Recently, I had the opportunity to sit down with Timothy Sykes, the founder of TimothySykes.com, Investimonials, and Profit.ly, among other things. He has perhaps one of the most unique trading strategies that I've seen, and has been able to teach his strategies to a myriad of others over the years. His passion for teaching traders the ins and outs of penny-stockings, particularly on the short side, has caught on fire as a result of so many following his lead. If you haven't had the chance, yet, I would definitely checkout his site, TimothySykes.com, consider buying some of his DVD's, and even subscribe to his Alert Service. As for bringing honesty and integrity into one of the most corrupt industries out there, he get's an A+. Sites like Investimonials (SharePlanner is the #6 Blog) and Profit.ly has broadened transparency and made these fraudulent financial marketeers think twice about being so blatent in their scamming of individual traders. 

So without further, adieu, here is my interview with Tim, while we were out in Las Vegas at the Trader's Expo. 

Ryan Mallory:  Here with Timothy Sykes, founder of TimothySykes.com, Investimonials, Profit.ly, and you are author of “An American Hedge Fund”. I think I got that all in, right?

Timothy Sykes: That’s it! So far.

Ryan Mallory:  And I’m sure you got more stuff on the horizon.

Timothy Sykes:  Working on another book and two other websites

Ryan Mallory: So, real quick, just for my readers if they don’t know much about your background, how did you get your start?

Timothy Sykes:  Basically, I turned $12,000 into $2,000,000 while I was in high school and college.

Some friends and family wanted to invest in my behalf so I started a hedge fund senior year of college, not the brightest idea. I was too young and cocky and just naïve. And I was the number one ranked short-bias fund but that’s just the biggest most shorts ever to lose money. I didn’t lose money but I made a measly 2% per year over four years. I was up 20% per year over three years but the last year I got came in the part where I was young and naïve because I invested in a penny stock. I didn’t know any better. I wanted to go for a big win and turned out to be a big loss. So my fund lost 35%. Overall, we finished up 2% per year, so, pretty bad for a hedge fund. Not disaster but then I was fortunate enough to be in a TV show Wall Street Warriors. I started getting 300 emails a day from people who’d seen the show. They said, “I wanna learn your strategy.” My hedge fund wasn’t doing anything so I started blogging and just taking it one step at a time and wrote a book, created a blog, created one DVD, created nine more DVDs, created a subscription newsletter, and now Investimonials and Profitly. So I just take it, you know, I evolve, I adapt just like traders.

Ryan Mallory:  And you have a unique type of trading so explain that a little bit in detail cause it’s definitely not your run-of-the-mill trading approach.

Timothy Sykes:  So I would not have chosen this strategy, I would not wish it on anybody because it’s full of little obstacles. It’s hard but, that said, it made me a millionaire at age 22 so I don’t hate it that much.

I basically look at the worst companies, they’re the ones that you get emails about that say “buy this stock ‘cause it’s gonna go up a 1,000%” and I short the living hell out of them when they rise because I consider—statistics prove me right that 99.9 % of these companies will go bankrupt or fail or their stock will get crushed. So the only time to really trade them is either A) you could buy them before they get promoted, which sometimes happens, or B) which happens every time, when they get spiked, afterwards you short into the run-up because you know they’re gonna fail some time or another.

Ryan Mallory:  Now you talked about, just briefly there, your stock that really hampered your hedge fund. Was that your biggest loser or your worst trade that you think you’ve ever made or…?

Timothy Sykes:  That was, yes. It was the best trade I’ve ever made, too, because I lost definitely half a million dollars of my client’s money so it was the worst dollar loss but it taught me the most lessons because before then I was batting a thousand. I never had a big loss, I didn’t know what was wrong and now I know exactly what’s wrong and I get emails about that. Similar type plays where someone’s sunk too much money because they believed in a person or a company and they’re in the same position that I am. And now I’m in a position to help them avoid making the same mistake I am so it’s made my teaching business—I lost $500k on the trade but I’ve probably  two or three million in teaching in the past two years so, overall, I’m up on the trade.

Ryan Mallory:  That’s right, That’s an interesting perspective.

Timothy Sykes:  And I do plan on paying back my hedge fund investors next year. I’m starting a charity and working on the details right now where it’s not just me paying back the investors. It’s me donating money to everybody who’s gotten scammed by a penny stock, starting with my investors.

Ryan Mallory:  Awesome. Wow. You don’t hear that too much by some of these hedge fund managers.

