Obituaries: CYGT aka The Stock That Killed My Hedge Fund
Today, Cygnus (CYGT), a long-time Ticketmaster-wanna-be, lost their long-time battle against bankruptcy. They had been struggling ever since their first brush back in early 2006, barely clinging to life as if their leader was Terri Schiavo, but today, they finally succumbed to Chapter 11, the most common ailment among penny stocks.
The company, founded in 2001, is best known for their role in bringing down my hedge fund, Cilantro Fund Partners, LP—accounting for a roughly 35% loss—and causing me endless grief from the joke that is “the financial community”.
As detailed in my book An American Hedge Fund, in mid-2004, after nearly six years of uninterrupted six-figure annual profits, my ego and real world inexperience—aided by a top notch presentation delivered by the then CFO, a family friend—led me to invest 10% of my fund in this privately-held company.
At first, everything was rosy—the company went public in early 2005, doubling my investment—although the shares were restricted—and began high profile relationships with blue-chip companies such as AOL, Hershey, AAA, Harrah’s, Expedia and Universal.
But just one year later, reeling from bad breakups with Universal and Expedia, CYGT needed a cash transfusion to stay alive. After a rigorous search, my fund was one of the only donors whose capital type matched theirs, type FFF.
Although I was somewhat against it, I just couldn’t let the poor thing die, especially since the doctors were optimistic they were capable of making a full recovery. So, along with a few other brave souls, my fund donated capital—another small piece—in order to save CYGT’s life and more importantly; to give me more time to get my fund’s things, move out and make a new life for us.
The procedure was a success, CYGT was healthy again and within a few months, they entered into a long-term relationship with then healthy Six Flags (SIX). And over the next year or so, I was able to move out gradually, even though my moving out had a truly detrimental effect on the stock and there was little chance for me to say farewell entirely. Thanks in no small part to this love-hate relationship, my hedge fund closed in late 2007.
By early 2008, an ailing SIX had infected CYGT with their debt virus and CYGT needed another capital transfusion. Unfortunately, by this time, my hedge fund was dead and buried and there was nobody with capital type FFF willing to donate anymore capital.
The company is survived by a dozen hapless employees and hundreds of bitter shareholders. According to the wishes of CYGT, no press release was issued, there’s only a filing that can be read HERE. Friends and family of the deceased are encouraged to say their peace below.
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1timsykes
March 28th, 2008 at 4:29 pm
Here’s my peace, still sitting on 1+ mil shares, now worth exactly the paper they are printed on. Like the caption on the gravestone says this is def. my worst investment ever, but it’s helped me become infinitely wiser and more conservative.
TIM Lesson: NEVER TRUST ANYBODY OR ANY COMPANY
2Tony Ellis(TIMBUCKS: $24)
March 28th, 2008 at 4:35 pm
What’s up with the trades AH on ASTI?
3NeilTheRealDeal
March 28th, 2008 at 4:44 pm
tim you left the word “trust” out of that very true statement
4timsykes
March 28th, 2008 at 4:46 pm
thanks neil
tony, its called a friday AH short squeeze, why its so tough to short anything with strength on friday, even REED came back at the close
5Tony Ellis(TIMBUCKS: $24)
March 28th, 2008 at 4:57 pm
sucks…I’m short both ASTI and AKNS
6John
March 28th, 2008 at 5:21 pm
Another penny bites the dust. Rest in piss…
7Dan
March 28th, 2008 at 6:59 pm
Tim we’ve all had bad trades but what made you decide to put $700k of money that was not yours into a pink sheet? You obviously new that many many pink sheets are bogus companies that just print shares until they get uncovered by the SEC and go under. I’ve really wondered this since I read your book.
8Glen H
March 28th, 2008 at 7:01 pm
I shorted AKNS from 7.85 (got in too early) to 7.40, then rolled shorts into longs to avoid getting squeezed. They’re back to 7.90, AH. Keep my day-trades to minimum since desperately under 25,000 limit (grr). Used resistance of S&P and VIX to get timing right . . .
9timsykes
March 28th, 2008 at 7:16 pm
actually it was $300k of other peoples money and $300k of mine (i was 50% of the fund)…and as u read, i feel in love with the technology–i knew many pink sheets are bogus and the fact that i knew this company’s products and clients were real made me more confident…also didnt know they’d be a pink sheet, i thought they were goin otcbb…all the diff. in the world
but the #1 reason i invested was cuz i was discovering my short-selling strategy wasn’t scalable and capping my annual gains at only a few hundred grand wasn’t enough for my ego, nor is it now…CYGT was gonna take me to the next level….now i realize i just gotta teach everyone my strategy and by doing so, i’ll not only feel fulfilled but i’ll get rich too cuz u guys need to better understand all the variables
10Mike
March 28th, 2008 at 7:36 pm
Tim, why can’t you play super novas in mid cap to large cap stocks as well?
If hype causes a mid cap stock to rise a lot but volume fades and the last leg of the rally is mostly short covering, then the stock is more likely to drop than rise next. Expected gains on the short are lower and there’s more risk but there is the benefit of scalability at least.
11timsykes
March 28th, 2008 at 7:52 pm
Mike as u’d learn in my DVD, microcaps and smallcraps have unique qualities that allow for these patterns to be so predictable. trust me, if this strategy was more scalable, i’d jump at it
12Joe
March 28th, 2008 at 7:58 pm
With this lack of scalability, how do you intend to turn your equity into seven figures?
