Ruminating on the Canned Meat (Spam) Portfolio

April 12 marked the conclusion and "liquidation" of the oh-so-experimental Canned Meat (Spam) portfolio I created on Stockpickr. Two full months of tracking the results of stocks selected via unsolicited emails proved ample time to draw some salty conclusions. While most of the results were predictable, the experiment reinforced some basic assumptions and - not unlike a can of pressed and formed meat - offered a few surprises.

First, the obvious: Investing in - or rather, gambling on - these "companies" is a really poor idea. My diversified portfolio lost 45% in just 2 months. And you thought the 3% you lost on February 27th was bad.

Also obvious: Spam campaigns succeed in pumping the price of the stock - albeit temporarily. Apparently there are still enough foolish and unsophisticated "investors" out there who actually move upon these suggestions. This is frightening, especially when you consider that you share the roads with these people, walk past them in the aisles of the grocery store... perhaps you even let your kids play with theirs. I'll posit these folks are the same type of "investors" who are currently sitting on empty, unsellable condos in Fort Lauderdale and Las Vegas. Not savvy.

Not blatantly obvious, but makes perfect sense: Spam campaigns create temporary liquidity in names that are otherwise dry. Some of the names in my portfolio average a volume of just 100,000 shares traded per day, with most trading significantly less. At the height of the China Fruit (CHFR) campaign, daily volume peaked at 1.65 million shares. This is the crucial second piece necessary for perpetrators to make serious cash on these scams (the first being the artificial price spike). Hey, if you need to dump 750,000 shares, it helps if the volume is there. And as I found early in this observation, the combination of a price spike and high liquidity worked quite well for a major holder of China Fruit.

Now, as far as surprises go, this blew me away. One of the names (CBRP) broke even, while another (ACEN) finished up 47%. While CBRP is now down again, ACEN is up higher than it was when I liquidated. A quick glance at the volume chart suggests that another spam campaign was launched on or about April 5, although I never received any of the emails. The takeaway from this: while not statistically significant, one can casually infer that there is a 1-in-8 chance of making money in this arena. Maybe it's just me, but I'd rather take the 3:2 blackjack at the Tropicana.

The biggest surprise was what stopped happening midway through this project. The once steady flow of unsolicited stock suggestions completely dried up. Indeed, I received my last suggestion on March 9, roughly one month after I created the portfolio. Don't get me wrong. My Inbox is still inundated with crapmail. The difference is that now the spam is exclusively composed of invitations to indulge in life's finer pleasures, such as weight loss products, erectile dysfunction cures, pirated software, and fake designer watches. Could it be that the stock spammers got wind of my portfolio and took me off their list? I highly doubt it. But the stock spam is gone, which suits me just dandy.

The Ides of March - School is Killing Me

Up to my eyeballs in projects/distractions right now. Volatile markets, the Spam portfolio, March Madness picks, and a hefty research paper backtesting the 3x2 Trading System. Trying to get this all done so I can leave for Florida tonight. I'll be out until Tuesday, so no Spam updates for a while. I suppose this is OK, as it is now vividly clear where this portfolio is going. Heck, it's already there.

Tuesday's mini-thrashing of the US markets renders void the predicted tops in the previous post. I don't have time now to do any deep research, but I doubt the S&P will go past 1410, and it will go back down to 1350.

The VIX Matters. Volatility Matters. Just ask CNBC.

Welcome to the end of the week that was. My apologies for not updating the spam portfolio in a timely matter, but it has been an extremely busy week for me at work. Especially tiring after a weekend in Vegas, but I honestly have no complaints. Sure, I'm upset I missed the greatest short opportunity in years. I went big on a 2x short Nasdaq 100 bet via RYVNX (an open end mutual fund, excluded from my trading restrictions) on February 15 and closed on the 20th; what can I say, timing is still a problem. But I was 45% cash when the storm hit Tuesday, and I'm still patting myself on the back for that one. Good job, Rookie.

