For those of you that know of Tim, you know how shy and reserved he is – it’s hard to draw out his true feelings. (OK, that was sarcasm.) Whatever your opinion of Timothy Sykes – he tells it like he sees it whether that gets him in trouble or not.
Tim is also the author of the bestselling book, An American Hedge Fund: How I Made $2 Million as a Stock Operator & Created a Hedge Fund.
Read on for more about how Tim trades, the way he trades the pump and dump schemes in penny stocks, and why he thinks controversy seems to follow him around.
Tim is looking for your questions in the comments of this post – so ask him anything you want.
StockTickr: Tell us a little about yourself, Tim.
Tim: I’m a New Yorker who turned $12,415 in Bar Mitzvah gift money into $2 million by the time I graduated college in 2003. The first $1 million I earned by buying simple chart breakouts in penny stocks – due to manipulation – flipping them within hours or days for 5-30% returns per position. Once I learned how much manipulation there was, I made my 2nd million by short selling those same breakouts later in the pattern when the hype was wearing off, again taking 5-30% gains on the downside.
Then I made another million or so managing the top ranked short bias hedge fund (Barclays) 2003-2006 when my lack of discipline caught up with me and I ignored all my trading rules in order to try out a more scalable investment strategy, investing. I sucked at it and my fund lost 35% from 2006-2007.
Right as I was stuck with this confidence-crushing loss, the TV show Wall Street Warriors, in which I was featured, became a hit and I received tens of thousands of emails from people wanting to know more about stock trading and hedge funds. The more confused emails I got, the more I realized my gains and losses were a direct result of the combination of absurd industry regulations, the financial media circus and snake oil salesmen who unintentionally joined forces to limit the spread of honest and accurate information. I became determined to cut through the industry BS and defeat this financial axis of evil.
Since I was never more than a speck in the hedge fund industry, I couldn’t talk much on that, but I could teach my brand of short-biased penny stock trading. So, late 2007, I closed my hedge fund and founded a publishing company, BullShip Press, LLC, setting out to teach through my blog, book and instructional DVD – returning to my original $12k roots to repeat my feat to show exactly how to turn thousands into millions trading the world’s trashiest stocks!
StockTickr: How did you get started trading stocks?
Tim: After an injury kept me sidelined from my tennis obsession during senior year of high school, my parents gave me control of my Bar Mitzvah gift money, thinking I’d lose it all and that it’d be a good lesson for me. Tough love, right? Talk about your all-time backfires! If it had been any other year other than 1999, they probably would’ve been 100% right, but I was at the right place at the right time and I made $100,000+ that first year, $700,000+ the next. Ever since I’ve been hooked, spending 15+ hours per day just learning and preying on the latest hot penny stocks.
StockTickr: You had a recent trading disaster that forced you to make changes. Tell us more about that. Are you still stuck with that position?
Tim: Yes, the one time I actually believed in a company, it ruined my hedge fund (see detailed story in this blog post).
Lessons galore: stick to your core discipline, focus on liquid stocks, never trust any CEO or company, there’s always something sleazy going on penny stocks. Just a tough, tough lesson, but ultimately a necessary one as it’s made me infinitely wiser and more conservative.
StockTickr: What single lesson did you learn along the way that has helped you the most in your trading?
Tim: You must adapt to market changes. Over the years, I’ve used multiple strategies, to varying degrees of success, all in the pursuit of profit. Trust me, I didn’t want to give up my 99%-of-the-time-successful penny stock gap-up strategy that was responsible for nearly all my gains in 1999 and 2000, but it stopped working so I changed and became a short seller. Now I’ve seen too much crap to ever buy and hold these junkie companies for very long, but my short selling still varies depending on the market environment.
StockTickr: What’s your exit strategy for winning and losing trades?
Tim: Normally I like to scale in and out of positions, but since I’ve returned to my $12k roots – well now $19k – the absurd pattern day trading rule limits my trading to 4 trades per 5 day period (that’s right, I’ve checked myself into prison in order to bring attention to this anti-American SEC sponsored-tyranny) so I have to be very precise in my timing, which is very tough for a poor timer like me (I’ve always been bad at timing). My goal is to take 10-20% gains within 1-2 days and cut my losses at 2-4%. But on ideal pump and dumps – which sadly only come about a few times per year – I let my losses ride a bit more because I know there’s a 90%+ chance of a big-time reversal (See LGDI, CNEX and VRML in the past week)
StockTickr: You’ve said your small cap strategy is not “scalable” – have you tried modifications or different strategies to make it more scalable?
Tim: Other than joining the stock promoters themselves, I think I’ve tried just about every angle there is in this trashy niche. The problem is these companies are just too tiny and other than 1999-2000 (when boiler rooms were having a field day), there just isn’t enough liquidity, especially from the short side. I know many PIPE hedge funds try pumping up these junkie companies, but they need to go to telemarketing class because they’re just not very good at it – they’ve only got the dumping part down.
And yes, I’ve tried a host of other, more mainstream trading strategies, but my experience in this backwards niche and refusal to use leverage works against me. I’m afraid I’ve been sentenced to an eternity of hard time down here in the gutter – that’s why I might as well help all the other inmates who haven’t discovered ways to beat the system like I have, Shawshank Redemption-style!
StockTickr: On a fundamental/technical continuum where 0 is completely fundamental and 10 is completely technical and 5 is half and half, where do you think you fall?
Tim: I’d say a 7 – even though these junkie companies usually have little to no revenue or profits, I still do the painstaking research reading their SEC/Pink Sheet filings, corporate management background checks and more importantly, their “IR firm” (stock promoters) background checks.
