Tim Bourquin: Just a quick note before we start this interview. I did this one over Skype and so a couple of times it cuts out. I have to ask him to repeat some things and you'll hear a cutout just for a second here and there. But I don't think it affects the overall message of interview, but just a quick FYI about that. Anyway on to the interview. Well hello everybody, welcome back to TraderInterviews.com. Thanks for joining me for another show this week. We're going to be speaking with Tim Sykes and he's got a very popular blog and website about shorting penny stocks. We're going to talk to him about how he finds good stocks to short. And we're going to also talk to him about his site Investimonials as well where you can review services and software and classes and everything in the trading and investing space. Now, we're doing this interview over Skype so if it cuts out occasionally that's why. But I think we've got a pretty good connection here. So Tim thanks very much for joining me on the phone.

Tim Sykes: Thanks for having me.

Tim Bourquin: All right. So we talked to Michael Goode awhile back about penny stocking. I know he was one of those guys that really railed on you at first about your strategies. But then once he tried them realized they worked and you converted him and you guys have actually put out a DVD together. Are more people kind of being open to shorting and trading penny stocks these days? Have you made progress there you think?

Tim Sykes: Yeah. You know it's tough. I mean when you try and convince someone that the better trade is to short a stock, that's at a dollar or two dollars a share, you know they look at you like you're crazy. When I started blogging two years ago, Investopedia, short selling penny stocks was illegal. So I had to change a lot of people's mind. And now a lot of brokers say, "No. You can't short stocks under $5. You can't short stocks under $3." But you know the numbers speak for themselves. I've done well. Michael Goode was my biggest hater. He's now made $130,000 in two years. And what it comes down to is that, you know even if stock, you've got $1, $2, or $3 and it's up from like let's say 5 or 10 cents a share, it's really worth every 10 cents a share. So you can really predict it going back down there since 99.9% of penny stocks fail. And you know no one on the internet wants to believe it because there are a lot of promoters, there are a lot of suckers and it's all about perception with this thing. So when I try to come in with you know exposing SEC filings and saying, "Well someone just paid $300,000 for this promotional mailer, why did they pay that for the mailer instead of giving it to the company?" It's tough to bring in reason, but over time gradually people are coming around.

Tim Bourquin: Now, I know one of the toughest things about this strategy is finding stocks to short. I want to talk to you about that. But what are your thoughts here on this new SEC rule though that says that once stocks are down 10% you can't short them anymore. Is that going to create any problems for you?

Tim Sykes: The SEC you know is incompetent. We all know this. They've been in a competence hibernation for years. It doesn't look like they're coming out anytime soon. This rule is irrelevant. I mean it's basically you can't short stocks if they drop more than 10% on the day, but you can short if there's an uptake. You just can't short on the down take. So you know I mean I short on down takes, I run uptakes, I just try and short whatever I can because it's more about finding shares to short at some place. But you know it's pretty easy to find an uptake. I'm not trying to short it until it collapses. You know I just shorted the stock AMY at 363 the other day. And you know I was down. It was at 380 the first day and then the next day it really started collapsing and it went to 220 in the next two days. So there are times to short and you just have to try and be early. That's what it's going to do. It's just going to force you to be a little early. And so though the SEC has succeeded in making short selling riskier so congratulations.

Tim Bourquin: Are you doing this trading like you would trade any other stock? I mean are you doing stop losses, profit targets, everything like that? Are you kind of handing it the same way?

Tim Sykes: Yeah. I try and aim for 50 cents a share to a dollar a share because I'm trading just under $5. I usually go for 10% to 30% gain. I have mental stop losses. You know if I'm getting squeezed or if I go the other way. Sometimes I buy breakouts too. So the breakouts, you know I'm buying at key inflection point and if the breakout fails then I have to get out. But you know it's a very short-term strategy. I've been doing for 11 years now. I've been just refining it. You know, it's not about memorizing chart patterns or aiming exactly for 50 cents a share. It's about adapting to the chart patterns and these incompetent SEC rules. And just trying to find reliable patterns and find good setups where the risk of reward is superior.

Tim Bourquin: That's interesting because I thought shorting penny stocks was all about just finding a crappy company that the stock price is too high. But you're actually saying that there is some technical analysis to this as well.

