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More on Penny Stocks

The main idea is this: if any unpaid third party recommends a stock to you, avoid it.  I am not talking about the media here, but those who are paid to advertise stocks.

My example tonight is Circle Star Energy [CRCL.OB].  This is another company with negative earnings, negative book value, and no revenue.  It has never earned anything.  They started out with nothing; how did they get a market cap of $60-70 million by doing nothing operationally?

I received a flyer in the mail today touting Circle Star.  It featured the research of this entity, which I find weak.

The company originated as a development stage tech company in 2007, Digital Valleys Corp, which never earned a dime.  As drilling for natural gas became hot, it changed its name to Circle Star Energy.

So the company issued equity and assumed debt in exchange for various nonproducing oil & gas interests in Kansas.

After that the company issued convertible debt and equity.  In the process, they acquired more land with rights to drill, but still did not achieve their first dollar of revenue,

They filed with the SEC as if they were a producing energy company, but there were no revenues.  After that they changed their auditor.

The scam here is paying for energy interests in inflated stock.  The sellers dispose of the stock as they can for a profit, maybe they are the ones paying for the worthless research.  I don’t know who is benefiting from the worthless research, because the disclaimers indicate that no one affiliated with the purveyors of the research have an interest in Circle Star.

I don’t care what the assets are, if the company has no revenues.  My experience is that most M&A decisions work against the more motivated of the parties, and that seems of be Circle Star in this case.

This company is an eventual zero, admitting that one of the properties could be a freak that the major oil companies missed, which is not likely.

So again, don’t buy penny stocks.  You will lose.  These are unproductive companies, with management teams that can advertise and deal, bu not produce.


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One Response to More on Penny Stocks

  1. [...] David Merkel with yest another cautionary tale on penny stock trading.  (AlephBlog) [...]


David Merkel is an investment professional, and like every investment professional, he makes mistakes. David encourages you to do your own independent "due diligence" on any idea that he talks about, because he could be wrong. Nothing written here, at RealMoney, Wall Street All-Stars, or anywhere else David may write is an invitation to buy or sell any particular security; at most, David is handing out educated guesses as to what the markets may do. David is fond of saying, "The markets always find a new way to make a fool out of you," and so he encourages caution in investing. Risk control wins the game in the long run, not bold moves. Even the best strategies of the past fail, sometimes spectacularly, when you least expect it. David is not immune to that, so please understand that any past success of his will be probably be followed by failures.

Also, though David runs Aleph Investments, LLC, this blog is not a part of that business. This blog exists to educate investors, and give something back. It is not intended as advertisement for Aleph Investments; David is not soliciting business through it. When David, or a client of David's has an interest in a security mentioned, full disclosure will be given, as has been past practice for all that David does on the web. Disclosure is the breakfast of champions.

Additionally, David may occasionally write about accounting, actuarial, insurance, and tax topics, but nothing written here, at RealMoney, or anywhere else is meant to be formal "advice" in those areas. Consult a reputable professional in those areas to get personal, tailored advice that meets the specialized needs that David can have no knowledge of.

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