Answering critics: knowing the difference between good DD and “pump and dump.”

In the stock world, the term "pump and dump" is overused and misunderstood, and I get accused of engaging in such activity.quite a bit and quite frankly, it pisses me off.

What exactly is pump and dump? According to Wikipedia:

"Pump and dump" is a form of microcap stock fraud that involves artificially inflating the price of an owned stock through false and misleading positive statements, in order to sell the cheaply purchased stock at a higher price. Once the operators of the scheme "dump" their overvalued shares, the price falls and investors lose their money. Stocks that are the subject of pump and dump schemes are sometimes called "chop stocks."

From above, the first thing I notice is "false and misleading statements," which is the crux of a "pump." Pumps are designed to over hype a stock , set unrealistic price points, and misrepresent the facts of a company -- in Biopharma's it's mostly related to misrepresenting the value of a drug in any clinical stage of testing. The second point that sticks out to me is "the price falls and investors lose their money." (after selling the stock)

Biotech is a hot sector currently, and small cap companies have seen their stock prices increase dramatically across the board so far this year. Adam Feurestein seems to think we are in a biotech bubble, but fails to understand why these small cap companies have been rallying. Adam's self touted "Feurestein rule" no longer applies in great part -- which is why in part he failed to accurately predict Arena's approval of its weight loss drug Belviq earlier this year. In the past, the FDA operated under much stricter guidelines, but since Obama issued a directive to the FDA in October of last year, the small cap biotech sector is up a ton. Under some of these new guidelines, smaller companies do not have to spend as much money on clinical trials as they did in the past because many drugs now fall under both the FAST and TREAT acts. which ultimately allows these companies to get their drugs thru the regulatory process much faster. This allows many of these companies to operate on their sometimes limited cash flow for a longer period -- their odds therefore increase to gain eventual FDA approval because they can stretch their budgets longer while benefiting from a faster and cheaper approval process.

The biotech sector before this year, suffered from a lack of capital investment from larger institutional investors -- the sector was forgotten in terms of investment (but not traders). Like any other sector in the market, it has gone thru cycles of "hot and cold.." Pointing out which companies that I believe not only offer good trading opportunities, but good speculation investments is not pumping, it's potential opportunity -- something all of us are looking for.

Until recently, Seeking Alpha was having a problem with both "pumpers and "bashers,"  but things have improved considerably since head editor George Moriarty was hired by the company in the beginning of this year. George has done an excellent job of setting stricter guidelines which include requiring authors to link any claimed facts listed in articles, disallowing hyperbole (TheStreet.com and Motleyfool.com should take note and follow suit), and requiring a more balanced approach in author opinion. From my point of view, this is what makes Seeking Alpha the best site of its kind currently.

As a responsible stock writer, I try to give a balance in my opinions, even when I own a stock and I'm bullish on it. Sure, I trade many of my picks, (not all) why shouldn't I? I know I am good at what I do, and I have confidence in my picks and trades, and my record this year speaks for itself. To date, I have rejected offers to write articles for pay, notwithstanding that Seeking Alpha recently (and rightly) stopped allowing paid pieces. I would rather put my money where my mouth is and take the harder road of intense study which requires hard research, than to take the quick and easy path which would be to accept a krap-ton of money to write an article -- unlike some well known stock writers who are rumored to be paid dogs for big money players. These writers are easy to spot because they engage in constant hyperbole and will distort facts about a company and/or its drug being developed.-- both pumpers and bashers. Before George came on board Seeking Alpha, I remember reading an article entitled "Zalicus' Potential Might Be Worthy Of A Nobel Prize," which the title in and of itself, is pure hyperbole. Since that article was released, Zalicus's (ZLCS) stock price has been cut nearly in half. Perhaps before we talk about a Nobel peace prize, Zalicus should first actually stop diluting and wasting investors money on its corporate executive over-inflated salaries, and actually produce results (remember Obama receiving a Nobel peace prize in his first month in office?).

Many times I pass on writing about so called "run-up" trades because I worry about a company diluting the pool during such a possible run-up. The last thing I want to do is offer my readers a bullish opinion on a trade/investment, only to have management kill the stock price in order to line their own fat cat pockets. Granted, dilution is sometimes necessary for a small cap biotech's survival, but often times it's executives just wanting a free ATM machine, which reminds me of the buzz around the biotech world for the last 20 years about Hemispherx Biopharma (HEB).

Never be over hyped about any stock that anyone touts, including me, I could very well be wrong like I was with Cornerstone Therapeutics.(CRTX.). I failed to consider the strong bear case that was made against the company and its drug lixivaptan. Subsequently, on 9/13/12, the FDA's cardiovascular and kidney drug advisory panel recommended against marketing approval for lixivaptan. The drug is designed to treat hyponatremia, or a lack of salt in bodily fluids outside the cells.The main bear case which was made against the drug focused on the lack of peer reviewed data for the drug's phase III study. I should have considered this, but I dismissed it, and joined some well-known biotech traders who thought it was a good run-up trade. Does this mean I tried to "pump it?" -- no, it means my DD sucked, PERIOD.

For the same reasons, also never be overly bearish either -- a balanced emotional approach is a winning approach in the stock market.

Those who follow me know my record on not only giving accurate opinions, but also  giving accurate trade calls and price targets. Like anyone else, I'm human and make mistakes, so I get some wrong, and likely will get some wrong in the future (though will try my best not to).

I think it's time people understand the difference between what a pump is and what an honest complete opinion is. It will help everyone become a better investor/trader.