Friedland's stories of Marco Polo, Kublai Khan and Genghis Khan wending their way through the Silk Road have kept thousands of traders in a ballroom spellbound. I know; I've been there.

At the peak of Friedland's stock promotion in 4Q03, I wrote a chapter in a book draft I was writing at the time. Unable to peddle it, I turned to blogging, which is why I am here today.

Readers have asked me to discuss the subject of stock promoters and stock promotion, so I just pulled out my file (chapter G, sections 31-32). Here it is verbatim; followed by the denouement. Isn't it interesting that I had pegged Friedland right at the absolute top of his promotion. And when you read the denouement, I hope you see that whether it happens to be an oil company with connections to Iraq or a metals mining project in Mongolia, the share prices go up, and then they come down, together.

That, my students, is something you will learn about stock promotion, and there is no better at the promoter game than Robert Friedland.

But to appreciate this subject I will need to take you through the concept of "scam" versus a good "promotion" and then what represents a "good" promotion versus a "speculation", and then a "great promotion".

Finally you will see through the denouement that the concept of Relative Strength Index is all-important in determining when a great promotion is over and you want to exit, and go to cash.

I apologize for the length (of the following material, which I wrote in November 2003 when I had plenty of time), but then nobody ever said that learning is easy.

About scams

In the mid-1980's there was a high-flying stock on the Vancouver Stock Exchange that had zoomed from a couple cents to over $10 in a matter of weeks. A Dean Witter broker in New York City called me for my opinion on the company, which apparently sold auto insurance in California, so I did the research. It took me no more than 5 minutes to find a fraud.

As I encourage you to do with these small companies, I first read the auditor's opinion to the corporate financials. Amazingly, in this case, I saw that the auditor, a supposedly competent CPA firm, had referred to "Generally Accepted Accounting Principals".

Principles, yes. Principals? No.

So I called the authorities and the stock was suspended, later delisted. Just like the auditing firm, it was all a fake. Unfortunately, that stock was one of the top two high-flyers on the VSE that year, growing to a market cap exceeding $100 million. It pays to do the homework.

In another case, after I had moved to a new broker-dealer to become Executive VP, a former colleague brought around to my office a stock promoter who was a mutual acquaintance. The promoter immediately offered me, under the table, free bearer certificates he was carrying if I would put his stock on my firm's recommended list. (This happened a few times from different promoters.) I quickly handed back his stock but did promise to look into his claims of hitting a big oil well in Illinois.

After they left my office, I picked up the phone and called the State of Illinois securities commission and asked to speak to somebody who could confirm a filing on a particular oil well. Soon after, I was reading to the State regulator material from the promoter's literature that had been filed with the Exchange in Canada. In response, the regulator was saying that the story sounded doubtful because, apparently, Illinois only had 50-75 foot shallow wells and this report made claims of a deep-hole gusher, like in Texas.

When he pulled out the filing, the regulator then said that this particular well had been a dry hole. Nothing at all in the area. He also didn't know the name of the consulting geologist, so he presumed that too was a fraud.

I called the Exchange to have the stock halted, pending investigation.

You know, shortly after that, I met the same former broker associate and the promoter on the Street. They were upset with me. The broker even said that he had personally travelled to Illinois and saw the oil being pumped and trucked from the well. I said in response: "You saw a lot of dirty water." A couple years later I read that the Mexican police had arrested that promoter and his wife.

It always pays to do your homework.

I could go on because over the years I have spotted a considerable amount of fraud. Balance sheets that don't balance;whatever. You simply have to be alert if you are being targeted with a "special situation." I've discovered that crooks are not the smartest or most competent people on earth. But many are real smooth.

Even my own Dad said to me one day, after I had represented the Ontario Securities Commission and the RCMP as a witness in a trial court against a group of scoundrels: "But when they called me they seemed like such nice people."

Well, in the words of the chief cop for the Law Society of Upper Canada (Ontario), as spoken to me, "Crooks never stamp the truth of it on their forehead."

So, you have to get behind the superficial cover of a promotion in order to discover the facts.

