Good read.Tuesday, July 24th, 2007
The Greatest Stock Market...
By James West
The TSX Venture Exchange is the greatest stock market on earth, in terms of appreciation and performance.
Since 2002, the TSX Venture has appreciated in value in excess of 218%, outperforming every other major stock exchange on earth by a factor ranging from two to ten.
Last year, the combined TSX Group, which includes the TSX Venture, TSX, and NEX exchanges, traded in excess of $1 trillion in transaction value.
TSX Venture listed companies were the beneficiaries of over CA$1 billion in the month of June, bringing the total amount raised for 2007 to almost $6 billion. That's a billion dollars every month.
One of the greatest realities about the TSX Venture Exchange is its incompatibility with the requirements of huge institutional brokerage firms, which regularly compete with their clientele to extract profit from the equities they recommend.
TSX Venture issuers typically have two things in common:
1. Low share issuance: Most of these companies are funded and organized as start-ups. They don't come out of the chute with two or three hundred million shares. This means that the big banks can't acquire a sufficiently large position to redistribute to their thousands of account holders, charging a commission on each transaction. In turn, this means that you, the individual investor, armed merely with an online discount brokerage account and a good advisory newsletter, can sidestep the marketing ballyhoo and misleading, grand, sweeping generalizations of the major brokerages, and trade for yourself. It's not only profitable (when done correctly), but it's a hell of a lot of fun.
2. Low share price: The massive public relations and "perception management" machine that is the mainstream media is controlled by its shareholders--the major investment banks and financial institutions. That's why there is so much negative publicity about "penny" stocks, and it is also why many major brokerage firms (Edward Jones, for example) prohibit their brokers from buying or selling any stock under $5 for their clients. They cite the "high risk" and "unsuitability" of these low-priced companies in their literature, and instead put their clients' money into blue chip corporations like Enron and Tyco.
The major brokerages work on commission structures. That means a percentage of each transaction. So if MEGAcorp wants to raise $200 million at $25 a share, and VENTUREcorp wants to raise $5 million at $0.50 a share, guess which company is a more suitable risk for the investment bank's clients?
It certainly won't be VENTUREcorp, whose total commission yield (assuming a 7% commission) is only $350,000. Why bother with VENTUREcorp when MEGAcorp's transaction will deliver (even assuming a reduced commission of 5%in view of the sheer size of the transaction) $10,000,000?
Plus, what about the commission when the shares are redistributed to client accounts?
There's far more to be made from the distribution of 8 million $25 dollar shares than there is from the distribution of 10 million shares at $0.50 a share.
So you can see why the major investment banks have a very strong incentive to find penny stocks "dangerous" and "high risk."
Let's face it--any investing is high risk.
As Mark Twain once said, the only sure-fire way to double your money is to take a $100 bill out of your pocket, fold it in half, and put it back.