on QTR's articles. Most of the comments, while unsubstantiated and immature at times, did not go to the lengths shown above. However the posters of these comments followed from article to article posting the same types of insults.

    In the spirit of full disclosure, I have taken long positions in QCOR. In 2012, I started a small position in mid-august and sold in mid-September (thankfully just before the ~60% drop after the Citron report.) In 2013 I started a position in April and sold in May because I didn't like the run-up compared to the earnings report.

    Provectus Biopharmaceuticals (PVTC)

    Provectus is an investigational biopharamceutical company with two drugs, PV-10 and PH-10. PV-10 is hoped to successfully treat Melanoma, Liver, and Breast cancer, and PH-10 for psoriasis, and atopic dermatitis. The drug is developed from a red food dye called "Rose Bengal" that is also used in textiles. It works by attacking cancerous cells without affecting the healthy cells surrounding the tumor, which would be a vast improvement in the way cancer is treated today.

    Given these drugs work the way they're supposed to, the potential is huge. A focused cancer drug that has minimal side affects could be worth billions upon billions of dollars. None of the big players, Pfizer (PFE), AstraZeneca (AZN), Bristol Meyers (BMY), etc would allow such a company to remain independent for long.

    Provectus has yet to generate any revenue, which of course, isn't unusual for such a company, and shareholders have endured a rollercoaster of volatility, especially recently.

    PVCT Chart

    PVCT data by YCharts

    The Pump Stopper is the first on Seeking Alpha to actively write on the short side of the company. The main points in support of the short thesis are the company's questionable ties to shady stock promoters, foggy and confusing accounting practices, excessive executive pay and shareholder dilution, failure or hesitation to disclose necessary information, and a history of failure in similar endeavors among the key players.

    The devotion among believers in PVCT is especially passionate. As would anyone who believed they were invested in a drug that could change the world. Below are some of the comments from the articles:

    You published blatant lies and I for one hope $PVCT starts fighting back legally against such attacks. So far their stance has to not waste their time with such ignorance and behavior. They have chosen to spend their time fighting the war on cancer, not the war on ignorance.

    I BELIEVE you are associated with other shorterers to take this stock down...I BELIEVE that your article along with some of the others are setting cancer research and cures back years.

    faceless The Pump Stopper = Adam Fstein

    (I added the link.)

    The pump stopper is garbage... can't believe these bears at all... their case is so weak.. its like looking through a window with no glass at a bull farm.. you can see all the BS and smell it too.

    The next comment fully embodies the blind passion people can get caught up in:

    A post filled with so many outright lies and innuendos is the kind of thing the Great Deciever strives to spread through the world.
    His goal is to bring despair, loss and mistrust to all via his deceptions.
    This article has the marks of the Great Deciever all over it. Consider the company it is trying to ruin. A small firm that has a product that will bring relief and peace to hundreds of thousands of patients and their families at a lower cost with fewer side effects. The answer is in powers greater than ours. Negative articles written with verifiable truth, not lies and 1/2 truths serve a purpose . They help keep a level playing field.
    The slam piece is trash .

    For those who may not know, The "Great Deceiver" is another name for Satan. Not only is this person taking the short attack personally, but they are tying in their Christianity (I assume) with their due diligence. This isn't investing, or even speculation, this is trying to "invest" in a charity or contributing to a cause and hoping to making money with it.

    Emotional Investing

    The hardest, and most important, lesson for an investor to learn is to detach all emotion from decisions. All actions must precede strict calculations and thorough analysis. Emotion always buys just too late and sells just too early. It forgets to read reports, and doesn't learn from past experience. Emotion is a hungry beast, and its favorite food is money.

    No where is emotion more prevalent than in speculative stocks. By nature, "specs" require a "hunch" because the fundamentals are not sound, or the outlook is troubling or unknown, allowing emotion to slide back in. Now someone being short isn't a financial decision on their part, it is a slight against the shareholder. So, instead of being presented with an opposing argument and making an informed decision for or against it, emotion attacks the opposition. Pharmaceutical speculators are especially susceptible, because they feel they are helping the world by endorsing a company. What emotional investors forget however is investing is about profit, nothing more. That's why the numbers are imperative, numbers are black and white, cold, unbiased, heartless, and lack any conviction or passion.

    No matter what one's opinions on the ethics or morality of short-selling it is not any more a "scheme" than buying a stock. In one of the Provectus articles, a reader mentioned the disclaimer stating the author was short as if it was some enlightening warning that they were presenting their fellow readers thanks to tireless detective work. Of course bearish articles accusing a company of fraud are going to be written by short sellers, just like the countless bullish articles written by people who are long. Bullish authors receive no accusations of "pumping" however.

