You may have seen on Twitter and in the ‘News’ bit on my Homepage that I sold all my Plus 500 PLUS exposure earlier this morning at about 565p. I wanted to give just a swift explanation of why I made this move - because it was a bit quick and that is most unlike me !!
I have had a pretty nasty experience with PLUS so I am not really prepared to put up with any naughtiness. It has been very frustrating and I don’t need the grief - I am an old man and my heart is not up to it !!
It then started to come off the boil along with pretty much everything else in the Seasonal Spring sell-off (the Media will convince you these sell-offs are News driven - but it is rather strange how we seem to get bad news every Spring !!! Nothing to do with Seasonal Trends of course……what’s that? Did someone say “Santa Rally?”), and took a big fall in late June when Evil Knieval took a Short Position and announced on his Website that there were some ‘Issues’ with PLUS - although at this stage it was nothing specific and he was sort of ranting about strange sounding Israeli names !!
The problem for me is that Evil and his Shorting buddies (Tom Winnifrith to some extent and, more worryingly, Lucien Myers as he really is very good and forensic) have incredible power at moving the market downwards if they pick on a Stock as a Shorting Target - even if they are wrong about the company, the Stock can get battered - and holders lose money, which is not something I like much. But in all fairness - these guys tend to be correct.
At this stage, Evil did not seem to have much solid stuff to go on and the price gradually started to recover from a low point of about 350p - so I was down on Paper at this point. As the price recovered, it got back to my First Buy price at 475p and I Sold that first position so that my Risk was halved effectively. It was annoying but I was quite worried.
The key for me all along was the Huge Dividend. It was due to pay out around 6% and I figured that if that Divvy actually got paid out, then there couldn’t be much wrong with the Business’ Cash Flow and Profits and Accounting and stuff. So I decided that I would buy more and ‘Average Down’ (scary and not advised in most circumstances) if the Divvy got paid out. Lo and behold, the Divvy was paid in mid September and I bought more stock at around 410p in early October.
Things seemed to have calmed down then and I hoped that Evil had forgotten all about it. Then, just the other day, maybe a week ago, I can’t remember, Evil brought it up in his column again but did not provide much detail - although he did hint that his ‘team’ were on the case and digging. So now I was worried, but the Share Price seemed to keep edging up and I decided to sit tight for a bit. Anyway, the bombshell hit yesterday (Monday 22nd Dec 2014) when he devoted nearly the Whole Page to PLUS and had a right go at it. This really scared me and put me on alert.
I considered the situation last night after the markets had closed and pretty much decided that if the Shares were still holding up quite well, then I would sell out and bank a profit. If the Shares had tanked down at the open, then I might have decided not to sell - as I think the whole thing is rather marginal - PLUS might be ok, but, then again, Evil has a great record of being correct and I do not like being in opposition to him - there is no point, he is more experienced and has much better contacts than I do - it is a case of me realising my Limitations (there are many !!).
In all honesty, the decision was a lot easier for me because I am nicely in Profit. On the Exposure (I say this because I did it all as Spreadbets rather than Real Shares - which had an added and unplanned advantage concerning Israel Withholding Tax admin) I made 10% Profit roughly plus the Divvy which I guess was about 3%. In around 10 months that is an acceptable return, if unimpressive. However, if you factor in the element that I did it as a Leveraged Margin Trade, based on a small deposit (around 20% of the exposure) then I probably made over 50% on the Capital Employed - not so bad.
I found the whole business irritating and unnecessary back in late June when Evil had his first go and I just didn’t want to go through all that again and see a nice Profit eroded when I can avoid such an occurrence. I have my eyes on another Stock in particular and this frees up a Slot and some cash to buy it when the time is right for me. Mind you, I do have far too many stocks so maybe I should just stick with what I have !!
I also have a good exposure to the Spreadbet / CFD subsector via a big holding in igIndex IGG so no great need for PLUS when considered in a Portfolio ‘big picture’ context.
It is also worth noting that the All Time High of 700p is looming into view and I suspect this will limit upside for some time - so I would probably have to sell before this anyway - although that is obviously quite a long way up from the 565p I sold at - if it ever gets that high………
I have included the ShareScope graph below to give ‘colour’ to how it played out - this is my actual main working screen that I use with all my crazy lines and comments in Text Boxes - it means something to me anyway !! (I think).
I have also included some parts of Evil Knieval’s Text below - this is Copyright Sharecrazy.com.
Happy Xmas Eve Eve, wd
Snippets from Evil Knieval Text:
“22nd December 2014
The standard disclaimer applies:
I well remember some twelve odd years ago at the IEA, Giles Vardey, then chairman of Plus Markets (not even remotely connected to Plus500 Limited - q.v.), the junior stock exchange which is now part of ICAP, described his advice from senior management at Salomons on becoming CEO of the British end: "Think Yiddish and dress British. But what you are not to do is to think British and dress Yiddish." It's all a style of presentation.
So, naturally enough, one turns to the latest accounts of Plus500 Limited, an Israeli company and quoted on AIM on the LSE with the ticker PLUS. These are signed off by Kesselman and Kesselman, Certified Public Accountants (Isr.) and a member firm of PricewaterhouseCoopers International Limited. They are based in Haifa, Israel, as is Plus500 Limited, their client.
The first inclination is to assume that if Plus500 Limited is audited by an Israeli firm it might as well be audited by the directors. But I have dropped this line of attack since there is no evidence that Kesselman are crooks. Indeed, far from it: if there is any evidence it indicates that they are not crooks.
Thus I rely upon Plus500 Limited's accounts. The latest filed are those for December 2013 and I have accessed them on the company's website. I have not checked but I presume that these accounts will square with the Israel register of companies.