Timothy Sykes:  I don’t think anybody’s ever paid back their hedge fund losses but I’m in a position now, you know. The people trusted me, they gave me money as my friends and family. It was just two fund-to-funds so I’m gonna pay everybody back.

Ryan Mallory:  Yeah and you see a lot of people, especially early on and I don’t know why it’s so, but a lot of people who are starting off, they seem to get on these incredible winning streaks when they first start off trading and then it just all comes crashing to an end for them.

Timothy Sykes:  Yeah ‘cause you can get lucky, you can take the wrong lessons. I was in a very fortunate position to start buying back in ’99 and 2000. I had no idea about short-selling. Had I known about short-selling in ’99 or 2000, I’d be bankrupt. You’d be talking to a homeless guy and I’d be begging you for change right now. Luckily, I did not know about short-selling. I learned about short-selling ‘01 and ‘02 when there were no more breakouts to buy so I had to adapt. And most traders would tell you no matter what the strategy is you’ll have to adapt to different market conditions.

Ryan Mallory:  Definitely. Now, shorting such volatile stocks like you do, how do you manage risk?

Timothy Sykes:  Sometimes not really well since I’m winning 80 or 90 % of the time over 10 years, I mean, I get excited every time there’s a new pump-and-dump and I usually get too excited.

Take CPMCF, for example. It was pumped up from $0.05 to $0.25. So it’s up 500%. I did a Google Maps search for their headquarters. It’s this guy’s shabby looking house, working off his cell phone, just being promoted. But other shorts were getting squeezed earning all the way up to $0.82 cents. So on that one I let my short grow but I was fortunate enough to be able to find other shares to short at $0.57, $0.62, and $0.67 cents a share so I averaged that eventually making $6,000. I was down $23,000 at one time - Terrible risk reward!

I need to do better; I need to wait for the proper pattern. If you try and catch a pump too early, if you try to short too early, you risk getting squeezed, getting bought in. If you wait for technical support to crack on the way down, which always happens, you might not make as much because the stocks can drop really quickly. But you won’t risk so much. So it’s just a question of how disciplined you are. Every speech I give, I talk about discipline.

Ryan Mallory: Yeah, I think that’s the biggest part of trading especially in what you’re doing because shorting a penny stock that’s just gone up 200 % or 300 % and then timing that entry for it to come back down. It’s a lot different than saying, “I’m going to go long DirecTV” or something and be wrong on that. Its totally different from a risk perspective.

Timothy Sykes:  They have specific dollar values on these stocks. A five-cent stock can turn into a dollar or two dollars, even five dollars if the pump is enough even though a week later it might be at five cents.

Ryan Mallory:  And you hold or short some of these overnight, right?

Timothy Sykes:  I prefer shorting overnight. I hate intra-day trading. I don’t like forcing my trades. The best trades usually last three days. On the way down, CPMCF dropped from 82 cents a share down to 28 cents in two days. So a drop of like 65 % in two days—no news; it’s just the pump was over.

Ryan Mallory:  You ever lose sleep holding those stocks overnight?

Timothy Sykes:  No, I lose sleep when I’m forced to trade intra-day because I’m worried about mistiming it.

I see the pumps ahead of time. I see them as they’re getting pumped up. What I worry about is mistiming them because I get too emotional, I get too excited and those are my personal shortcomings as a trader. But that makes me a better teacher so I can warn against it. You know I try to use all my experiences to help my students.

Ryan Mallory:  And if you’re watching on something like a minute chart, you got to be careful because even the slightest blip can make you want to pull the trigger too soon.

Timothy Sykes:  I’ve seen enough of them where I’m not just shorting totally randomly. You have to balance not being able to find shares to short later. So I shorted 25 cents because interactive brokers running out of shares to short. So I made the decision          already. I was like “okay, maybe it’ll go up to 30 or 35 but in a few days it’ll be back down.” I was right about it being back down in a few days but I underestimated how high it would go. But I couldn’t have played it better. The only time interactive hoarders had shares to short again was at 40 cents a share. So I would’ve missed everything. It’s a tough strategy for emotional people.

Ryan Mallory:  Did you have a mentor or anybody that you would point to as fathering you along in the market or…?

Timothy Sykes:  No. I wish there were mentors. This is why I’m creating my newsletter and Profitly and Investimonials because back when I was starting in ’98, ’99, you didn’t who to trust. Even today you don’t know who to trust. We’re sitting at The Traders Expo with a room full of frauds.

Timothy Sykes:  You ask them how much money they have this year trading, they’ll say “Well, it’s not about the money. I’m following my strategy.” Shut up, fraud, answer the question. It’s disgusting but that’s the industry for now. Give me a few years.