A good promotion

The world is full of better mousetraps, encapsulated in drawings in patent offices but never seeing the light of day. If products and services have any hope of success, they have to be marketed. Marketing is necessary; marketing is good.

At least, good marketing leads to a good promotion.

The first question I ask is: "Who are these people?" I have to know because in life, as in the market, past is prologue. People who are winners, stay winners.

A good promotion is run by a previously successful promoter. There is a track record and I want to see it. I want to know precisely with whom I'm possibly going to be dealing with -- before I want to hear the "story". If I don't see a track record and, worse, I can't immediately see the details and contact co-ordinates of the promoter, then I'm history. I go no further!

Assuming that first step goes well, I look at the product or service from the perspective of down-to-earth benefits rather than "pie-in-the-sky" features. I don't look at the trees, but study the forest. If the big picture doesn't make sense to me immediately, there is no appeal for me to go further.

Here's where you have to have common sense and a lot of it if you lack the experience of studying many of these so-called special opportunities. When, like me, you've looked at maybe five or ten a day for over 20 years, you probably can spot the good ones from the not-so-good and the bad.

Otherwise, you have to take your time, speak to as many people as possible and sleep over night on your final decision.

All the above might seem trivial but it needs to be said.

A good promotion can be awfully convincing. A few years ago, two of my associates, shrewd people of immense wealth and who have been written about in glossy magazines, fell prey to a good promotion. It was an advance fee scam perpetrated in this case by the manager of a well-known Texas bank who conspired with the promoter to defraud more money than some people earn in a lifetime.

In that situation, the promotion was good enough to hide a scam but actually I've found that most scams are cheaply and poorly promoted. On the other hand, I've found that most good promotions are that way because it cost a lot of money to build them.

People who know that it costs money to make money will put it up if they believe they have a good product or service to sell. Therefore, if I see a good promotion, I'll look further at the "opportunity".

A good speculation

If you can actually calculate a risk-adjusted return, and know how to manage the risk if you decide to make a speculative investment, then you may be on to something special.

When you cross the spectrum of risk, from proven to probable to possible, you have to assign a different discount value. For example, if Consolidated Moose Pasture has staked some good-looking claims, anything's possible. The discount rate would be very high. If we're talking a proven gold mine, however, then I can discount my risk quite a bit less.

What the speculator should be on the look-out for is a situation in the "probable" category -- not yet proven but worthy of a risk based on discounted cash flow analysis using a reasonable discount factor. This is how mining exploration companies are financed; the principles should apply to any special situation.

In the late-1990's, it happened that billions of dollars were invested in dot-com speculations. Like 17th century Dutch "tulip bulb mania," the vast majority of these situations were terrible speculations.

After you have read about tulip bulb mania, I ask you if there is any substantive difference between tulips of the mid-17th century Holland and the dot-com companies of 1998-2000.

In conclusion, you know it's a bad speculation when the key figures (i.e., metrics) being relied upon have little or nothing to do with future cash flow. If cash flow is not part of a business plan, there is not a business model that makes sense. Full stop. End of discussion.

The principle of a good speculation is that you only put out money to make money. If you're guessing as to if and when that money is coming back to you, then you're gambling. Nothing wrong with gambling of course if it's just a form of entertainment.

Discounted cash flow;. Remember the term. It's all you need to know when considering a speculation in a special situation.

A great promotion

They say that hope springs eternal. I say that it takes a promoter to create that hope. Moreover, behind every great promotion is a great promoter. Now I'm going to tell you about the ultimate "dream merchant".

The following rather lengthy discussion is a personal account of a great promotion that is in play as I write.

I'd like you to look into Ivanhoe Energy (IVAN). I am not recommending it but it is an excellent case study in what I think makes up a great promotion.

Investors should review SEC filings whenever looking into a stock promotion. If you can't find a filing, then quickly pass on the "opportunity". You can always find the actual reports that have been filed with regulators at FreeEdgar but you have to register.

The 10-Q (March 2003 Quarter annual report) filing for Ivanhoe Energy (IVAN) shows the revenues are rising and the operating margins are good but the corporation has not yet reached break-even. Capitalization in the Spring of 2003 is about $100 million, mostly because streetwise investors know that Robert Friedland is the promoter.

