This Week’s Commentary – February 2, 2008 – Thoughts on The Dines Letter

Today I have decided not to talk about stocks. I’m going to talk about newsletters, since two of them arrived in my inbox on Friday.

First, I got The Dines Letter, the subject of much talk this week on the Buy High Sell Higher Forum. To summarize the numerous posts on the topic, the general consensus is that Mr. Dines is simply a “tout”, someone who buys a stock, then tells everyone to buy it, then as the price is rising he sells it.

His latest example was a new recommendation buried on page 5 this week (I have deleted the stock’s name so as not to be accused of being a tout):

“Stock X , in Supervised List #5, while up 257%, has been an underperformer for some time, which is why we have intermittently graded it “Hold,” to forestall additional buying. With sky-high silver prices a possibility, this one could nonetheless do very well, as even Cameco was able to rise due to nosebleed-high uranium prices. Nonetheless, we want some more action, and we have lost patience with it to the extent that we are hereby replacing it with Stock Y, which we own, but only buy on a dip below $1.50.”

Wow. Talk about a Freudian slip. We want some action, so buy this stock.

I am amazed that Mr. “The High State of Being Honest” doesn’t bother to tell anyone anything about the stock. Fortunately our Forum members took the 30 seconds necessary to do some due diligence: they punched the stock name into Google Finance and found that:

“Stock Y , formerly Stock Z, is a Canada-based company. It was involved in advanced technology to improve environmental air and water quality. During the year ended December 31, 2006, the Company had not commenced any business activities.”

Even more impressive is the list of directors: Sheldon Inwentash, Larry Goldberg, et al, the boys from PNP.TO – Pinetree Capital Corp. Want more? Here’s the press release Pinetree issued on January 31, one day before Mr. Dines’s letter:

“Pinetree Capital Ltd. (TSX:PNP), announces that on January 30, 2008, further to the conversion of certain subscription receipts, it acquired ownership of 750,000 common shares (“Common Shares”) of Stock Y and 375,000 common share purchase warrants (the “Warrants”). Each Warrant entitles the holder thereof to acquire one additional common share at a price of $1.50 until November 6, 2009. In the event that the Warrants are fully exercised, these holdings represent approximately 3.7% of the total issued and outstanding common shares of Stock Y as of January 30, 2008, calculated on a partially diluted basis assuming the exercise of the Warrants only. As a result of this transaction, Pinetree and its joint actors collectively held, as at January 30, 2008, an aggregate of 5,536,331 common shares of Stock Y and rights to acquire an additional 1,337,500 common shares of Stock Y upon the exercise of convertible securities (collectively, the “Convertible Securities”). Of these totals, Pinetree owns an aggregate of 3,940,536 common shares, including the Common Shares, and the Warrants, directly. In the event that the Convertible Securities are fully exercised, the holdings of Pinetree and its joint actors represents a total of 6,873,831 common shares of Stock Y, or approximately 22.2% of all issued and outstanding common shares as at January 30, 2008, calculated on a partially diluted basis assuming the exercise of the Convertible Securities only.”

In other words, Pinetree controls almost a quarter of the company, and we know that Mr. Dines owns some, so obviously this is a company that is controlled by Mr. Dines and Pinetree. It appears to have no business operations. No revenue. It is a shell company that they bought and are now touting.

Great.

Thank you P.T. Barnum.

The Super Bowl is this Sunday. Many of our younger readers will no doubt engage in various drinking games, like having to take a shot of some beverage every time the announcer says the word “punt” or “no, really, the Giants could win this thing.” I propose another drinking game:

As you read The Dines Letter, take a shot every time he uses what I call Dines Initials Confusing Krazy (“DICK”) which are initials Dines runs together to make him look smart, like DIRUBM, DIWPAT, DROLL, DIDIVE, etc. There were over a dozen in this issue, so you’d be on the floor by the end of it.

But isn’t that how magic works? I re-direct your eye with witty banter while I take the coin out of my sleeve.

Dines is the same. He doesn’t go and visit the company and report back on the management, or the resources in the ground, or the business plan. He simply waits for a call from his buddy Sheldon, and then he tells his sheep that he “wants some action”, so buy this stock. That’s it.

Yikes.

So what’s a guy to do?

Think.

That’s exactly what Forum members were doing this week. When Dines made a recommendation, they immediately did some research and realized buying Stock Y was a stupid idea. Stock Y will probably go up on Monday as the lemmings pile in, but a month from now it could well be much lower as the smart money departs. Protect yourself by using your brain.

Another option is to look to others for advice. Casey is one option. Doug Casey is a far right kind of guy, doesn’t like government, wants us all to hide gold in a safety deposit box for the coming end of the world. (He may be right, but that’s a story for another day).

He is also a tout. Every day his subscribers get an e-mailed advertisement from advertisers that in many cases are companies he recommends. The e-mails are clearly labeled as advertisements, but it does raise the question: did he recommend the stock because it’s a good stock, or because he doesn’t want to offend his advertisers? His website also contains advertisements paid for by the companies he recommends.

However, he also gives the appearance of at least doing some research. He doesn’t just recommend a company. He typically provides a multi-page write up on each new recommendation. He talks about their projects, management, financing, and the “push” he expects in the next few months. In most cases he or his staff has actually visited the company’s projects.

Now, doing a bunch of research does not mean you are not a tout. It may just mean that instead of making up sayings like DICK, you are making up a bunch of research to justify your opinion.

However, with a well reasoned argument in favour of buying a company, as a reader I can THINK and make up my own mind.

I don’t buy most of what Casey recommends. He currently has 45 stocks on his International Speculator publication list, and only 5 of them are marked as a sell, so that’s 40 stocks he thinks you should have in your portfolio. And that’s just one of his four publications. If you owned everything he recommends you would have over 70 stocks (some recommendations are duplicated across publications), which is more than the average investor wants to keep track of.

He does, however, actually issue SELL recommendations, which is a rarity for Mr. Dines. And, he does have a web site that is updated daily with new information, so you can go at anytime to see if anything has changed on a stock you own.

This is not an endorsement of Mr. Casey, and it is not a recommendation to purchase his service. Many of his stocks are down at the moment, so he is not omnipotent.

I reference him here only to draw a contrast between two different styles of newsletters. Dines and Casey may both be touts, but at least Casey tries to pretend he is actually doing some research.

Not that any of it has done me much good. I’m currently down 7.6% on the year, but I am 64% in cash at the moment, and I have no plans to start buying aggressively until there is some obvious evidence that some down trend lines have been broken.

That’s enough of my ramblings for today, thanks for reading, and please continue to post your thoughts on your most loved or hated newsletter writer on the Buy High Sell Higher Forum.