Excerpt from Book
Spin-offs, Splitters, Sneakers, and Starters
Now that you have learned how to make fact-based, high-probability purchases of well-grounded stocks based on the historical record, it’s time to take an escalator to another floor of the casino and learn how to throw loaded dice, both on the market’s least loved, most misunderstood, and often most ignored foundlings and on its most hyped and anticipated newborns. I’m talking about spin-offs, reverse splits, and bankruptcy “sneakers,” along with the fresh starters known as initial public offerings (IPOs). This is a world inhabited by the strange and the dubious, the infamous and the notorious, the wannabes and the not-quite-there-yets. Yet it’s also a world of hidden talents, unpolished gems, and riches that have been intentionally smeared with dung to throw treasure hunters off the scent. We are throwing off our lab coats, you might say, and entering the smoky realm of cynical speculation.
The beauty of studying and buying stocks with no pedigree, no history, and no following is that most investors believe that these stocks have no future. And the beautiful thing about such opinions is that they are wrong about three-quarters of the time. There’s nothing I like better than to mull the purchase of a stock for which expectations are zero because the upside is essentially infinite. If you have a set of methods that help you sift the good 75 percent from the bad 25 percent, you’ve definitely got a tradable edge.
I’m going to propose that you spend your Wednesday afternoons scanning the market for these kinds of seemingly crazy stocks and using a few rule-based technical and fundamental techniques to separate the gold from the gunk. In this chapter, I’ll discuss each category and explain why it merits your attention and your trading dollars. And then I’m going to dive right into practical matters and show you numerous examples of each from the recent past, and explain how you could have found them. Fortunately, there are so many of these kinds of stocks pushed out into the market every month that they can keep you flush with new ideas every day of the week.
