Trader’s Narrative

While the active vs. indexing argument rages on in the investing world, it is a moot point. Everything is actively managed. The only difference is that some funds are more actively managed than others. (Sorry Bogle.)

Every single index out there was created by someone or by some committee and it is regularly updated and managed to keep pace with the changes in the real world.

That goes for the Standard & Poor’s 500 Index, the behemoth out there that has more money following it than any other index out there. The composition of the list of 500 stocks is presided over by the S&P Index Committee, a group of employees of McGraw-Hill Companies.

They follow a few guidelines:

• U.S. Company
• Market Capitalization: min. $4 billion
• Public Float at least 50%
• Adequate Liquidity and Reasonable Price.
• Sector Representation
• Company Type: operating, not CEF, REIT or BDC

But, in the end, these are just guidelines and the committee has full discretion to include any company and to exclude another, even if it technically meets all the criteria.

Every once in a while the committee faces a rare situation where a large portion of the S&P 500 Index does not meet one or more requirement they have outlined. Usually the simply ignore it and hope that it just goes away on its own.

In October 1987 there were 35 S&P 500 Index stocks that traded for less than $10 a share. In the aftermath of the September 11th terrorist attack, 59 S&P 500 Index companies traded for less than $10 a share. Right now we are going through a similar situation.

Currently there are about 101 S&P 500 Index stocks trading at sub $10 a share. Unbelievably, one S&P 500 component, E*Trade (ETFC), closed below $1 a share. And there are 36 stocks trading below $5 a share. These are levels at which stocks are called “penny stocks”. You can find a table of the constituents, ordered by share price here:
Continue reading ‘S&P 500 Index: Now More Poor, Less Standard’

A few months ago I warned my readers about a penny stock on the pink sheets called MitoPharm (MTPM), saying I wished that I could short it. Immediately after, the price of the shares doubled (from $1 to about $2) which lead to some childish comments about my motives and my intellectual capacity.

Fast forward to now and I have people leaving ALL CAPS comments calling MitoPharm a “rip-off” and “a scam” while others are shell shocked and just want to know what happened.

Well, I tried to warn you. It was the least I could do since the people behind the scheme were targeting my Google Adsense account to promote it. This is part of the reason why Google and I parted ways.

Depending on which data source you use, the graph of MitoPharm will have a different price axis. That’s because on September 4th they announced a 250% stock dividend (issued September 14th 2007). So for each share outstanding, four were issued.

I don’t think this had anything to do with the collapse. This was a pure “pump and dump” scheme. If you want to see other examples, check out these other penny stocks. I’ve received email spam promoting each of them:

Symbol:CLRL — Email received October 22, 2007
Symbol:FFDH — Email received November 2, 2007
Symbol:HYBT — Email received November 4, 2007

There’s even a website which tracks the penny stocks touted in spam emails. I just can’t remember the name now although I’m sure I have it bookmarked or on delicious somewhere. If you know it, drop me a note.

Finally, I have to say that it is possible to make money from this sort of schemes. But, you have to be very careful and know the game. If you ride along with the promoter and exit before the “dump”, you should do fine. If on the other hand, you mistakenly believe that this is an investment, God help you.