    Conclusion

    Opinions and emotions are completely different things. Opinions are imperative to making a decision, emotions devour cash and energy. One should never have "faith" in a company. " Faith is "the substance of things hoped for, the evidence of things not seen." An investment is an educated guess based on research for the purpose of turning a profit. Blind faith is extremely dangerous in the world of investing, it doesn't use evidence, numbers, or research to justify positions, it only uses accusations, conspiracy, and angst. The end result, as shown above, is quite ugly.

    Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

    May 29 10:46 AM | Link | 9 Comments
  • Elections: Update Required

    Let's face it, the two party system is outdated. In the past, it helped to narrow down the issues into two distinct decisions. In a time when even the most important news took weeks or even months to get to the rest of the country, deep analysis of candidates was difficult. Today, however, news and analysis are instant, thorough, and can get rediculous. If one so desires, or not, they can know everything there is to know about the candidates involved in an election, which is why I believe the American people and the media can handle more candidates, more issues, and more points of view. This transition will require a massive overhaul in the way elections are conducted.

    Updating Our Elections

    The fear of people and candidates alike is that more candidates means a split vote. A split vote destroys the number of votes given to the original party, giving the election to the unified party. The result of this fear is the "establishment" (bosses) of the original party fight the people when a grass roots candidate emerges. The resulting battle disconnects the people with the party, and the voters stay home. After losing the elections, the people who rebelled blame the establishment, the establishment blames the people; more elections are lost.

    The problem is that politics and economics (polinomics?) have become too complex to leave to just two sides. Communists, socialists, environmentalists, Democrats, Republicans, The Tea Party, Libertarians, etc. all have separate agendas from one another. Instead of the nation having a specific direction, it has a massive cluster bomb of mixed priorities.

    A new system is required to handle our complicated politics. A system that encourages the people to fight against their party if they feel forgotten. A system that allows someone to vote for the person that truly shares their beliefs, without "throwing their vote away". A system that the Australians, Fijians, and Irish already use, Preferential Voting.

    What is Preferential Voting?

    Preferential voting, or alternative voting, is a system that is based on rankings instead of straight one or the other voting. A voter ranks their votes starting with "1" for their preferred candidate and then "2" for the next and so on. If their number one pick does not win, instead of the vote being wasted, the vote goes to the number two candidate instead and so on. For example, suppose a strong environmentalist is voting for President. The first choice would be for the Green Party candidate, then number two could be the Democratic candidate. If the Green Party does not receive a majority vote, the environmentalist's vote would be cast for the Democrat.

    Think of how history could have changed if the 1912 election between Woodrow Wilson, Theodore Roosevelt, and William Taft, had been decided in this manner. The Republicans that voted for the Bull-Moose party could have ranked their votes between Teddy, and Taft, using Teddy as their main vote and Taft as insurance. This doesn't necessarily mean that the outcome of the election would have changed, but it would have taken away the fear of many Republicans of casting a worthless vote.

    Keep in mind that I am suggesting this system strictly for the U.S. Presidential elections. Each state/province/municipality can choose whatever system they please based on their individual needs. Local elections tend to be much more black and white (new golf course or overpass) and can handle one-on-one races. Presidential races however encompass every concern of every individual in the nation. Gun control, Global Warming, Deficits, Debt, Spending, Taxation reform, Healthcare reform, Homosexual marriage rights, Education reform, Union reform, Entitlement reform, Tort reform, Trade balance, Illegal Immigration, Russian relations, Israeli relations, Gitmo, Somali Piracy, Drilling rights, and many more, are all issues that clash together in one election, and we're supposed to believe that just two candidates can represent all of the issues?

    How Would it Work?

    All that would change is the ballot. Instead of having the usual options (Republican, Democrat, etc), the ballot would list all available candidates and a list of 5 (or however many) votes for one to cast. Once the list is full and confirmed the vote is cast. Each state would conduct its polls as such, tallying the first count, second count, etc until a winner is found. The winner would then receive all of the electoral votes for that state, the candidates with the most electoral votes is the President Elect.

    For those that had to rely on their 2nd or 3rd vote however all is not lost. After the election, candidates and consultants review the numbers in each count. These numbers can help politicians identify the issues that matter to people far better than any 1,000 participant poll that claims it represents the nation.

    Conclusion

    When put into plain words the idea sounds much less like a radical transformation and much more like an update. It is simple fix to a problem many don't realize we have. Unfortunately without a massive event that puts this on the people's radar, I can't see anything changing. The biggest hurdles however are:

    1. The system is more complicated than our current system, and being that most voters are elderly, that's a problem.
    2. Instituting a new voting system will likely require a constitutional amendment, something that hasn't happened since 1992, and that was after 200 years of its submission for ratification.
    3. With new parties and individuals in the race, money that would be going to Republicans and Democrats will now be elsewhere. The only thing worse than a split vote is split donors.

