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Here is an interesting situation that I found out about last night. Basically here's what seems to have happened.
There is a company called Brookstreet Securities Corporation, and they are a market maker. They had apparently let (if not encouraged) many of their clients to get involved in some extraordinarily risky investments. What's worse is that they let people buy them on margin, and still worse, they only had a 10% margin requirement. In other words you could have had $10,000 in your account but bought $100,000 worth of these risky investments.
Not surprisingly, the investment failed and margin calls started coming in. Basically if the price went down 25%, your $100,000 was now worth $75,000. In other words, you lost $25,000. But remember, you only had $10,000 in the account. So now you not only lost all of the money in your account, you owe them an additional $15,000. Your options now are to write them a check or sell other stocks in your account until you have the $15,000.
The company had so much invested that they are essentially going out of business and are forced to liquidate their assets. I was able to find a list of companies that this company made markets in, and found 3 that you could surmise that they held quite large inventories in. What you can see by looking at the following 3 charts is that someone sold massive amounts of shares just before the close. The price of each dropped somewhere around 60% in just minutes. My supposition is that it's too coincidental that this would happen to 3 of the companies that Brookstreet had positions in for any reason other than that these huge sell orders were Brookstreet liquidating their positions.
Take special note of the volume at the end of the day.
Okay, so with all that as background, your probably wondering why you should care. Well here's how this situation may have provided an opportunity to buy some stocks at a huge discount. Imagine you know a guy who has a $50,000 car and all of a sudden he owes someone a bunch of money and has to pay them within minutes. So you offer him $10,000 for the car. Since no one else is around to make a better offer, even though you both know someone would offer him more if they were around to do so, he accepts your offer.
Essentially this is what I think happened just before the market closed yesterday. The company took the best offer, even though it ended up being at an almost 60% discount. It's not that the stock is really worth 60% less than it was yesterday at 3PM, it's that the supply/demand got out of whack for a few minutes because there weren't enough people with buy orders in at the time.
Now, all that being said, if you think that nothing changed in the underlying value of the companies (the ones associated with the stock, not Brookstreet), then it's not unreasonable to think that once people see the price is unreasonably low, it could bounce back up to previous levels, or close to it. If so, that means an increase from this level of about 150%.
Here are some links with more info:
This link you can go to the monthly volume report section, type BKST into the search, click on the market participant radio button and issue/mp button and see all the stocks that they made a market for. http://www.otcbb.com/dynamic/tradeact.htm
Here are a couple of artciles about the situation:
Anyway, here's my plan for today. I will be watching the volume and trades on these when the market opens. If it looks like shares are still being "market dumped" then I will wait for volume to dry up. If little or no sell volume seems to exist, it may mean that Brookstone is done liquidating, and the price may start to head back towards "fair value".
Please let me know if you have any additional DD to ad, or if you thnk I've made a mistake somewhere.
Special thanks to stevenktallman on IHUB for some of the info.
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from QPCI http://biz.yahoo.com/bw/070627/20070627005401.html?.v=1 ...."It has been reported to us that the position of a large stockholder was liquidated on June 26 as a result of circumstances unique to that stockholder," said George Lintz, QPC's co-founder, vice chairman and CFO. "While we have not yet been able to fully verify that information, we are not aware of any fundamental change in the Company's financial position, operating performance or prospects which would result in such a significant increase in trading activity."
very good eye P. nice research, and great explanation of the margin risks.
-------------------- All post are my opinion. Do your own DD. Who's clicking your buy/sell button!?
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Okay, I bailed on QPCI at .72 for a nice 14%+ gain. Am holding ETLY until at least .63 based on where it was trading before this crazyness.
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Check out these two things. Not sure what to make of them:
1) Big dump occurred on the 21st/22nd, which is when they first found out they were in trouble I think. Possibly already liquidated that position first.
2) Look at a 6 month chart for it. Seems like it was trading at about .02 no Feb 26 and then $1.00 on the 27th.
Edit: nevermind point #2... just checked the R/S board and see they did a 1:40 that day. Weird that the chart tha I was looking at didn't split adjust.
quote:Originally posted by glassman: theres one on there that is very interesting, it's little tiny low OS that rarely trades...
they handled almost the whole OS this year: RHWA....
posted
Nice find PCola...BTW, Tool is probably the cleanest live band I have ever seen, Maynard almost sounds as good live as he does on the album...If you are into live shows, definately worth the price of admission...
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