Bob Wenzel is not paying me to say this, and I’m not getting any kind of commission, though it is true he gave me a free subscription. So interpret this however you like…
His EPJ Daily Alert is actually very interesting and lives up to what it purports to be: it is a deeper layer of analysis that would help investors more than what you get for free on the main EPJ blog.
For example, obviously Wenzel blogged about the FBI raids of hedge funds yesterday as the news broke. But in his Daily Alert, he expanded the analysis. Here’s an excerpt:
I note that a few media outlets have run the top holdings of the three hedge funds where FBI raids were conducted today. While this may be interesting, the real focus should be on the thinly traded positions in a fund that could be in forced liquidation. If the thinly traded positions are at the same time a significant position in the company, downside price action could be huge if forced liquidation takes place. Over the years, I have seen forced liquidation situations like this, perhaps a half dozen times.
They can be some of the most profitable trades you can imagine. Two specific situations come to mind. Once when some nut job managed to gain control of a huge position in Safeguard Scientific. When it was discovered he didn’t have any money, his position was liquidated quickly (over a two week period) and crushed the stock. The same thing happened when the SEC moved in on a small market maker. It destroyed the firm. The stocks, in which the firm made a market and held inventory, were crushed.
In both cases, you could have made money on the short side, but also interestingly enough, you could have also made major money on the long side after the intense selling pressure subsided. This is a very rough guess, but I’m thinking the stocks rebounded by 50% or more.
Thus, there are a few things to do here. If you have a lot of time, start looking at the positions of the three firms that were raided to day, , Diamondback, LevelGroup and Loch, under the theory that serious arrests will take place at these firms. Other options include watching the news for arrests at firms and how it will impact firms. If it is likely firms will close, where arrests have taken place, those are the firms where you want to find thinly traded stocks that will be liquidated.
So to be clear, I enjoy the EPJ Daily Alert not because of “stock tips,” but rather because it gives an often different way of analyzing the financial news of the day. It provides a more comprehensive framework, within which you make your own investment decisions.
If you want to give it a try, check out this link. If you enter offer code “Bob Murphy,” you will pay the same price as those who do not.