Tim Sykes: I mean it makes sense if you just find the worst fundamentally-flawed company and short them when they spike up through their promotional mailers or stuff like and then just hold forever. That would be nice in an ideal world. You know, and in that world there are candy canes and there are unicorns and there are little leprechauns that tickle your toes, but that's not the real world. What happens is most of the time you get margin calls or buy-ins if you try and short these stocks for an extended period of time because everybody wants to short them. They're true give-me's. So you have to be quick and usually -you know quick can be anywhere from one hour to one week to one month. But the key is you're just trying to maximize your profits. You don't think that you're going to get bought in. Because on AMY you know you could get for roughly 50 cents a share. I cover too early. I'm not that great about timer that's why I'm more of a teacher, people can learn from my mistakes. But I got bought in previously a few times and so did several others. So you have to watch out for buy-ins like that.

Tim Bourquin: Okay. Now what about these patterns though? Are you using moving averages and things like that as well to accompany, just finding the fundamental crappy companies?

Tim Sykes: No. You know I mean moving averages - all these stocks are usually up 300%, 500% maybe even 1000% when I'm looking to short them. It's just you know finding the biggest winners, finding shares to short. And then you know you have to look at it when it starts to get toppy, use volume fades. Usually in my DVDs I have this thing where I say, "Look, wait for sideways price action or the first down day." So if a stock is up like seven days in a row and then you have one down day of maybe it's down like 5 cents on the day. It's not a big drop but it's a momentum shift and that usually signals the end. Also with promotional mailers they're going out on hard copy, net form, they're going out on emails. So usually when people start to report that, "Hey, I just got this mailer in my email." You know usually that's the beginning of a promotion and a promotion rarely lasts more than a week. You know, I the bottom of these promotions they say, "We have been compensated $100,000 or something." It's all a question of how much does that $100,000, how many emails does that actually get them? Some promotions are bigger than others. You know that there has been some that have been millions of dollars and those last two or three weeks. But it's fairly certain that when the promotions starts - I mean it's already inevitable how the stock is going to end up. It's just a question of when it will get there and trying to find shares to short. I mean most of my ideal place, I can't even trade. So it's more about just you know finding the right ones that actually are borrowed.

Tim Bourquin: Uh-hum. How do you go about doing that? I know some brokers are better than others about having shares available in inventory. But on a garden variety ABC stock you want to short, how do you go find out if there are available shares to short?

Tim Sykes: Yeah. I mean there are multiple brokers, the number question I get - I just actually launched answers.timothysykes.com which is just a whole new app. You should check it out Timmy. I think you will like it.

Tim Bourquin: Okay.

Tim Sykes: A pretty site too, but it's a whole FAQ software and this is clearly the number one question. So I have Interactive Brokers. I have Think or Swim and Sogotrade. Those are my three main brokers. I'm an affiliate of Think or Swim. I love Think or Swim most. But Interactive Brokers, you know their customer service is horrific, but they have great shares to short. And Sogotrade is mixed. So you never know where the shares are going to be. All I do is try. I try every single morning. I wake up at 7 in the morning and I send emails and chat and call them and say, "Look here are five stocks I'd like to borrow." And usually like out of five stocks, I get one or two. Sometimes I get all five, sometimes I get none. But it costs you nothing to try, it's just time. And a lot of people don't like waking up early. A lot of people don't understand short selling, so they're like, "Why can't I just find stocks to buy and then hold?" like you know like wuff and puff it and I'm like, "Well that's not my strategy." You know it's a little work intensive, but it's just about getting up early and if you find shares to short, you don't even necessarily have to short them. It's just about putting yourself in a position to possibly trade it later if the stocks fade. You know there's a gray pattern called - it's not too inventive their name, I call it the afternoon fade where the stocks that have been up for three, four or maybe five days in a row. And then they turn from green on the day to red on the day in the afternoon and they just really fall apart once the mailers and the message boards stop hyping it up and the volume fades. You know these things can collapse 30% or 50% within a few hours or days.

Tim Bourquin: How do you find out about these promotional mailers that are sent in the mail, direct mail pieces? How do you learn that those have gone out?

Tim Sykes: Actually, I have a Tim Fundamentals DVD and Tim Fundamentals part II where I go over all the websites I use. But you know basically people post them on message boards. Sometimes I get them in the mail. If anybody wants to send me a spam send it to tim@timothysykes.com. And I collect so much spam and I organize it so I can see which stocks are being promoted the most. And then if the stock has risen a lot, then it's just a getting short. It's really not rocket science. You just have to understand that most promotions fail. So people are sending the emails of stocks that have risen like a penny to two pennies a share. And I'm like stop; give me stocks that are up 300%, 500%, 1000%. I really don't want to short stocks under a dollar a share, they're just so annoying. You know playing true penny stocks is not a life.