If you don't know of Robert Friedland, you soon will.

Interestingly, in Ivanhoe Energy there are some 145 million shares outstanding but I wonder (since I haven't looked further into the facts) how many of these shares are dead shares, meaning that this company may in fact be a shell of an old mining deal.

A rule of thumb is that 20% of a company's penny stock goes missing or forgotten after each promotion. After 20 years, some of these companies have gone through 5 promotions, rising like the phoenix from a few pennies to a few dollars and back to pennies, whereupon about 20% of the shareholders get lost. Perhaps they died; perhaps they just misplaced their certificates.

After 20 years of bad promotions, there is a lot of paper that will never come out in trading, which is a situation a good promoter recognizes. The promoter knows he'll be in and out quickly and he counts on this stock remaining "dead".

A sale of 500,000 shares @ $1.08 of insider Wendy Shehane is disclosed, dated July 22, 2002, filed May 30, 2003. It would appear that the buyer is the promoter.

[At this point I had links to a series of filings that had been available at MarketWatch.com, but which have since been removed]

The most recent 3-year chart shows the bottoming pattern of the stock as the promoter starts to prepare the promotion.

The last few months have been quite a ride for speculative investors.

For a complete picture of Ivanhoe Energy, go to www.bigcharts.com and insert IVAN as the symbol.

There is no shortage of free stuff on the web about most stocks, especially if they have a profile written up by the services like Hoovers, MarketWatch, Value Line, Standard & Poor's, etc.

In the case of Ivanhoe Energy (IVAN on Nasdaq) you won't have any trouble downloading a virtual mountain of information.

Let's try to follow this stock promotion in action. I have a passing interest only, as I know the key player pretty well. It starts just before the summer of 2003 with a disappointing news release filed with the regulators:

The 8-K (Special events report) discloses on May 28, 2003, that the corporation's effort to negotiate a deal in Qatar has failed and that management is going to re-assess its entire program. What follows is my review:

With that announcement the stock falls on May 28 from $0.70 to $0.45-.50 on 6.25 million shares. A further 3.9 million shares are traded the following day. You know who bought those 10 million shares? Obviously the promoter. The announcement effectively cleans up stock from the Street as the few remaining shareholders who had any hope of the corporation's prospects in Qatar then capitulate.

Over the next 8 trading days, the stock stays in this range on daily volume mostly under 1 million shares until a lull before the storm on June 9 with volume at a low of 316,000 shares. Interestingly there are no further SEC-filed disclosures. Then on June 10, the price picks up from 47 to 55 on volume of 5 million shares. The stock is now in play.

The following day, Wednesday June 11, all hell breaks loose as the stock hits a high of 1.18 closing at 93 on volume of 47 million shares. That means one-third the total issued capital turns over in a day. If you take out the dead stock, the percentage might be half or more.

The promoter is now in total control. There are few news releases and phones are ringing in his offices from all over the world. His friends, the media, the market letter writers, a few institutional traders and a couple brokers are kept closely in the loop because they represent the distribution chain.

The stock settles down into a neat trading range around $1.00 for a couple weeks as the promoter ensures that the recent buyers all pay for their stock at their brokers' offices. He doesn't want any free riders or any weak hands, so this is a quiet period. His mother couldn't get any further tidbits of information from him at this point.

On Wednesday August 6, there is a volume spike to 4.7 million shares, with a further 4.6 million the following day and 2 million the day after that, from an average daily volume under 1 million. The stock price moves north a little but stays in this $1.00 range for another week, which is like an elastic band winding up. Again, the volume falls off to under 1 million shares on Friday August 15, which is by when the 11.3 million share flurry of August 6-8 would have had to have been paid.

Then, boom, on Monday August 18, the stock opens at 1.12 and trades 44 million shares up to 1.83, closing 1.70, followed by a further 40 million shares over the next two days at the same price range around 1.70.

Now the brokers' accounts are getting involved and the word has gone out around the world that Bob Friedland is back!

