I have been around this business for 25 years and I have reached my breaking point. Long ago I pledged not to attack others in this business, but no more. Not only do I encourage you to read this piece in its entirety but I highly recommend you forward this to anyone you know that invests in small stocks. Tweet about it. Post it on message boards. The word needs to get out:

Short sellers are nothing but deceivers and you can make money at their expense.

The conventional wisdom has always been that short sellers are the smartest investors in the equity market. They relish in the fiction that gives them superhuman powers to pick apart a balance sheet, income statement, a company’s business model and operations, intellectual property, etc.

The sad truth is that short sellers are wolves in sheep’s clothing. They portray themselves as the unofficial “investor branch” of the Consumer Protection Agency when they are the ruthless deceivers who know no bounds when it comes to their short attacks.

This is the shorts’ playbook: Lies? No problem. Falsehoods? Keep ‘em coming. Deflect attention away form the truth by focusing on the irrelevant? Work it, baby. Claim all proponents are greedy shills? Do it all day long.

One of the great ironies of the shorts’ theses is that they claim anyone that is paid to promote a stock has a financial incentive and therefore should not be believed. If that is the case, no one should believe a short, EVER!  Especially since many of them are themselves paid shills.

Why? Because a short position by its nature could lose an infinite amount of money. Therefore, it is the short sellers that have the greatest financial incentive to say whatever they need to, in order to destroy a company’s market value, lest it rise. In the case of Nuvilex, Inc. (OTCQB—NVLX—Spec Buy), a stock that rose from $0.10 on 12/31/13 to $0.62 last week must have cost shorts a fortune.

For longtime followers of GSCR, you know that NVLX is one of our all-time winners. The shorts have tried in vain to crush it for years yet it has risen from $0.03 when we initiated coverage to the $0.62 high. Hence, the hatchet piece released Friday. 

(Editor’s Note: We have covered NVLX for nearly 3 years and have been compensated from time to time by the Company and a third party to publish reports and articles. However, GSCR has not been compensated for this blog nor is management aware of its publication prior to release.)

It is no surprise that NVLX was hammered, as those with big profits in the past few weeks sought to take money off the table following the big rise, which was prompted by a “short story” on Seeking Alpha released as the stock was breaking out on huge volume.  If one looks at the NVLX stock chart, it is obvious that the big rise in the stock from $0.20 to $0.62 was after the Company announced huge funding news which effectively de-risked the stock and enables it to initiate late-stage pancreatic cancer clinical trials.  Moreover, it is a tremendous validation of the technology and model from a noted institutional investor. The SA article barely made mention of this critical and incredibly favorable news choosing instead to focus on promotion, third parties, medical marijuana initiatives, and irrelevant operations from years ago, etc. to deflect attention from the true reasons for the interest in the stock.

Look, the shorts typically win and have the day, but it is usually short-lived unless there is egregious fraud or mismanagement. For example, Bill Ackman of Pershing Square admitted that his short on Herbalife (NYSE—HLF) is his biggest all-time loser as the company has done nothing but post record results and hit new highs time and time again. Still, since he has a major financial incentive to keep it down, he engages in a relentless lobbying and public relations campaign to derail the stock.

So what does one do when a short assaults a stock?  If one believes the short’s thesis does not have merit, the price reduction caused by the short’s efforts typically fizzle out after a time, leaving investors with the opportunity to invest in the stock at lower prices. As milestones are reached, and gaps are filled, the stock tends to make a big run-up higher that is not associated with short-covering. That capitulation phase comes later, at least in small parts, driving a stock to new highs.

Longs should also expect that when a short introduces his thesis on a stock, even some so-called investment pros pile on with negative comments and stories. Folks, this is the real tragedy. These schmucks are nothing but naïve paeans that are trying to make themselves look smart by piling on when in truth, especially with small stocks, they are clueless as to what really drives them and how to take advantage of them. They bash the company and the proponents (paid and non-paid) even when proven wrong over and over and side with the shorts that have the greatest and truest amount of money to lose. (I give you 2 guesses as to the poster child for this example.)

If you believe in a stock that is in the crosshairs of shorts and bashers and the stock and company perform, there is no greater satisfaction or profitability, and the profits from such events happen more often and faster than you think.

Market Movers This Week

There are a lot of events this week which will affect the market:

  • Russia’s moves on the Ukraine show Obama’s and the West’s impotence and could spark a new Cold War
  • March is the last month to sign up for Obamacare - look for big PR push
  • Fridays have been poor performers this year in the market. It could be a bad one again since more prognosticators are becoming neutral on the market
  • Preliminary data on February GDP could be left with cheers or jeers shaking confidence
  • Tech M&A likely to continue to drive bigger market
  • Despite market reaching new highs, the move is not broad-based with only 6% of stocks reaching new highs on Friday; look for continued narrow moves higher
  • Have a great week!