13timsykes
March 28th, 2008 at 8:02 pm
exactly like the first time around, lots of plays over time, the $ profits go up with my account size
14Mike
March 28th, 2008 at 8:05 pm
I’ll backtest midcap stocks rising x% (~10%) over y (~3) days , short interest of z% of float, fading volume on day y of the move, and no earnings report or recent change in consensus earnings. It won’t have nearly the hit rate as you’re getting with microcaps, but I still think it will have a positive hit rate.
15Mike
March 28th, 2008 at 8:07 pm
I haven’t gotten the DVD yet, but I’m thinking of ordering it. My copy of the book did just arrive though.
16Xan
March 28th, 2008 at 8:43 pm
Hey Tim, flying blind into this market, working at Merrill Lynch and the only reason Im really enjoying myself is I have some cool guys I work with… Use to be a Tulane student, transfered before my fourth year and im finishing up here in Santa Barbara.. Katrinas such a bitch.. Like your style, kinda “Fuck you ” attitude, I can relate, somehow people like us end up on top, always… Like to chat more and study your style its become blatantly apparent in the past few months that options is where the profits at, not sitting on long term stock positions, love to learn a little from a fellow alum.. Montecitos beautiful this time of year you should make a trip out youre welcome to post up… Cali baby..Ill be checking in
kind regards
-Xan
17Xan
March 28th, 2008 at 8:44 pm
Hey Tim, flying blind into this market, working at Merrill Lynch and the only reason Im really enjoying myself is I have some cool guys I work with… Use to be a Tulane student, transfered before my fourth year and im finishing up here in Santa Barbara.. Katrinas such a bitch.. Like your style, kinda “Fuck you ” attitude, I can relate, somehow people like us end up on top, always… Like to chat more and study your style its become blatantly apparent in the past few months that options is where the profits at, not sitting on long term stock positions, love to learn a little from a fellow alum.. Montecitos beautiful this time of year you should make a trip out youre welcome to post up… Cali baby..Ill be checking in
kind regards
-Xan
18Steve
March 28th, 2008 at 9:55 pm
Tim - what do you think about TFX and PPC shorts?
19Mike
March 28th, 2008 at 10:10 pm
Tim keep fighting the good fight.
20Mike but not the same Mike that just posted
March 28th, 2008 at 11:16 pm
I’m 150 pages into An American Hedge Fund already. Best trading book I’ve read since Reminiscences of a Stock Operator, something Tim’s book reminds me of.
21Adam(TIMBUCKS: $2)
March 29th, 2008 at 7:18 am
CYGT had so much potential it stings to see this obit. I really thought they had the potential to consolidate a highly fragmented industry.
22Steve
March 29th, 2008 at 9:38 am
Cilantro Fund Partners? What’s next… Basil capital or Oregano fund management ;)
23Dan
March 29th, 2008 at 9:47 am
Adam:
” CYGT had so much potential it stings to see this obit. I really thought they had the potential to consolidate a highly fragmented industry.”
Unfortunately this is why these scams exist. Because people believe the bull shit news they read. It really doesn’t make sense that our government allows full blown scams like this but its gotta just be about the tax collection money. They only investigate when someone complains. OTC companies are a tiny bit more legitimate because they have to file with the SEC but for the most part they are just boiler rooms, especially when you get into the true penny stocks and sub pennies. Perfect example USXP.pk. This is especially the case with the lower priced stocks. People read the news and say wow this is the next microsoft, or this company has a cure for AIDS… Then they think wow, if I invest in this company I can make a killing, and its gotta to be true, or else they wouldn’t be able to print the news. Day trading these garbage stocks is fine but to put money in them is like playing Russian roulette.
24JasonN
March 29th, 2008 at 10:32 am
Sorry to hear that Timothy.
CYGT RIP.
Long Shorts…
25timsykes
March 29th, 2008 at 11:34 am
tfx and ppc aren’t my kind of plays, companies are real (i prefer frauds/hype) and chart patterns are hitting lows (i prefer shorting into ridiculous strength)
26richard tan
March 30th, 2008 at 6:14 am
tim, how much exactly did you lose on CYGT? you mentioned in your book that you were able to sell some of the allowable shares at the same time Bought at the open market for trading. And also, BSC was really cheap when JPM offered to buy it our for $2. did you bought the stock when it rebounded?
27timsykes
March 30th, 2008 at 7:31 am
about 300k personal loss on cygt, no BSc, read this blog more and u’ll see i don’t play wall st. guessing games
28Derrik
April 11th, 2008 at 5:53 pm
This company started off nicely until a bunch of theives took it over and stole our money. My father worked his ass of at this comany and what did he get? A nice once day notice and a “see you later” , no serverence pay or appologies just a kick in the ass out the door. Many members of our family invested more than we should of and now are left with nothing. This just goes to show you that these guys were out to make some quick money and could care less about the families that supported them. Lessions learned: never trust any company even the ones that you think you know, and mainly to diversify investments.
Cygnus can kiss my ass.
29timsykes
April 13th, 2008 at 4:06 am
Hahahahahaha yeah i did lose 35% of my fund, hardly a blow up and ALL the losses were due to CYGT…u must be a wall street ANALyst, right…gotta be considering the inability to do proper research LOL
30cygnusnomore
April 15th, 2008 at 9:36 pm
Cygnus should have folded the tent a long time ago. And would have if not for ongoing ability to get strangers to put more money their way.
I worked there, saw the writing on the wall as clearly as could be and left promptly. Business model was simply not scalable, spending exceeded revenue, and key players were dreaming of a treasure at the end of the rainbow - instead of taking a realistic look at basic business fundamentals.
No surprise at the end result, just that it took so long.
And another one bites the dust…