My approach to diversified shorting

The investing strategy I understand the best and feel most comfortable with is diversified shorting- taking a large number of very small positions in common shares of crappy stocks.  I mainly short stock promotions and pump and dumps, where I think I have a sizable edge over other market participants.  The performance of my strategy backtests to ~15% from May 2014 to August 2015.

The key to making this strategy work is being able to quickly find a large number of awful stocks.  This is possible because stock fraud is an industry.  Scumbags network and share knowledge with each other.  Fortunately for me, this makes them really easy to find.

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Mine economics explained

This will be a long post that will cover:

• What a mine’s cash flows look like over its life.
• Crazy accounting rules.
• Uneconomic behaviour caused by stock promoters and charlatans.

Ignore the cloud / the future is cloudy

In my opinion, investors should mostly ignore the hype around “cloud” computing.

There are different definitions of so-called “cloud” computing.  In a literal sense, cloud computing refers to computers attached to a network.  Such technology has been around since the 1960s.  The current interest in cloud computing largely has to do with the pervasiveness of fast Internet connections.  “Cloud” software can be thought of as “software that requires a fast Internet connection”.  The widespread adoption of broadband Internet allows certain forms of cloud technology to become more viable.  For example, backing up large amounts of data over an Internet connection now makes sense.

However, all software companies are largely on the same footing when it comes to cloud computing.  If cloud computing makes sense for a particular market segment, anybody can (re-)design their applications to take advantage of fast Internet connections.  Software has always been an arms race between competitors improving their product with new features.  Cloud computing is simply part of that arms race.  Personally, I don’t see cloud computing as being a paradigm shift like the Internet was.

Web sleuthing – Part 4 – Search by image

To search for other websites with a particular image, right-click the image in Chrome or Firefox.  Then click “Search Google for this image”.

This can be used to:

1. Stalk individuals.
2. Find a foreign-listed Chinese company’s other websites.  It can also find other Chinese websites that talk about a particular company.

Web sleuthing – Part 3 – Open SEO Stats

Open SEO Stats is a handy little extension for the Chrome Web Browser.  Here are some mildly useful things you can glean from this tool.

Web sleuthing – Part 2 – Archive.org

Archive.org allows you to look at old snapshots of websites.  It’s a very powerful tool and free to use.  This can be useful to try to figure out the ownership history of a company, subsidiary, or a website.  Websites generally contain “about us” pages and contact information such as email addresses.

Archive.org can also be useful to look at how a company’s strategy has changed over time.  For example, I noticed that Coach (COH) no longer offers handbags with very large logos (the extremely large C monogram, the large horse carriage logo, etc.).

Web sleuthing – Part 1 – Domain registration records

Generally, key executive officers and insiders of a publicly-traded company do not register their company’s domain.  They let an IT person or web designer handle the task.  Domain registration records tend to be a reflection of what the lower-level employee thinks who actually owns a particular domain name.

Looking at domain registration records can potentially be a useful tool for detecting frauds.  Insiders may be lying about the ownership of a particular company or subsidiary.  Fraudsters may unintentionally fail to cover their tracks because many people do not realize that domain registration records are public.  The domain registration records may tell a different story than a company’s SEC filings.  That is why I look.