Beware the Shorts

Written by GSCR Staff   
Wednesday, 14 August 2013 07:40

Internet websites dedicated to the market are plentiful and can be overwhelming for the average retail investor/trader as he or she tries to find useful knowledge and information for financial purposes.  In this week’s Goldman Guide we discussed both the issues of relative lack of experience in some of the supposed ‘experts’ as well as alleged independent analyst recommendations to short sub $1.00 penny stocks (such as INSCOR, Inc. – OTCQB – IOGA - $0.72 – Spec Buy).   While there is no doubt the retail consumer should value independent research, ulterior motives and legitimacy should be part of the thought process when pouring over the vast stock market commentary universe.

We take the recommendations we make in our sponsored Opportunity Research in the highest regard related to the retail investor.  Our purpose is to highlight companies with new technologies, processes, or business models that allow the average investor to get in the ground floor of possibly something great at very inexpensive prices.  We only feature companies we believe in.  Additionally, our Goldman Guide, Market Monitor, and 30-30 reports offer independent unsponsored market recommendations and commentary.

One must ask the question, why would you short a sub-$1.00 stock?  Some famous lines uttered by fictional corporate raider Gordon Gekko come to mind, especially when asked why he was going to wreck Blue Star airlines in the movie Wall Street.   He replied, “…Because it’s wreckable”.  The point here is that there are many personal vendettas from extremely competitive people on the inside.  Shorting penny stocks is part of that world.

In theory shorting a stock can cause infinite losses and buying a stock presents the opportunity for infinite gains.  Shorting penny stocks presents relatively limited profit potential.  It truly is just about winning and losing for the shorts, i.e. creating losers.

In an esoteric higher purpose sense we pride ourselves on being part of the wheels of free market capitalism.  The capital that these small companies get access to with an influx of buyers and a rise in stock price allows research and development projects to be funded and new employees to be hired.   Are we right all the time?  No, definitely not.  But we research and present opportunities that we think can work in the long run and allow investors to make buy decision on their terms.

With the apparent slow down in the market over the last week the bears and the shorts are bound to start trumpeting on cyber space.  There will opportunities to short.  All we ask is why would you want to short a penny stock under $1.00 and why would an analyst recommend it?

Something to ponder.

Have a great day.

Disclosure: Goldman Small Cap Research analysts are neither long nor short these shares but may elect to purchase the stock within the next 48 hours.

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