Sunday, January 25, 2015

Did your CEO hint they may be downsizing?

I am amazed and confused when I see companies doing cheap private placements that add not imminent value to share holders or the company itself other than paying a few bills. When a company gets into survival mode it may first start to cannibalize itself from the outside inward or from internal staffing levels first and then actual asset sales.

If I have shares in the company I would rather see that there are less executives on the payroll, rather than less hard assets on the books. In the end it may not matter if those hard assets are not contributing to the bottom line. When a company starts talking about 5 cent or even 1 cent private placements to raise $100,000 then I would think they want to pay some salaries before turning off the lights for the last time.

A couple of junior exploration companies have even gone so far as to work for no pay while the company works forward creating value in an uncertain market, rather than eating up all cash reserves when the share price is low. Lets face it, no one wants to go to the market asking for cash when the chart looks like the stock just jumped off a cliff or skied down a very slippery slope.

Make sure they are not just in survival mode barely keeping the lights on. Too many companies fail to see lean times ahead and spend far more than they can cover. Not to mention when they fall behind they tend to sign loan agreements with unmanageable rates that spell doom down the road.

No matter how much you love the story, you can't ignore the trend that's forming. Its easy to fall in love but hard to break up once the romance is over. Take emotion out of the trade and focus on making money. Don't get caught in the hype.

The magnitude of the current fear is evident on some investment chat boards where facts and logic can be unwanted terms in print. As their stocks sink they have their planned responses in place. "its not a reverse split its a reorganization to get stronger". A well known CEO once told me, "you know its about to run off the rails when you start believing your own bull-shit". The truth may be very simple.

This is a "show me" market and even some of my favorites have to live up to a certain standard or harsh choices have to be made. The markets are down in every sector but for some even a strong rebound may still leave them behind because their story just failed to launch. Break away from the herd and find true value. Who's making money in this ugly market? Who's raising cash at reasonable rates? Who's trading at less than cash value? If your company has gone quiet then maybe they are at Def-Con 4 and the last thing you hear will be the boom!!


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