Ryan Mallory:  What’s the #1 way you have made money on your blog?

Timothy Sykes:  On the blog? I don’t know about number one but I just try everything. The DVDs were requested by people who didn’t think my book was technical enough.

Ryan Mallory:  Maybe the better question is what is the #1 way that’s made your blog so successful?

Timothy Sykes:  I would say trading. I went back to my initial $12,000 stake and when I first started with the blog I said “you know what? I’m going to take $12,000 and turn it to $1.65 million. You can watch every single trade.”

Ryan Mallory:  It’s been pretty impressive so far, too.

Timothy Sykes:  So far that 12,000 is 160,000. Not quite 1.65 million but I’m doing it conservatively and have gotten a little off track with my different websites and endeavors but people could see that I’m growing my stake little bit by little bit and that’s my strategy, so, just being real. If any of these people were real they would do it, too. But they’re not so they resort to marketing. That’s why Investimonials has such huge potential because people are sick of the marketing.

Ryan Mallory:  Do you think you’ll ever go back to managing a hedge fund or are you done with that?

Timothy Sykes:  I love creating transparency. Right now, hedge funds are anti-transparency. You can only talk to a few rich dudes so no. Until hedge fund laws change, and say you can talk…maybe hedge funds aren’t as risky as we thought, mutual funds drop 50% in the year…maybe everything that we believed is messed up. Maybe if that happens. I don’t know if that’s gonna happen.

Ryan Mallory:  The hedge fund laws, in my opinion, are very anti-capitalist.

Timothy Sykes:  I mean they’re trying to protect—I understand that because hedge funds can use excessive leverage but mutual funds can do everything they want. What is one of the mutual funds’ slogans, “The Right Way To Invest” Is it the right way to invest when you lose 50%—I don’t think so. Everything in finance is flawed and it’s all going to come out over the next few years.

Ryan Mallory:  I saw a commercial by Prudential yesterday that said that when everybody else had fallen in 2008, they said they led the way. Now, I’d like to look for every one of their mutual funds and really see if they led the way in 2008.

Timothy Sykes:  Yeah, I see ads for Merrill Lynch again because they’re owned by Bank of America and it’s like ‘The Rock’, like someone you can trust. And I’m like “this is so corrupt.” Even all the people from Long-Term Capital Management at LTCM which almost brought down the entire economy are back running multi-billion dollar hedge funds. It’s just gross. That’s finance, for now.

Ryan Mallory:  So what’s a typical day like for you, because I know you’ve got a lot of things going on, but do you ever get burned out doing what you’re doing?

Timothy Sykes:  I am continually burned out doing what I’m doing but I love it so I deal with it. I get up around 5 or 6am, write my watch list and then I’ll write my blog post for 8am in the morning. Then I answer a few dozen overnight emails. Then I write my afternoon watch list. Then if there’s a trade, I trade that then I’m working on Investimonials and Profit.ly. It’s usually a 6am start-time and I end around 1 or 2am so I get like four or five hours sleep for the last six months. There’s reason why I gained 50 pounds! I ain’t healthy but…

Ryan Mallory:  Sitting in front of computers all day kills us traders.

Timothy Sykes:  Sitting and just getting stressed about trades and how much stuff I want to do. I can picture where I want Profit.ly and Investimonials, and finance, for that matter, to go, but it takes a lot of small steps to get there so I got to do it, I’m driven.

Ryan Mallory:  And mental capacity while you’re trading is so important. If you get out of the game mentally, you’re pretty much screwed, you need to step out, step away from it. What do you do, when you’ve had five or six losses, what do you do to keep yourself mentally in the game?

Timothy Sykes:  So I had that at the end of October, I was up 30,000 on the month. It was one of my best months in a while and I just started scalping and just forgetting all my rules. Taking too big positions, shorting before support cracked, lost almost all of my 30,000 in about two weeks, the last two weeks. In November, I made back roughly 16,000 and how I got back on the horse was taking smaller positions, trading much less, watching my DVDs, focusing on the rules that got me to where I was.

Ryan Mallory:  Nice! Watching your own DVDs, that’s great!

Timothy Sykes:   I need to. I’m very thankful that I think I should leave a review on PennyStocking because it has helped me so much just putting it down because you lose track, with too much going on, you lose track of the ultimate goal.

Ryan Mallory:  What’s the worst email you’ve ever received form one of your subscribers and your best email from subscribers?