Tim Bourquin: So how do you know at what point to get out of these things? 'Cause you don't have the typical technical analysis tools of levels and support because there is either not enough volume or it's just so all over the place that the lines don't really give you any good information anymore. So how do you decide, okay it's gone down I think as far as it's going to go down, I'm out?

Tim Sykes: Yeah. Again, it's pretty much like a pendulum. You know you get a huge catalyst to push these stocks up. And sometimes I buy in on the way up too and a lot of hardcore sellers are saying, "No Sykes you can't buy these scams, you're helping the promoters." Like, "No. I'm a trader, I go both ways." You know if I think that a scam is going to last for several days then I do blog posts. I say, "Why I bought this probable scam." And people are like, "What?" But it really is like a pendulum. And what I found though -- advanced technical analysis, just Fibonacci, you know 58% retriggers. It seems to work on a dime much of the time. And it's kind of crazy that that rules applies here, but it does. You know again, I'm only in for 10% to 30% and you just have to watch level too. You know if there's a major support zone and if they are big bidders then I'm just going to cover my short and not risk it trying to cash through it. I'm usually early. I mean AMY, I shorted at 363. I covered at 322ish. So I'm shorting 40 cents a share and then the next day it went down to 220. I played it very conservatively because I had bought in, in the past and then it had multiple fakeouts in the past so I fake myself out. Even though I wrote a blog post, I'd say it's the single best short in the entire stock market. And within two days, it drops 2% and yet all I captured was basically 12%. That's pretty much my life. Like if I have a good call or a good strategy and everything is set up, I usually screw up the trade somehow.

Tim Bourquin: Are these stocks good to do this multiple times or is it a onetime pump and dump and you're in and out or like two months later they'll try to pump it again and you'll do the exact same thing. I mean can you do it over and over again?

Tim Sykes: Yeah. You know there I super spike and there's not super spiked. I mean there are so many different angles. A lot of people like buying this on the dip. Like say ANY, it's up from 220 to 180 so that's a nice little 30% jump. Once all the shorts are out and once all the sellers all the weak ones are out then you know there was support at twoish. So that's bouncing. You know it just varies and you just have to wait for the volatility and the volume. You know I suggest playing any of these pumps you know when they're just sitting around and there's no promotion going on and there's no volatility. I like volatility. I like it when it jumps three or four days in a row up or three or four days in a row down. Because then you know it usually flips. And it's kind of like your balancing ball, each balances a little lower until eventually we know that it's just pretty much going to end at zero or like under 10 cents a share.

Tim Bourquin: Now one of the things I asked Michael about that I'm still kind of fascinated with, is the fact that I would like that after awhile people start to get savvy to this idea that they're just getting pitched these crappy companies. And yet there always seems to be buyers out there to pump these things up and to eventually lose this money. I mean where are all these new buyers coming from and all these shares every day? I keep thinking the jib is going to be up at some point?

Tim Sykes: Well you think that. But you know you've heard the term there's a new sucker every minute and this is what's going on. In my blog you know I'm just a small blogger. I don't have the reach of say Jim Kramer. I can't talk about this in the mass media. It's kind of interesting that most of the major financial media outlets are accomplices in the stock promotion scheme. You know Motley Fool refuses to publish my articles about penny stocks, but you know most of their popular articles every single day they have a new one that says, what it is? The next million dollar penny stock. You know preying on people's greed. And what they do is - and insider.com does this, Seeking Alpha does this. You know pretty much every major online financial media company does this where they have banner ads where you know it says buy this stock. It's going up 1000%. They're just basic Google ads or whatever and sometimes you know Street Insider rents out their mailing list for $4000 a pop. And you see it in the disclaimer. That's the only SEC rule you just must disclaim it. And so you prey on those that are greedy. It's no different than trading. I mean what is it? 80%, 90%, 95% of traders lose money and yet you have all these firms saying that they're going to teach people to make money trading. And you know it's all BS, but cutting through BS, especially when the BS is more money and more influence is not easy and the cool thing is that this is good. I need these promotions to exist. I need to these suckers to exist. Because without them, then what? They actually analyze what a company is worth and then I'm no better than the average stock marketer. These are give-me's. This is the gift so we must appreciate it and bow down to the deceptor god.

