Not worth the risk
Published: Wednesday, February 1, 2006 at 6:01 a.m.
Last Modified: Tuesday, January 31, 2006 at 9:09 p.m.
The e-mails come frequently, always touting the stocks selling for pennies. They are, according to the spammers who shill for them, "poised to explode," or "ready for a run up," or even "the world's next Microsoft."
If you've been tempted to invest money, Joshua Cyr, a software developer in Portsmouth, N.H., has a few words of advice: Don't do it.
Last May, Cyr wondered what would happen if he invested in all the spam stocks that came his way. So, on paper, he bought 1,000 shares of each stock, eliminating duplicates.
By October, he had invested a pretend $17,405 in 37 companies. His portfolio's value was $9,089 -a loss of 48 percent.
The current issue of Kiplinger's Personal Finance magazine notes that during a period of time when Cyr's spam stocks were "down 52 percent . . . during this (same) period the small-company Russell 2000 index climbed 12 percent."
Last week, Cyr's Web site (www.spamstocktracker.com) reported the expenses of his stock purchases had reached $51,413. His portfolio was worth $33,480.00 - a decline of 35 percent.
"I thought that I would realize temporary windfalls on all penny stocks, but then see big losses," wrote Cyr of his experience. "Instead almost all of those stocks I added went up a few cents max, then dropped like flies the next day. So much for short-term gains."
It was the same results that a similar test produced a few years ago by The Motley Fool (www.fool.com), a Web site founded to educate investors. Bill Mann, an investment writer for the site, would "buy" $1,000 worth of the spam-touted penny stocks. He started in 2002.
"In this manner, I could track what would happen if the world's most gullible investor swallowed every one of these come-ons," wrote Mann. "In all, I tracked 27 stocks," all but two of which were listed on the "over-the-counter" exchanges.
About a year after the experiment began, Mann reported that six of the companies were out of business, and only one traded higher than it did when he started tracking it. It had only an 11 percent gain. Overall, Mann's portfolio was down 80 percent.
"What's the lesson?" concluded Mann. "Isn't it obvious? Taking big risks with your investment dollars is just that - high risk. I'll go one step further: Those who buy shares based on random spam e-mails aren't investors. They aren't even speculators. They're marks."
Free advice is often said to be worth exactly the price offered. In the case of spam-touted penny stocks, the free advice has been shown to be worth even less than that.
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