Timothy Sykes:  The worst email? I don’t receive bad emails from subscribers. I receive bad emails from non-subscribers who don’t get it. They think short selling penny stocks is illegal, they think I’m shorting and distorting, making up lies, and I say “Point out the lie”—all sorts of stuff, that I’m going to hell, that I’m doing stuff illegal, I’m going to be in jail…and it’s kinda tough to knock me down. I had a lot more haters in the beginning when they actually believed what they were saying. But now, like, I’m transparent, I show all my trades, I show my strategies, I show my brokers. All I can do is be transparent.

The best email? A few people have emailed me when they’re just trying to keep their mortgage going and they’ve used the strategy to make a lot of money. These two Czechoslovakian brothers, they were actually long SpongeTech, one of the biggest pump-and-dumps in the past few years and they bought in at like a penny, and then it was at like 20 cents, and they thought it was going to two dollars like everybody they thought it was going Nasdaq. And they saw me starting to post why I was shorting it or why I thought it was a complete piece of crap, which it was. And so they sold out at $0.20 and all their friends held on and made a quarter of a million dollars, they didn’t have to work, they still don’t have to work.

Ryan Mallory:  That’s great. So you’re shorting these penny stock companies and, obviously, a lot of people pay attention to what you’re saying and if Timothy Sykes says “I’m shorting this penny stock,” I’ll bet you there’s a lot of longs that are probably gonna start getting out of that stock especially considering your track record. Do you get any companies that are suing you or trying to sue you?

Timothy Sykes:  You know, Shaquille O’Neal sent me a cease and desist letter because I called them out on being associated with a blatant pump – NXT Nutritionals. NXT Nutritionals said the stock dropped because of me, they say that it dropped from three to two because of me on Huffington Post he said that, then later went from $2 to $0.20. Never heard from Shaq again.

SpongeTech is supposedly suing me but they haven’t served me or indicted me for fraud and all sorts of nasty stuff. I mean they created a boiler out of thin air. Supposedly, they fabricated 99 % of sales.

So, I get threats but no one’s ever acted on it because, again, I’m just looking at publicly available research, I’m not trying to distort any facts and saying “Look, SpongeTech just diluted the heck out of their shares!” There’s over a billion shares now, up from like a hundred million. That’s dilution! So say whatever you want about me, you own SEC files show it.

MSEH put out their own SEC filing about me, saying that I was wrong and don’t listen to Timothy Sykes. And a few months later they announce an SEC investigation, their stock dropped.

This is the thing: when I say “short” and people say, “Sykes is shorting and all his followers and that I only gain because of all my followers shorting. There aren’t that many shares to short. I’m trading these stocks that trade two million, five million--CPMCF traded 50 million shares a day—and we’re talking like a quarter of a million shares total to short.

Ryan Mallory:  And most of them you have to probably contact your broker saying “hey, I need shares.”

Timothy Sykes:  You have to contact your broker and so it’s not a scalable strategy so that’s why I’m teaching. If it was scalable, I would just trade on my own and I would buy this frigging casino that we’re sitting in.

But it’s not so I teach people to make a few hundred or a few thousand dollars but we don’t influence the price. Some of my detractors say that. I wish there were enough shares to be able to do that. But there just aren’t. That’s the gift and the curse of this strategy.

Ryan Mallory:  I’m going to give you a couple of different topics or names or things going on in our stock market right now and just give me your first thoughts that come to your mind.

First one, Ben Bernanke.

Timothy Sykes:  Irrelevant.

Ryan Mallory:  Buy and hold.

Timothy Sykes:  Irrelevant.

Ryan Mallory:  QE2.

Timothy Sykes:  No idea.

Ryan Mallory:  Jim Cramer.

Timothy Sykes:  Clown.

Ryan Mallory:  Shaquille O’Neal.

Timothy Sykes:  Big clown.

Ryan Mallory:  U.S. economy.

Timothy Sykes:  Irrelevant.

Ryan Mallory:  2010 Stock Market.

Timothy Sykes:  Boring.

Ryan Mallory:  2011 Stock Market.

Timothy Sykes:  Probably boring.

Ryan Mallory:  Apple.

Timothy Sykes:  Good for hyping penny stocks that have deals with them.

Ryan Mallory:  And favorite brokerage.

Timothy Sykes:  ThinkorSwim. Best service, best tools, best overall shares to short on average.

Ryan Mallory:  Great! Well, I appreciate you taking the time to sit down and let me ask you a few questions. I know I’ve learned a lot, and I think my readers will too.

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