As regards the directors themselves, the first section of names in the December 2013 accounts are clearly British but the executives are clearly Israeli. I do not think that management are honest - as we shall see in due course. I can't check how they dress and, in any event, do not know what dressing Yiddishly entails.
The Directors' Report discloses that Plus500 Limited "has developed and operates an online trading platform.........(which) enables retail customers to trade CFD's in more than 50 countries." Please note that nowhere in this assembly of blather is there any reference to Plus500 Limited being a broker. This is not surprising since, at all times, the practices that it engages in are as principal against its customers. The fact that these are unprincipled practices as well will also be apparent.
The Report continues "In June 2010, the company's subsidiary, Plus 500UK Limited, received authorisation from the Financial Conduct Authority (FCA) which regulates its operations in the United Kingdom." This is taken to refer to Plus500UK Limited. In any event this particular point is irrelevant since in fact Plus500UK Limited is not the main source of profits of Plus500 Limited. This is in Cyprus as we shall see later.
The Report says that "Plus500UK Limited also operates in other EEA countries and Gibraltar through a regulatory passporting mechanism." I am not sure what a regulatory passporting mechanism is but, in any event, it does not matter since the main profits are not made by this company. One merely casually reads the Report and thinks that Plus500 Limited's customers are dealing with a UK-regulated company. This is a delusion. They can do. But the villainy that yields the profits is conducted quite elsewhere.
Also of interest are the Key Performance Indicators (KPIs) as disclosed in the December 2013 accounts:
"KPIs, which are set at Group level, have been devised to allow the Board and shareholders to monitor the Group as a whole, as well as the operating businesses within the Group. The Group has financial KPIs that it monitors on a regular basis at Board level and where relevant at divisional management meetings as follows:
• Number of Active Customers (Note 6): 85,795 (2012: 58,343)
• Number of New Customers (Note 7): 56,819 (2012: 37,050)
• Average Revenue per User (ARPU): $1,325 (2012: $962)
• Average User Acquisition Cost (AUAC): $632 (2012: $628)
Note 6: Active Customers means Customers who made at least one real money trade during the period.
Note 7 New Customers means Customers depositing for the first time ever during the period."
These figures are pretty breath-taking since, as can readily be seen, the marketing costs are around 50% of the revenue. Surely, a worthwhile service compels or attracts or commands a far lower percentage. Put another way, I think Plus500 Limited is a rip off machine. The question is: how long can it get away with it?
Interestingly, the UK-quoted IG Index spend less than 10% of revenue on marketing. If PLUS is a rip off machine rather than an outright fraud then the most important consideration is the size of the market. Assuming the regulators do nothing about PLUS's unsavoury business model (a relatively safe bet) then the company doesn't fail until the suckers have all been exhausted. There may be some way to go before that happens.
In the accounts there are references to the establishment of the UK and the Australian companies, both of which - there is heavy emphasis on this point - are regulated. But I doubt if much business goes through these companies since the bulk of the business goes through a website plus500.cy. It can be accessed through an automatic link from Plus500.com if the intending account opener is outside either the UK or the USA. I am unsure as to how the Australian end functions. Plus500CY Limited is notionally regulated by CySec which is the Cypriot equivalent of the FCA. CySec is useless.
As observed here last Friday a correspondent points out to me (I have mildly tidied up his text) that:
...new customers outside the UK clicking on plus500.com, a web domain owned by Plus500UK Ltd, will get directed to a site that links the customer now to an entity by the name of Plus500CY Ltd. (regulated by CySec). It has the same layout as the one run by Plus500UK Ltd. and the website is actually located and maintained by Plus500UK Ltd on the same servers in the UK. At this point the customers are ripped off for breakfast and should any of these unfortunates have the temerity to ask to withdraw their money (should they be so lucky as to find that they have any) they will then find that they get the great run around. They did not have to provide ID when paying in (some loophole in regulation) but they certainly do when wanting to come out. Clients cannot properly determine which entity of "Plus500" received the credit. Persuading Plus500 staff that the ID details in point are authentic is extremely difficult.
The notice to the account holder about the decision to freeze clients accounts, and to deny access, is communicated from the UK under the name of Plus500UK Ltd. Again the client believes he's dealing with an FCA regulated entity which is a wholly owned subsidiary of Plus500 Ltd., while legally he is under contract with Plus500CY Ltd, the Cypriot company.
Just try visiting Plus500.de to open an account and you will see that you are regulated by CySEc. You might reasonably have thought that you would covered by German regulators. Ditto when one tries Plus500.ch.
It should be noted that nowhere in Plus500 Limited's presentations is there any reference to spreadbetting since the latter is an entirely British idea and only available for tax purposes to UK citizens. Plus500 Limited offers contract for difference (this is a taxable trade where no tax is in point since hardly anybody is ever allowed to make any money on Plus500CY Limited's platform).
However - and this is of crucial importance - what I think happens is that the customer having opened a position is read as a closer (he very probably is through Plus500's computerised interpretation of his previous trading pattern or the fact that he cannot materially increase his position given the unavailability of margin cash) and priced against accordingly. Put another way, at no point does Plus500 Limited offer prices that are based on the true market rate. This is contrary to what the customers understandably expect. They imagine that they are challenged to judge which way a market is going when trading and will receive the benefit of their good judgement. Poor fools.
How long does this take to break open and to cause potential customers to steer clear? I do not know but anybody holding this stock runs the risk that at long last some regulators will get together and warn the public effectively. Forget Liberum's target price of £7. I think Liberum should resign now.”