    Despite the hurdles, I still have hope. Every once in a while people side with reason. Who knows though, maybe it's all about marketing; "Vote for President the same way the Academy votes for movies!"

    Apr 08 1:36 PM | Link | Comment!
  • The Fantasy Of "Fair And Balanced" Media

    "Congress shall make no law respecting an establishment of religion, or prohibiting the free exercise thereof; or abridging the freedom of speech, or of the press; or the right of the people peaceably to assemble, and to petition the Government for a redress of grievances."

    The State of the Debate

    For decades, the idea of "biased media" has been a major argument of conservatives. Claiming that by restricting the viewpoint to strictly fit a Liberal (big-government) point of view, information was being grossly distorted to fit their mindset. The media and its supporters felt that the truth was being reported and conservatives were simply trying to force their "spin" on the news.

    In 1996 Fox News launched (NWS), which was meant to serve as a "fair and balanced" network. Liberals claimed the station blindly followed the GOP. Conservatives felt that the truth was finally being reported. So the war rages on.

    The Fantasy

    The argument that now both sides are using is that biased media produces incorrect news. Any numbers or data used by the network to support a position are always found to be skewed, or "doctored" to fit the desired findings. A fair media is required to report just the facts, and only the facts, with no spin or opinion. It is essential to maintain non-partisan news to prevent government control or capitalist control of the media. Only then can people trust the news being reported.

    The Reality

    Imagine any important news item in recent history. I will use the Benghazi attacks as an example. Now that we know, at least generally, what happened, let's look at how it would have been reported:

    Left Media: "California man sets off riots at U.S. embassy in Benghazi with racist video."

    Right Media: "Islamic extremists attack U.S. embassy in Benghazi."

    Neutral Media: "U.S. embassy in conflict, possible deaths reported, cause yet to be determined."

    The left media example was the truth to many people, as was the right media example. Media companies do what is best for their customers, and their customers have political opinions. So, based on their customers opinions, they reported the news. The main reason for the above example however is the last entry, "Neutral Media". The entry reflects exactly what we knew immediately following the attacks. Neutral media of course doesn't exist but think of who in the world would prefer this type of news; no one. People want depth, analysis and speculation; people want partisan news.

    It's impossible anyway because...

    The fact is, as long as people are reporting the news, bias will be involved. The 1st amendment was written to specifically protect bias in media. If the bias is toward socialism then so be it. Why would government need such strong language against being involved in the press if just the "facts" were being reported?

    The biggest hypocrisy is when Fox calls itself "Fair and Balanced". Yes, I agree that they allow the most two sided debates on their programs, but the network as a whole supports the GOP wholeheartedly. So to claim that it is fair and balanced falls right back into the liberal media mindset of the 60s. CNN, CBS, NBC, and MSNBC make no such claims of being fair, because they aren't. Fox on the other hand, for some reason thinks having the entire National Review office on as guest speakers is fair and balanced. This isn't to say it's wrong to have right leaning media, it is to say that claiming neutrality is.

    This is Just How the Press Works

    From the very beginning of this country it was simply understood that the press would report what it thought happened. That is why the free press exists, so that the government cannot manufacture or hide news stories. In 18th century America, newspapers published articles that fit the paper's perspective on politics. The Independent Gazetteer was a fiercely anti-federalist newspaper that published the Letters of Centinal, penned by Samuel Bryan. The Independent Journal, a federalist newspaper, published the legendary Federalist Papers, written by James Madison, Alexander Hamilton, and John Jay. This bias was considered acting on our freedom of the press, not abusing it to fit a political agenda. It was simply understood that if you wanted the federalist take on the news, you get a federalist newspaper, and visa versa.

    Conclusion

    I understand the frustration suffered by conservatives that had to endure the age where liberal media was the media. Every news story had to be critically looked into to understand if you believed what was reported. Without trust in the politics of the reporter, the stories presented cannot be trusted. Certain aspects of society are controlled by certain groups, liberals have Hollywood, education, entertainment, and most television, while conservatives have radio, the Church, country music, and Fox News. These areas may change hands from time to time, but no one group will have all of them. The media is no different, so as a conservative myself I beg everyone to understand that "bias" isn't wrong and everyone has it. Instead of complaining about the "mainstream media", counter it with numbers and statistics, not with whining. There is no such thing as "fair and balanced" press, and there never will be.

    Tags: NWS, Media, Poilitics
    Apr 02 1:39 PM | Link | 2 Comments
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