start here

start here

The Daily IKN email digest, get all daily posts sent to you next day (& no ads)


On payday loans, Tinka Resources (TK.v) and Matt Badiali (from IKN459)

Part of the intro to yesterday's weekly. It's less about the abject stupidity of Badiali and more the case study of another way greenhorns are separated from their money. And I know most of the readers of this humble corner of cyberspace have the necessary market experience to understand this scenario without the need for an explainer, but I also know that people new to these shark-infested venture exchange waters read IKN as well. 

How would you like to learn, the easy way or the hard way?


Dumb money

On seeing the TV adverts, the full-page dead wood news ads, the sponsorship deals with football teams etc I’ve often wondered just who takes out a payday loan. And last month I found out that my best guess of 20-something low paid manual labour workers who just wanted a few banknotes to get them through the last party weekend of the month wasn’t even half the story. In totally separate instances two people I know (one an age-old sparring partner from the UK, the other a solid friend in Peru) have come to me, desperate about the situation in which they’ve put themselves. Both are male, married, blue collar and though perhaps not the most intellectual or academic of people they are witty, know how to make a living, honest, hard-working types. As a personal bonus they’re nice people and good to be around. But for totally separate reasons in different places, they’ve both fallen into the payday loan trap.

Now you’re probably like me and know what it means when somebody says “the interest rate is 20% per month” but my friends have learned the hard way. Although a minor detail for this script, for what it’s worth I’ve sat down with both and got to the bottom of their financial woes and along with the creditors (another of their mistakes was not to talk with the people they owe) worked ways out of their separate messes, so as long as they stick to the plans now in place. What matters here is the reflection: I was taken aback by their lack of financial wherewithal, but being naïve about the sharks waiting round the corner isn’t a criminal offence, either. My friends weren’t in their area of expertise (they can do things I have no chance of copying) and hard or easy way, they get a lesson and unless really stupid, won’t repeat. However, anyone who employs an expert (qualified, self-styled or whatever) to advise them in investment should expect far more financial nous than that showed by Matt Badiali in the episode surrounding Tinka Resources (TK.v) on Friday. I was dumbfounded and to highlight the abject stupidity on show:

1)     If you have a large subscriber base of “non-sophisticated investors” (1)

2)     Who buy into a company like TK.v

3)     And you have a strict policy of calling sell if a 20% trailing stop is triggered

4)     Do you think the sharks of Vancouver might find out? And when they do, maybe drag down stock prices of vulnerable issues to your trigger?

5)     At which point you execute on your “strict rule” and your non-sophisticated followers all do the same thing at the same time, sending (in the case of TK) around half a million shares of at-market sale orders into a bid that doesn’t have a chance of handling that type of sudden influx.

6)     And the Vancouverites who have spotted this dumbest of dumb money up for grabs suck up the shares, flip short positions into longs which then rise back on the inevitable relief rally rebound.

The result? Badiali claims a minor loss, thousands of retail sheep wonder where their money has gone, a handful of people on Howe St have the answer (but will never tell them). Applying discipline to investing is fine, announcing to the world that a whole bunch of dumb money is being directed by a strict rule that is easily taken advantage of by a voracious and notoriously dog-eat-dog market is a one-way ticket to permanent losses. Since I heard about this sell call and exactly why I’ve been dumbfounded by the financial naïveté on show, as either Badiali is running his list under a more nefarious double agenda or he’s a supposed experienced financial professional making the type of mistake a rookie would only make once at most (likely never). The stupidity on show here is on the same level as my payday loan friends, but considering its source is unforgivable. For the rest of us, it’s an invitation to free money.