On Friday September 19, IVAN closes at its high of 1.95 on 2.9 million shares, completing a month of quiet period during which all the closest brokers, money managers, market letter writers and so forth have cranked up the hype machine. Still no SEC disclosure filings.

On Monday September 22, 18 million shares trade up to 2.37. The balance of the week sees another 45 million shares trading up to 3.00 closing at 2.67.

Then a period of two weeks lull while the market letter writers continue to stir the pot.

On Wednesday October 8, volume picks up from a recent 1.5 million share average to 12.5 million as the stock closes at 3.09. The last week of October sees the stock trade consistently 7 million share days at the 4.50 level.

Then on Monday November 3, the volume zooms to 21 million shares to 5.26, followed the next day by 38 million shares! to 6.66, and then by 58 million shares! to a high of 7.55 closing 6.95, which is where we sit today.

Without any doubt, Robert Friedland is the greatest stock promoter of our time.

Friedland is an American from Oregon who spent a year or so of their youth in India travelling with two friends, Steve Jobs (yes, the founder and CEO of Apple) and Dr. Larry Brilliant, where they learned the Urdu language and the ways of eastern cultures. Smart people all of them.

When Robert Friedland first visited Toronto, I was the first broker he actually met. In fact, he was looking for my firm's gold analyst and my close associate, who was out of town, so rather than let me go home at 5pm, he persuaded me to follow him down Bay Street -- Robert carrying his luggage on a leash -- to Telfer's, a fine restaurant, where we spent many hours engrossed in discussions ranging from gold to technology.

Friedland that evening also told me about Dr. Larry Brilliant's company in Ann Arbor MI where Larry was a professor at University of Michigan. Later I took Larry to our Dean Witter corporate finance guys in the New York twin towers, because the deal was too big for me in Toronto, and they decided to finance his fledgling company.

Meanwhile, the brokers in Toronto and Vancouver, in particular, financed Friedland's Galactic Gold. I then became a big trader in Galactic.

Galactic became a big deal in the market (because of Friedland's promotional abilities) but was an eco disaster in Colorado because the gold mine was built at well over 10,000 feet and the cynanide leach ran into the mountain streams and badly affected the natural environment below for many miles.

Friedland was soon the object of a lot of hatred from ecologists and mining stock speculators as well because Galactic filed for bankruptcy.

A few years later I was working in The Bahamas, registering in my name (for clients) thousands of mining claims in a new Labrador mining camp called Voiseys' Bay. The recorder's office in Newfoundland will show probably one-third of all that region's claims were filed in my name.

The promising Voiseys' Bay base metals mining camp was the then current object of interest of every good promoter in Canada but nothing much happened until (unknown to me at the time) my old friend Bob Friedland decided to get involved.

The literature of course shows that Bob was the discovery person but in fact he was a Johnny-come-later. Actually, the original discovery was by the Steep Rock subsidiary of Canadian Pacific. My Dad's close friend was CFO so I remember the story from my early teens. Steep Rock Mines had let control of the property lapse because base metal prices were soft for many years.

Then some of my Bahamas clients started staking in the mid 1990s and soon the area was in play again.

Bob Friedland came in and bought up a lot of the cheap stock, then did his remarkable dog-and-pony show across America and through Europe. Suddenly the price of his stock zoomed and Inco, a world mining major, bought the company at a huge price.

Bob Friedland walked away from Voiseys' Bay apparently with some $800 million about seven years ago and the property is still not close to going into production. Hundreds of millions more were made in the stock market. He is truly an amazing promoter.

As I write this book (September-November 2003), Bob Friedland's at it again with Ivanhoe. This time (at least until you see my following remarks) it's oil " or I gather some process to convert oil to some other form. I haven't had the time to really look into IVAN, other than the two hours I took to write this piece and grab the links from www.bigcharts.com.

But is the corporation really the story, or is it Robert Friedland?

Friedland knows that to promote a stock effectively you need two elements: (a) control of the tradable float, including a large block for the promoters to make it worth their while, and (b) an economic pitch based on a discounted cash flow analysis.

