Sex and the Single
How I Made $10,000
In Junk Stocks
In Six Months
Terrence "Buck" Mellon
First, let's have full disclosure here. I have been trading stocks on and off for over half-a-
century. Every time I invest, no matter how speculative or conservative, word immediately goes down the line, "He's buying! You will know what to do!" So if I've gone long --- whether in Enron, IBM, North Arabian Gold, or Phelps-Dodge --- immediately, as they say so scenically in the trade, the stock "falls out of bed." If I go short, the company will find a new well in the Arctic, or the FDA will be in the midst of approving its new cancer drug, or it will suddenly find itself about to be bought up at twice its current stock price by GE.Thus I am a stock magician. In a matter of weeks I can turn a few thousand dollars into mere hundreds, and those into a net deficit in my once-robust brokerage account.Now all this is despite the fact that I study the market assiduously, and have been doing so since I was in my Buster Brown outfit. Because I had been a subscriber for so long, The Wall Street Journal sent me a young lady to do a subscriber survey --- to ask what I liked best and least about the newspaper. I told her it was the layout that got me: it was the most classically designed newspaper in the country at the time. I also told her I didn't like the comics. That shows you where my head was at.
I have read dozens of books specifically concerned with common stocks, bonds, preferreds, convertibles, convertible preferreds, warrants, puts, calls, futures, pasts, and all the other money-suckers that have been set out there to bedevil us poor investors.
After all these years, and all this reading, and all this experience --- I continue to lose my ass, despite the fact that I have committed to memory the two great mots of investing that were uttered a few years ago by the very sage and funny Adam Smith, to wit:
(The only editorial change I would make to this last is that the market tends to be "ruled by foolish cheer on the upside, naked terror on the downside.")
- A stock does not know that you own it; and
- The stock market is ruled by greed on the upside and fear on the downside.
Believe me: I've been there. Such as shorting a dotcom stock in 1999, a ridiculous company with no cash flow whatsoever, a bunch of juvenile delinquents for management, and a P/E of around 400. By all good logic and sense, it should have tanked. It did, a month or so after I bailed out. Stop smirking. This could happen to you.
What can I say? You are talking to a man who a few years ago bought Fedders at $3.00 a share, watched it sink to $2, got out --- and then saw it soar to $6. (Figure it out: if I had held on, would have doubled my money). Ditto with a company called "Red Hat" --- bought at $4, sold at $3, now hovers around $12.
It's all in the timing, they say, and I should tell you that I'm one of those people who can't carry a timepiece: watches go haywire, quit, run backwards when they are on my wrist.
Since these stock debacles, I have placed my money in truly safe securities --- my favorite being the Chinese Hujung Railway Sinking Fund Debentures of 1910 (which set me back $10 and was so lovely I framed it) and the "Trans-Cuban Railway 10% Bonds of 1958."
§ § §
I am well-versed in what they call the fundamentals (price/earnings, trailing earnings, relative P/E, median P/E, beta, cash flow per share, book value), as well as the technical side (triple tops, triple bottoms, breakouts, flying wedges, flags).
I am up, as well, on the exotic language of the derivatives market: strips, straps, straddles, butterfly spreads, waddles, flapjacks, gingerbread falls, angel flips, and wormholes. I just made up the last five, but would not be at all surprised to have them turn up in investing literature some day in the not-too-distant future.
With this background, I leafed my way through this little volume, a book obviously out of the Vanity school of publishing. For the sake of you, dear reader, I put up with mountains of flea-speck type, unreadable charts, printed (I suspect) on acid-filled paper, selling for a mere $49.95.
The author claims to have invented a new genre. He calls it "Junk Stocks." These stocks have all the characteristics of Junk Bonds, their bastard half-brothers.
Like the bonds, these stocks show a ridiculous rate of return, their prices bounce about like popcorn in a popper, they would be at the bottom of the Buy List of any sane stock-trader --- hell, they are scarier than a dozen contracts out of the CBOT in Frozen Pork Bellies, Sydney Greasy Wool, or any of those comical derivatives that have plagued us honest investors since we opened our first margin account.
The sole virtue is the exactness of his instructions. Go to the Yahoo Finance home page, he tells us, to the column called "Stock Research." Once there, launch the "Basic Screener" at
Check only one of all the choices, that under "Share Data" where you click on the Dividend Yield minimum 10%. Forget the rest. Scroll down to the bottom and hit the "Find Stocks" key. This will yield a list of between twenty and fifty stocks, mostly those of which are well off the radar screen of any honest broker.
I went through Mellon's instructions and turned up thirty-eight risible stocks, worthy of the rag-and-bone man, including
- CDX (Catellus Development Corp) paying 18.3%
- CWON.OB (Choice One Communications Inc) --- 21.8%
- DNP (Select Income Fund Inc) --- 22.8%
- OMS (Oppenheimer Multi Sector Income Trust) --- 25.4%, and
- HYP (High Yield Plus Fund Inc) --- 27.2%.
Mellon also tells us to sift through the NYSE and NASDAQ quotes in Barron's, culling symbols of all stocks that pay at or above the required 10%. For us, this produced a few real freaks: BVC [Bay View Capital] paying 40% per year; TMY [Target Trust VIII] (not related to our favorite toy, electronics and clothing store, we hope) at 65% per annum; and BVRTF.OB [B. V. R. Technologies, Ltd.] --- a reliable 26¢ stock with a cool 63% annual dividend.
All these symbols, Mellon tells us, should be organized alphabetically and fed --- fifteen or so at a time --- into the "Enter Symbol" box at the top of the Yahoo home page. When they do, ignore all sane things like "research," broker's advice, SEC filings, and company information. Instead, click on "Chart." This will show you how the stock has done over the past months, or one year, two years, five years, or "max" periods. The theory of charts --- the "technical" side of stock-market witchery is the most basic: you and I know little about a company. The market knows everything. This is reflected in the price. If the price is rising, it's probably a worthy investment opportunity.
Any of these 10%+ stocks that have what he calls "a sexy, good-feeling" about them --- we presume he means that the price has been feeling its bottom or falling into (or out of) bed --- will be a buy. He warns that one should always look at the "linear" chart (not the "log") chart, because the former cannot arouse in us "the appropriate passion for a buy."
When you actually trade, he concludes, you should use the likes of BrownCo with its $5 trading fee (up to 5000 shares) "so you can cheaply and quickly get in and out without feeling like a pimp."
Mellon ends with an appendix that suggest that it is not recommended, but if you must buy puts or calls --- options to buy or sell 100 shares of a certain stock, some with expiration dates of next month, some with dates out two or three years --- you should put in only a minimum bid of .05 ($50 for the option to buy or sell 100 shares). It is best, he tells us, that you do buy in at or near the day of expiration of the option. "Funny things happen to these prices on the last day" he reports --- "and sometimes you can make back ten times your money in twenty-four hours."
If this character is one of the real Mellons, we would suspect that he has divested himself of his patrimony in short order. Or perhaps he might merely serve to bring The Merchant of Venice into our souls, where
There is some ill a-brewing towards my rest,
For I did dream of money-bags to-night.--- C. A. Amantea