Take for example, Converted Organics (COIN), a recent junkie company (lots of deals announce, but 0 revenues and apparently too busy to ever release an earnings PR – ever). I’ve successfully shorted their stock a couple of times after it ran from $2 to $16, not coincidentally the month after they hired an “IR firm” that was previously attached to similarly sketchy Host America (CAFÉ) which went from $3 to $16 in a few days based on an alleged deal with Walmart for a trial run of their energy saving light bulbs. (After being halted by the SEC, Host America was forced to admit they had no contract, it was only a verbal agreement! Due to all the bad press, they had to change their name to Enerlume Energy (ENLU) and the stock now trades under $1.) That’s the kind of hype and manipulation I deal with on a regular basis – I call it “fundamentally lacking research.”
StockTickr: I think it’s fair to say that controversy seems to follow you around a bit – why do you think that is?
Tim: A few reasons – there’s a lot of inaccurate information about me (that I only got lucky during the bubble – they forget about my 2nd and 3rd million dollars earned, mostly because I could never talk about them while running my hedge fund=absurd industry regulation #38472732), my 35% loss was due to my publicity hounding (Traitor Monthly’s editor-in-chief Randall Lane’s assumed that was the cause, ignoring the copy of my book I sent him and proving himself to be an incompetent journalist), I’ve lost everything (probably rumors spread by stock promoters not wanting me to educate the suckers aka their prey) etc., I don’t believe in leverage, I have a big mouth, I trade penny stocks, I friggin’ short sell them!, and most importantly, I call these soulless financial bastards out on their BS and scumbagginess – not just penny stock-types but I’m talking about brokers, “gurus” and wannabe financial journalists –
- calling out a “guru” for pumping
- calling out the TheStreet.com for pumping
- calling out a CNBC reporter who majored in theater for pumping
- calling out a pump and dump company
StockTickr: Other than your own, what 3 books do you recommend traders read?
- Reminiscences of a Stock Operator (Wiley Investment Classics)
- How To Make Money In Stocks: A Winning System in Good Times or Bad, 3rd Edition
- Secrets of Professional Turf Betting
StockTickr: Other than your own, what are your 3 favorite blogs?
StockTickr: What technical indicators could you not live without?
Tim: Price and Volume (I keep it simple because down here in the gutter, most people are morons so advanced technical analysis doesn’t work)
StockTickr: How do you think the market has changed over the last several years? How have you adapted?
Tim: I have to quote JL on this one “Wall Street never changes, the pockets change, the stocks change, but Wall Street never changes, because human nature never changes.” It’s definitely the truest statement I’ve ever heard because no matter massive technological change, new trends and companies being hyped, new scumbag tactics, new advertising tactics to make suckers believe they have to stay up-to-date on breaking news to have a chance at beating the market, etc. it’s all just the same old BS.
Of course you have to adapt to changing market environments and new market players, but that’s a set number of variables. It’s more about education as you gradually fill in the missing pieces of the grand puzzle that are those variables.
StockTickr: Do you backtest and if not, how do you instill belief in your system?
Tim: I’ve never used software to backtest, but I have a photographic memory and that’s why I like to watch every single trade when I’m in a position—all that data gets stored so I can refer to it when I see similar patterns forming. It’s amazing how similar all the pump and dumps are—sure, the timing, price and volume always vary, but, by and large, the variables remain the same because tiny companies and/or their shareholders will always look to hype their stocks up in order to raise capital/sell out at higher prices. It’s a very simple pendulum-like pattern, but I’ve always found that simplicity works best and that’s when I’m the most confident.
StockTickr: What advice can you offer traders who are just starting out?
Tim: For them to realize that 90% of traders lose money, cut your losses quickly, much of what works is counterintuitive, there’s always going to be someone smarter and better informed than you, find what works for you and stick to it, don’t trust anybody or any company – especially brokers, gurus and analysts, you can’t expect consistent trading profits as if it were a salary, 99% of the every day information peddled to the unsuspecting public is random noise and junk that astute traders must learn to ignore, you can never read enough about the experiences of others, don’t be so quick to get angry at your losses – they’re actually good for you, don’t ever put all your eggs in one basket—no matter how much research you do, anything can happen – well, that’s it for now, can’t overload newbies or else they’ll be scared off!
StockTickr: What do you like best about trading?
Tim: The independence of it all, how there’s no set structure as it’s more of an art than a science and that despite all our society’s changes over the past century, trading has, and always will, remain basically the same. Eventually we’ll all be replaced by computers and algorithms, it’s the end of an era for us cowboys.
StockTickr: When did you start your blog and what prompted you to do so?
Tim: I spent 6 months writing my book and creating my instructional DVD, but my credibility was pretty much shot by that one non-core investment loss and Traitor Monthly’s going public with their assumptions about me. I could talk all day long on all the major media outlets about how great my core trading strategy and decade-long track record is – and I did – but unless people can see it working week in and week out, I wasn’t going to be taken very seriously – I mean short selling penny stocks sounds crazy, Investopedia even says it’s impossible!
So, I started blogging regularly in October 2007 – the same month I closed my hedge fund – but I didn’t come up with the idea to repeat my feat – giving my writing structure – until November. Now, I’m even more addicted to blogging/teaching than I am trading! After all, it’ll be great when I repeat my feat, but ideally, many of my readers will have accomplished it before me – that’s my ultimate goal. I’ve realized my destiny is to become a great teacher as it’s much more fulfilling than becoming a great trader or investor.
StockTickr: Thanks for your time, Tim.
Tim: Thanks, Dave.
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