I'm genuinely amused by the shift in attitude toward the VIX since Tuesday. I'm referring to the Talking Heads on CNBC, and how they can't get enough vol talk now. VIX this, VIX that, VIX is the most important gauge of the day, blah blah blah. Are these the same people who wouldn't have any mention of it just a week ago? As I said in an earlier post, I was beginning to wonder if what was considered acceptable volatility had moved to the downside. Apparently, it's not so. Like Ice Cube said, "Back to the mutha f'in basics."

I don't think the bleeding is finished... I could see another 2-3% trimmed from the US markets. Put that on the permanent record. In the meantime, enjoy this video, found on Crossing Wall Street with the help of Mr. Altucher. Confusion and exhilaration - what's not to love?

Canned Meat - CHFR Pumped & Dumped

I'm glad to see that someone made some money off of last week's spam-induced run-up in China Fruit (CHFR). Nexia Holdings, a diversified holdings company that also trades (NEXA) on the OTC market, dumped $200,000 worth of CHFR shares over this short week. In a shareholder letter dated today, CEO Richard Surber stated

Nexia's subsidiary Diversified Holdings, Inc. has realized about $200,000 over the last three days from the sale of a portion of its holdings in China Fruits Corporation. I sold a portion of the Company's portfolio securities to fund inventory production and development costs for spring inventory.

Things only get more interesting from here.

In this SEC filing, Chinese fruit company Tai Na became a wholly-owned subsidiary of Diversified Holdings.

Three months later, another SEC document shows that Diversified Holdings changed its name to China Fruit, and Tai Na became a wholly-owned subsidiary of China Fruit.

While the name changes are a bit obfuscating, it is clear there was a significant boost in both the volume and the share price of China Fruit due the spam campaign, which began on February 15. And "luckily" for Nexia CEO Surber, the increase in volume allowed him to dump the stock all the way down to its current pre-spam level. Good work, Surber, and congrats on catching the kind of liquidity that was oh-so-illusive - hell, non-existent - just two weeks ago.

An Overdue Update - Spam, VIX, and Vegas

The spam drought subsided as quickly as it came, and the portfolio now "boasts" five names. Things were actually looking surprisingly rosy over the holiday weekend, with CHFR showing some big gains on Friday (perhaps as a result of their incessant barrage of email?). But Tuesday proved to be another story as CHFR lost nearly 40% of its value on heavy selling. As Mr. Altucher put it in Wednesday's Blog Watch, things are "starting to get ugly."

The VIX remains unusually low, despite yesterday's and today's selloffs. This is driving some eager would-be short sellers absolutely crazy, and has others wondering if the market is redefining what measurement quantifies "low" volatility. And the subprime arena seems to have no bottom in sight after Novastar (NFI) dragged the entire sector even lower yesterday. I'm beginning to think the entry point on most of these names is Never. Or at least a long, long while from now.

The Canned Meat P/L Sheet will not be updated for Friday's close, as I will not have access to the Web after 11am. Vegas is beckoning (again), and who am I to argue with Vegas!

A Spam Drought

I suppose it follows that immediately after starting my spam portfolio, the usual monsoon of stock suggestive emails practically evaporates. Indeed, the flow of spam has been reduced to a trickle since implementing Canned Meat, and the majority of the emails are peddling pirated software and erectile dysfunction meds without a prescription. Hence, no new positions have been added.

In real market news, the VIX Index has tanked in the last two days. If today's rally holds through the day and the VIX stays below 10, it's time to short the SPX for some quick profits on a correction.

Canned Meat - The Fictional Spam Portfolio

Canned Meat (Spam) is my newly created portfolio at Stockpickr. It's a fictional portfolio made up stocks solicited via annoying spam email. Only two days old, and already listed in James Altucher's Daily Blog Watch at The Street. Two spots ahead of Mark Cuban, I might add :P

What's frightening about the Altucher mentioning is that his column is prefaced with this Editor's Note:

Every morning, James Altucher presents the most timely, topical posts from the Web's best business blogs.

Web's best business blogs? Well, I'll leave that up to my two (2) semi-faithful readers.

Canned Meat can be followed at my Stockpickr page, and in more detail by clicking "Canned Meat?" in the navigation at the top of this page.