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Timothy Sykes? Penny Stock guru or scam scamster? rip you off and take your money?

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  • Timothy Sykes? Penny Stock guru or scam scamster? rip you off and take your money?

    Those of you who are active in the stock market know about Timothy Sykes - his videos are all over YouTube and he runs multiple sites boasting about how he turned $12,000. into millions through trading penny stocks. Of course, like most stock "gurus" he has moved on from simply trading to teaching others how to do what he supposedly has done.

    First off, has Sykes actually made millions through trading stocks? While some of his trades are indisputable, and while certainly he has lost a lot and been wiped out, by his own admission, at least twice, he has rallied and has managed to make money through trading stocks - how much exactly, there are no verifiable results, we have only his own word. Sykes has a few different programs for his students: ranging from a relatively inexpensive $600. per year one, that gets you a newsletter and access to a general chat room, to a sort of "inner circle" very expensive one that gets you one-on-one access to the man himself, and an inner circle chatroom. This sort of multi tiered membership is very common among these programs.

    According to various online sources, Sykes also makes money through affiliate programs, by getting you to use the trading platforms that he himself uses, and occasionally gets paid hard dollars to promote certain penny stocks.

    In the end two questions emerge that anyone who encounters a "How to get rich like me" program should consider:

    1) Is this program promoter rich because of what he claims he did and is teaching you to do, or because he is collecting tons from disciples who are paying him to learn?
    In other words, did the author get rich off his program, or off the book?

    2) Is whatever you do in this program part of his over all scheme to make money - in other words, are you supporting his business through buying into whatever he is involved in, in this case - buying the stocks he is touting.

    Let's cut through all the claims on the internet - that Sykes creates his own websites that give him reviews and direct you to his sites, in other words that he manipulates the internet with fabricated reviews to make himself seem like not only a successful trader, but a great guy whose only motivation is to spread the wealth and teach others to get rich too, as his contribution to mankind. We can say, that inherently, such claims are irrelevant - because either Sykes's program works, or it doesn't, and it doesn't matter that he manipulates to get people to his door, although certainly one could say - why does he need to manipulate, if indeed these claims of manipulation are true, if he is so inherently successful and what he has to offer is so useful. (Won't the world beat a path to his door, if he offers truly a better mousetrap?)

    Instead, let's just look at what Sykes claims he will do for you: teach you to trade stocks like a winner, even guiding you into which stocks to buy and sell. Let's not forget though that what Sykes wants you to trade are PENNY stocks - those that, in olden times traded for a penny, but which today are defined pretty much as any stock that trades for under five dollars.

    Let's first understand that penny stocks are not what most sophisticated investors trade in. (Remember the line from The Wolf of Wall Street, that rich people are "too smart" to buy penny stocks) - These penny stocks represent start up companies that may just as easily drop to zero as go somewhere (for every YHOO that once traded at below a dollar (and which incidentally is today nowhere near its high flying prices of 1999) and went up many fold, there are ten thousand penny stocks that drop to nothing). Penny stocks are also not very liquid which means that at any given moment, not a lot of shares are available to trade, or especially, to short
    Shorting stocks - Free EBAY, PayPal, Business and Law Forums - Ebay Suspension, PayPal Limited
    so that if you are holding a large position you might get stuck unable to find anyone to buy your shares, even at the price the stock is currently trading at.

    Which brings us right away to question #2: is Sykes making money off the habits of his disciples? Well, in penny stocks, where the float (amount of shares available to trade) can be quite low, there is a very real danger that anyone who has followers will be able to pump and dump whatever he touts very quickly to his followers. In other words that whatever his followers do could affect the prices of these stocks so much that the leader could easily profit off the consequential movement in the stock.

    For example, let's say that Sykes entered a position in a stock, and then told all his followers that he had just done so. As his followers buy into the same stock, this will shoot the stock price up. Now, with a heavily traded stock such as say AAPL, a few dozen or even few hundred or thousand followers might make a small impression on the stock price. But with a penny stock, a large number of followers will make a massive difference in the price of the stock because those few thousand followers and the stock they buy might be the entire volume in the stock for at least that short period of time! In other words, at a given moment Sykes' blowing the whistle on a penny stock he is already in could drive the price enough for him to sell it back - to his own disciples, or to anyone else available to buy into the pump and dump routine.