In the latter case, if the analysts get a little too carried away with faulty assumptions, that's their doing, not the promoter's, at least that's how Bob Friedland approaches his stock promotions.

In his case, because he's always being closely investigated by a plethora of analysts, investigative reporters and securities regulators, in many countries, simultaneously, there's not much wiggle room. For that reason alone I would give Friedland the benefit of the doubt.

The bottom line, however, is that Bob takes a good promotion and makes it a great one. The best consultants are used, massive capital is invested, thousands of people are employed, real wealth is created, and, moreover, Bob tells the story like its a movie script, so there's always great media.

Being involved in gold exploration in Mongolia and China for years, you ought to hear his stories of Marco Polo's travels on the Silk Road. I've watched him mesmerize thousands in a live audience, in city after city. I'd have to say he's today's version of Marco Polo for sure.

With Ivanhoe Energy, Friedland has moved a small cap stock from a market cap on July 18, 2003, of about $140 million to $1 billion, one-hundred and forty million, in early November. But where's the revenue?

Yes, Qatar may not have been interested (who knows?) in Friedland, but apparently Iraq is " or so Bob tells us.

I, on the other hand, think the stock price and volume really tells us.

The Ivanhoe story might now be over, but that's not nearly the end of the story. If you think the amazing Ivanhoe Energy is a once-in-a-lifetime situation, think again.

Have a look at Ivanhoe Mines (CA:IVN), which is also promoted by Robert Friedland.

I have copied the following one-year stock charts published by the Toronto Stock Exchange (in Cdn dollars). You'll see that while Friedland has taken Ivanhoe Energy to great heights, he has done an even bigger job with Ivanhoe Mines! The market cap over the same period exactly has gone from $840 million to $3.5 billion.

During the past few months then, it should be noted, Friedland has taken not one but two stocks, in entirely different industries, operating in very different countries (mostly Iraq and Mongolia), both losing substantial money, from an aggregate market value of US$0.98 billion as at July 18, 2003 to US$5.04 billion as at November 5.

I'm sure he's made another billion or so for himself in the process. Because that's what great promoters do.

Ivanhoe Energy

Ivanhoe Mines

As a side note: I got the above charts from the Toronto Stock Exchange website. The Toronto Exchange operates the world's worst website and I've told them so " a couple times now but they don't get the message. The people who run the Exchange should be embarrassed. I'm embarrassed for them!

Back to Robert Friedland; like any great promoter, he has a publicity mill churning out news release following news release, as seen from the current items from Ivanhoe Mines:

Many books, I suppose, will be written about the career of Robert Friedland. When I first met him twenty years ago I kind of knew in my mind that would happen. Like a quality stock, he has that charisma.

But, if you are going to trade Bob's stock, or the stock of any great promoter, you have to watch market prices and volume to know when to get out. You are not going to hear it from the promoter, or from a broker-dealer, or read it in a news release.

In my eyes, it's a price series that has more charisma than your best friend.

If you check the record, I nailed the Friedland promotion to the wall in November 2003. Robert's Ivanhoe Energy (TSX: IE and NDQ: IVAN) that week hit cycle (i.e., the promoted) high of C$9.30 and US$6.95. Subsequently, the stock collapsed to C$1.16 and US$0.95.

At the same time, Robert's Ivanhoe Mines (TSX: IVN) (which got NYSE-listed in Jan-2005) hit a high of about C$15 and dropped to about C$5 less than a year later.

This just goes to show that the stories of dream merchants do not always pan out.

But as my readers know, I consider myself a friend of Robert, and I support him in anything he does because he is also a prospector and builder. He has stuck with Ivanhoe Mines (IVAN/IVN) in their Mongolian project that ultimately will employ over 100,000 people there.

Traders, however, have to be pragmatic. We have to find excellent companies (Cara 100 types) or excellent promoters like Friedland. Then we buy low and we sell high. That is our job.

Never let a friend or a great promoter or a great company cloud your judgement on prices. You will lose every time.

IVANHOE ENERGY (TSX: IE)

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IVANHOE MINES (TSX: IVN)

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IVANHOE MINES (NDQ: IVAN)

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