Check out all this site’s new and upcoming features…you’re gonna like them!

CXO Advisory has done tons of reviews and studies on gurus and one their readers asked them to cover good ole PennyStocking…below is what they found…

Please do read the entire article/study HERE or see some highlights posted below:

In summary, evidence from simple tests on available data supports a belief that Timothy Sykes can identify pump-and-dump patterns in real time with economically meaningful consistency, but scalability is multiply constrained such that his subscribers may not be able to mimic his trades reliably. Niche constraints may preclude exploitation by large traders, a large group of small traders and funds.

Basically, my strategy works, but it has scalability issues…the very thing ‘ve been saying for years now (which is why I teach others instead of run my own hedge fund)…some important data points:

For this review, we exclude one trade on 10/7/9 with a reported percentage gain of 800%. This trade, although very small dollar-wise, dominates trade-weighted statistics. Notable characteristics of the balance of 295 trades are:

74% of the trades are profitable.
On a trade-weighted basis, the average net return per trade is 6.1%.
The standard deviation of trade returns is 13%.
On a dollar-weighted basis (derived from the trade data provided), the average net return per trade is about 4.0%. In other words, large trades tend to be less profitable than small trades.
The arithmetic (geometric) mean monthly net return of the underlying portfolio is 10.5% (10.3%).
The following chart, a test of return persistence, shows the trend in net return by trade over time. Results indicate persistence over the sample period in average net return per trade, though perhaps some growth in return volatility. The average net return for February 2008 through January 2009 (February 2009 through January 2010) is 3.8% (8.2%).

And a truly great paragraph on the scalibility issues and why TIMalert subscribers should learn from my instructional DVD packages instead of just trying to copy my trades:

Another type of scalability constraint on subscribers is a potentially severe limitation on availability of shares to borrow for shorting. For example, in a 1/23/10 email, Timothy Sykes reported that: “…the vast majority of shares are taken or not available to short true pump-and-dumps so the opening of my pre-market watch list is key to succeeding with my bread and butter strategy of shorting blatant pumps…see my short of MDCE recently where only a few dozen of my subscribers found shares to short since they didn’t reserve them early like I did…gift and curse of my strategy aka this limited scalability…” In other words, only the most attentive and nimble few percent of about 1,500 subscribers were able to tag along on the short trade. For this reason, Timothy Sykes advocates that subscribers learn to apply the methodology themselves, so that they can identify pump-and-dump opportunities for private exploitation rather than tagging along on his trades. In his own words: “I hate those ‘gurus’ who just want people to copy their picks.”

And some crazy cool looking charts:

Tags: Academic Study, Milestones, Testimonials