Tim Bourquin: Now how are you finding the fundamental information too? I know you talk about this on your DVDs. But is there like a Hoover's type of thing that tells you know what the company owns? And how are you kind of determining like, okay they put out this press release that's obviously nonsense, time to short?

Tim Sykes: So yeah. I mean there is no Hoover's. There's no real solid information for penny stocks. Because again this whole industry is so corrupt. I mean Pink Sheets just changed their name from Pink Sheets to OTC Markets. They didn't want the stench of the Pink Sheets name anymore. But I do use pinksheets.com. I guess it's now OTCmarkets.com. I use it to look at SEC filings. Companies can say whatever they want in these press releases and even in this promotional mailers, but the SEC filings say the cold hard truth. And you know I had a seminar back in Vegas last year and I talked all about this company from NXTH, NXT Nutritionals. They have some amazing sweetener. And you know in their promotional mailers, I think one of the lines used was worse case scenario, this stock will double your investment. You know, so it has these huge gains predicted by these promotional mailers and then in fine print a small disclaimer. It said, you know, someone was paid $500,000 for this advertising. And then if you look at the SEC filings, sales were down 60%. The company was running hatch. So you just had to do some digging and it's all there in the legally required forms. But you just can't listen to press releases. You know I say that the word of a penny stocks CEO means less to me than the word of a bum robbing a liquor store. You know, that's what you have to think and that might be overly harsh. But if you think that way, if you assume that everyone is guilty before proven innocent, you'll actually probably be dead on most of the time.

Tim Bourquin: Now one of the things I've heard you talk about is the fact it's really probably not possible to do this strategy as your number one only job and income. Because you may run into the problem of not having enough shares to short or there may not be an opportunity for awhile or something like. Are you still feeling like that or is there a way to make this full time for yourself?

Tim Sykes: Yeah. I mean well Michael Goode has $130,000 in two years, but he does this pretty much full time. He actually moderates my chat room now too because he's learned so much in two years, but it's tough. I mean even me, trading-wise I mean obviously I do a lot of cheating and blogging, but trading-wise I'm only up like 150 grand or 200 grand over the past two years. Granted I'm trading with a small account to teach people. But the maximum you can probably make you know if you had a big account and you timed it all - I mean the maximum you can probably make is a million in a year, which is awesome for a lot of people. But compared to other trading niches, I mean the big money isn't there. So what I suggest is - you know most of my subscribers are part time. They just look at this opportunity - you know I have people who are soldiers in Afghanistan. There are cops. There are all sorts. There are doctors. There are lawyers. Every single person wants to make a few hundred or a few thousand dollars here and there. And what I'm saying, look like instead of buying a lotto ticket or instead of gambling at some stupid sports game - you know we have something that the odds are a little better if you learn the game. And you can make a little money here and there and that's the best way. You can't expect gains. Lots of people email me and they say, "How much can I make using your strategy?" And I'm saying "Well, I don't know what the market's going to be like. I don't know what the share availability." You know, I need promoters to be very good. Last year was a great year for us because we had a raging bull market and in raging bull markets there are lots of promotions. People are very gullible. In bear markets, there are not as many shares that you can short down to nothing. Because you know these companies' promoters basically hibernate like the SEC. So it depends and you really can't have any expectations. It's just an opportunistic strategy.

Tim Bourquin: And how about the account size? If I'm just starting out, I want to follow this and try and do a little bit of this strategy, what should I put into the account to get started?

Tim Sykes: You know anything. There's no required maximum or minimum. You know I started with 12000 and I turned it into 1.65M the first time around in four years. But I had the big bull mark of '99 and 2000 helping me. This time around, two years ago I went back to 12000 and now I'm up to 120. So you know if you want to be like me start with 12000. It's a fair number. It gets you the minimum at Sogotrade, Think or Swim, and Interactive Brokers. And you could just compare yourself to me if you want to do it that way. But I wouldn't recommend starting any account with over a million dollars 'cause the money will just sit there and it will be waste.

Tim Bourquin: One of the things you always promote is the fact that you're number one on Covestor. Your account is actually kind of almost monitored by them and so it's they're real trades that you're doing. What do you think it says that out of 40,000 traders you're trading penny stocks and you're number one? I mean is this the best strategy? Is this what everybody should be doing? I'm not trying to promote timothysykes.com, but I mean you can't argue with number one.

