We all know the scariest stories are true stories, so gather ’round kiddies as I tell a tale of investing horror that will haunt your dreams and send shivers through your portfolio.
I knew a bloke once who thought he’d found the perfect way to strike it rich.
He was an ordinary guy, with an everyday job, who wanted to escape the rat race once and for all. How would he pull it off? By becoming a stock market supremo, of course! He spent a while trawling the Bulletin Boards online and, one day, he found the share of his dreams. An obscure oil explorer, drilling in a faraway land — and according to the nameless Bulletin Board posters, this one was a no-brainer!
“Fill your boots, any day now they’ll announce they’ve hit a gusher! Those rumours are true! The market makers are just holding it back — they know it’s about to explode!!!!”
The shares could be bought for 16p — what a bargain! It’ll be £1 by Christmas, they said. Plugging some ‘projected production figures’ into his calculator, my acquaintance couldn’t contain himself. Only a sucker would miss out on this deal. This could be the chance to get rich quick, and finally quit that job for good. So long, losers! He placed his bet, and he bet big.
The shares went up. 18p. 20p. A 20% gain. They climbed again. 22p. 25p! And they said trading was risky, or difficult?!
The shares dipped. “Those dirty market makers, trying to shake out the weak holders!” The shares continued to slide back to 16p. The oil company was losing money, of course, burning up its limited cash reserves. It needed more money to carry on drilling — and it came knocking on the door of shareholders. The shares fell further to 13p. Results came in, “no oil yet”. The bulletin boards became restless.
10p. Our friend panics. Was this all a mistake? The months pass, there’s still no oil, and the cash keeps getting burned. He buys more shares. Now when they hit £1, he won’t just retire, he’ll be rich!
The shares rally back to 15p, as the bulletin boards heat up again. The good times have returned! But just as quickly, news comes from the faraway land — no oil, drilling delays, hopes dashed. The shares drop to 5p. This is ridiculous. An outrage. Management must be a fraud! But it’s all or nothing now. Our friend buys more shares, and more again.
4p. 3p. With each rally, his hopes were raised — but bad news, and more share dilution were never far away. Hiding the price from himself, our friend is finally beaten. As I write this, I think he still owns the shares. They trade for around 1.8p now, and the bulletin board fanatics have moved on to the next share.
The lesson here is terrifying — we should never invest like gamblers, trying to ‘get rich quick’ on a dodgy deal. The focus was never on how much money the company was losing. Instead, the shares were driven by speculation — pump-and-dump specialists on bulletin boards.
