Halloween Horror Stories: “£1 By Christmas!” – How You Can Avoid This Oil Punt Share Scare

Champion Shares PRO analyst Mark Rogers recounts a small-cap horror story, and how you can avoid this terrible fate.

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

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.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

> Mark does not own any shares in this article. Some aspects of this story have been obscured for confidentiality reasons.

More on Company Comment

Hand of person putting wood cube block with word VALUE on wooden table
Company Comment

Value has been building behind the Diageo share price

Despite the business growing, the Diageo share price first reached its current level just over 19 months ago and hasn't…

Read more »

Older couple walking in park
Investing Articles

5 stocks to buy for high and rising dividend income

I can see a host of shares to buy on the FTSE 100 offering me exceptional levels of income. Here…

Read more »

Young mixed-race woman looking out of the window with a look of consternation on her face
Investing Articles

I don’t care if FTSE 100 shares fall further, I’m buying them today

I'm happy to go shopping for FTSE 100 shares today, even though I accept that they could have further to…

Read more »

Happy young female stock-picker in a cafe
Investing Articles

Rolls-Royce shares are down 18% in a month and I’m finally going to buy them

Investors who bought Rolls-Royce shares have been repeatedly disappointed, but I'm willing to take a chance on them before they…

Read more »

Storytelling image of a multiethnic senior couple in love - Elderly married couple dating outdoors, love emotions and feelings
Investing Articles

How I’d invest £10k in a Stocks and Shares ISA today

Now looks like a good time to buy cheap FTSE 100 shares inside a Stocks and Shares ISA. These are…

Read more »

Black father holding daughter in a field of cows
Investing Articles

Today’s financial crisis is the perfect moment to buy cheap shares

I'm building a portfolio of FTSE 100 stocks by purchasing cheap shares whenever I see an opportunity. There's a good…

Read more »

Long-term vs short-term investing concept on a staircase
Investing Articles

I’d buy Tesco shares in October to bag their 5.4% yield 

Tesco shares have fallen lately but I think this makes them attractively valued for a dividend stock I would aim…

Read more »

Young mixed-race woman looking out of the window with a look of consternation on her face
Investing Articles

I would do anything to hold Diageo in my portfolio (but I won’t do that)

Diageo is one of my favourite stocks on the entire FTSE 100 and I'd love to hold it, but one…

Read more »