Tim Sykes: You know, it's not even just about me. It's more that I have over a dozen students in the top 30. It's a good strategy percentagewise. It's very tough to match, especially reliability wise. I'm not using any leverage. I'm not taking massive decisions. I'm not banking all on one stock. It's just small games here and there. It's very good you know for people with small accounts. But it's not good for people with big accounts. So yes I'm number one out of 30,000 on Covestor, but who are these people on Covester? You have like college kids. It's basically like, you know, a whole universe of amateurs. So it's really not that impressive. But again, you just have to fight your battles. And so if you get a small account and you're going to share bill there and you're trying to buy like Google or GE because you think they're quality companies and you might make like 7% over five years. I mean you have to understand that you can use your small accounts size to your advantage. And with this strategy, small is actually better.

Tim Bourquin: All right, we'll finish up with this. Of course, you're very vocal on your blog and in comments. You know you take a lot of heat for your calls. You take heat form the people that are associated with the companies you're calling pump and dumps. I read the other day you got a cease-and-desist letter from Shack's people 'cause he was representing a company. You know what does that play? Is being the lightning rod or kind of being the central figure in that industry, it's got to beat on you a little bit?

Tim Sykes: I mean I feel just compelled. I mean sometimes like I don't do this for the money anymore. My girlfriend will tell you, I'm just working until two or three in the morning fighting some 4000 word blog post. You know again somebody like Jim Van Meerten who promoted two you know pretty much alleged - I have to say alleged - pump and dumps now. That's what my lawyer tells me. You know, I feel compelled to write about stuff. There's a lot of interest about me selling DVDs or getting people to subscribe to my letters about helping these people realize what's actually going on. You know when NXT Nutritionals promotional mailer that Shack is going to keep pumping up sales and the SEC filings show those sales drop 60%, I have to question. What does that promotional mail mean? Did that mean that Shack will help pump up sales so that the sales will only drop 40% as opposed to dropping 60%? You know they're just very questionable tactics used in this industry and I want to just expose them all. I also just created investimonials.com where you can basically - it's like advisor at Yale for the finance industry. You can review newsletters, blogs, websites and I just want more transparency. I'm not saying I'm always right. You know I have an attitude problem. I work too much. I take it out on some people. But again I'm sharing my opinions openly and I'm brutally honest. If more people where like that, then we would have less thievery. We would have less people losing all their money on companies like Spongetech. You know it's about making the world better. This is my social good and it feels good to be this way.

Tim Bourquin: And yet though the irony is though if you succeed and there's less pump and dump, your strategy stops working. So how do you kind of correlate the two together?

Tim Sykes: Yes. This is the beautiful thing. I want to implode my strategy. When there is some promotional mailer and this stock develops from like 10 cents to like $3 a share, I can't help but check every 10 minutes for shares to short and I want to be a part of that stock's demise. If there are no more promotional mailers I can maybe finally get some sleep. I mean right now I'm feeling dizzy like I got to do my live show. I got live stock today. I want to get some sleep, but that's not happening right now. And the good news is that situation will never end - or good and bad news. You know I can talk all about it, I can educate people but there's always going to be somebody you know that I can't reach. You know I don't have the big advertising funds that stock promoters have. Really, stock promoters are the huge advertisers in the financial media space. So I can't compete with that and the truth you know it's just never going to overwhelm stuff and people are always greedy. You know sometimes it is good to buy a promotional mailer stock that goes from 10 cents to $3. There's a lot more upside than there is downside. I mean you can make 300 times your money or you're going to listen to some grouchy guy like me and say no this stock should drop 50% because of reality you know? Greedy people will always exist, manipulation will always exist and I can put a dent in it. But you know I'm not that powerful.

Tim Bourquin: All right. Well listeners of course you can go to timothysykes.com and check out his site, check out his blog. I suggest you do that. And then go to investimonials.com and check out his review site for everything in investing and trading. Tim thanks for your time today on the phone I really appreciate it.

Tim Sykes: No. Thanks again man. I love what you're doing. People should go to Investimonials.com and review Trader Interviews. We need to get more reviews for you. You have a great service here and I want people to you know recognize that.

Tim Bourquin: Thank you very much. We'll get some people to go over there and take care of that. So thanks again.