    (This is not to say that Sykes is an intentional pump and dumper, but simply that there is no way that he could have followers without benefitting from the movement in the stock created by the actions of his followers.)

    Similarly, let's say Sykes goes short on a stock and makes the announcement that he is now short. (And let's face it, unless he is a complete idiot, he will attend to his own trading first - that is, enter a trade first, and THEN take the time to post his trade in his chatroom for his followers. Watching his public (free) youtube videos, this is exactly what he does - FIRST enter his trade, THEN post an alert on his website and make a comment in his chatroom) Well now, since Sykes takes up only large positions in a stock, therefore in most cases with the pennies he trades, he will have eaten up all the available shares to short, such that there are no more shares left to borrow for his students. So, when Sykes goes short, his students will be left out in the cold unable to follow his most lucrative trades - which according to posts on the internet, his trades are apparently mostly shorts - anyway.

    So the bottom line becomes, without even having to consider whether the man is legitimate or a scam, that whatever you do, as a student, since you will be following his trades, will benefit the great Mr. Sykes first, and you secondly, if at all. For me, this would be the end of the inquiry. I am not a sock puppet and I decide my own trades. I have had good luck with trading since the late 1990s when I started, and I am determined not to contaminate my luck with exposure to others. So why get involved in a scheme where, at best, I will be able to take a small piece of the action that I have created for my leader?

    And then in a way, the first question - of whether Sykes makes more money from trading or teaching - becomes irrelevant, because his program, his net of followers, will inherently support his trading and practically ensure that he will make money, anyway. In other words, it is quite possible that Sykes makes money trading stocks - but perhaps he makes the most, because of his web of followers that mirror his moves.

    So, is Sykes legitimate or a scam? In a way, it depends on your perspective. He may genuinely intend to help you by teaching you what he does. But in the same way that founders of multilevel companies benefit the most from the sales of their underlings, and very few entry level people rise to the top of the pyramid, similarly here - in the world of stock trading where the money made by one trader is usually the result of a loss incurred by another trader - Sykes cannot help but benefit from your presence in his web, and if you end up losing, he, or another of his disciples, will win, or benefit, from your loss.

    All this said, one or two of his youtube videos do teach very basic but useful stock trading principles: to never get overconfident and be aware that a loss might always be around the corner, and to rather, enter trades with conviction not confidence. Another principle of his, not at all earth shattering and common knowledge among good traders, is to be patient and wait for the best opportunities among a large set of watched stocks. All good ideas. The man knows what he is doing, but part of his brilliance is indisputably in creating this web of followers.

    My suggestion when encountering these "how to get rich" programs is to avoid any program where BOTH of the above questions are answered in the affirmative: avoid any program where it is clear that the guy is making more money off your buying his book or program than he could be making off whatever he is doing, and where whatever you will be doing will line his pockets with money by very virtue of your activity. I mean, every hedge fund operator, including Warren Buffet makes money off your investing money with him - but, does the operator make more money from fees, or from the over all increase in value of the portfolio, is the question. If from fees, then he is a shyster to be avoided, but if his portfolio is going up enough to justify his fees, then why complain.

    Finally, at a minimum, avoid the programs where the second question - of whether what you are doing is feeding the scheme - is at issue: you don't want to become a pawn in someone else's grand scheme for riches.
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  • #2
    I found this online, and repost it:

    While browsing the bargain bin at the local bookstore, I came across a familiar name – Timothy Sykes. Turns out he self published a book long on hype and tales of greatness but it comes up a little short in the end.

    I’m a busy guy, so I always look for the bottom line whether I’m trying to find a big stock market winner or even considering a book. Timmy the Tout closes his book with a single page called “The Numbers.” For a time, he had a small hedge fund and you can’t falsify results in that field, unless you’re Bernie Madoff and I have to admit, Tim isn’t as bad of a guy as Bernie.

    His audited results, that is SEC-compliant audited results rather than the unknown standard of audit he cites on his web page, are pretty revealing. Timothy reports a four-year average return of 6.04% from his hedge fund through 2006 …and he also reveals that the S&P 500 gained more than 15% a year over that same time!
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