My email is a pretty good indicator of the level of speculative froth in the market. Lately, my inbox has been rotten with suggestions that The Motley Fool is wrong, dead wrong, in shunning penny stocks. Wildly overvalued stocks like Chinadotcom (NASDAQ:CHINA) and Ask Jeeves (NASDAQ:ASKJ) don't offer sufficient volatility or risk, apparently. To get really, really rich you must head to the over-the-counter markets or the pink sheets.
Curiously, that same inbox is crammed with whining missives from folks who have invested in worthless pieces of dreck like Jag Media (OTC: JGMHA) and are now convinced that "naked shorters" are conspiring to take down these stocks. Naked shorters there may be, but let's not lose sight of what's flatly undeniable: Most of these companies need no help at all destroying people's money.
So, to recap, some complain that we're ignoring "golden opportunities." Others complain that we don't cover a great conspiracy that is costing investors millions. And yet, dare say a negative word about a penny stock, and the hue and cry from the faithful is astounding.
Oh, and yes, as I predicted, those lovable misfits from Cyberfast Systems (here's an update on these guys), InvestAmerica (OTC: INVT), Microaccel (OTC: MIXL), Centraxx (OTC: CNXX), and Broadband Wireless (OTC: BBANE) all destroyed almost exactly 100% of their shareholders' money.
But what of the others?
Last year. I launched a mock portfolio of penny stocks, inspired by month after month of promotional reports on Cal-Bay (OTC: CBYI), claiming that it would soon move from $0.30 per share to above $2. I wasn't alone in noticing this -- watchdog Stock Patrol noted the same.
(Typically, shills are paid either by the company itself or some large investor to hype the shares, which they then dump on the public. But just so we're clear here, in many cases the company has nothing to do with the promotional schemes. They act merely as bait, Cal-Bay apparently among them.)
Anyway, I handled my mock portfolio as follows: Whenever I received one of those email promotions -- those "research reports" -- from a fly-by-night outfit like Bullseye Stock Profiles, Stockupticks.com, or Urgent Investor Notice, I would "buy" approximately $1,000 of the stock for my dreck portfolio.
In this manner, I could track what would happen if the world's most gullible investor swallowed every one of these come-ons. In all, I tracked 27 stocks, 25 of which were listed on the pinks or over-the-counter. One traded on Nasdaq and another on the American Exchange.
Six companies no longer exist. Only one, IBX Group (OTC: IBXG) trades higher than it did when I began tracking, and with an 11% gain, even that one trailed any relevant benchmark. My conclusion: The people who bought into these scam "research reports" have been fleeced, taken in by greed, gullibility, and more than a small slice of stupidity.
And for the record, Cal-Bay's one-year return was a minus 88% (the stock now trades at $0.035 per share). That's only slightly worse than the group average of my mock portfolio, which was negative 80%. Here are some of my favorites:
China Xin Network (OTC: CXIN) was recommended in July, reorganized in November, and still has negligible revenues and, as of the latest report, $170 in cash. The stock is down 18%.
Goldspring (OTC: GSPG), recommended at $2.25 per share, is now at $0.08. A loss of 96%.
Gateway (OTC: GWDL), a vitamin supplement company from Las Vegas, declared a 1-for-3,000 reverse split. I now own a tiny fraction of a share. That's roughly a 95% loss.
T & G2 (OTC: TTGG) is down 77% from $0.89 to $0.20. Given that the company had less than $2000 in revenues last quarter, I'm not sure what the stock price is based upon.
Indiginet (OTC: IGTT) is down 99% to $0.0009 per share. $7 in assets, no revenues. I'm sure the 1-for-250 reverse split coming up will help.
Powder River Basin (OTC: PRVB), formerly Celebrity Sports Network, is a natural gas company in a great time to be a natural gas company. Total revenues: zero. Number of shares: more than doubled in a year. Loss: 91%.
Decorize (AMEX:DCZ). A listed company, Decorize manufactures home furnishings. It was recommended at $2.45 per share and currently sits at $1.48. The company gobbles up cash -- $1 million in the last 9 months, compared to $1.9 million a year earlier.
Sharps Elimination (OTC: SEMT) is a name and industry change. The company was actually recommended as Travelshorts.com. That had something to do with travel; this has something to do with safe needle technology. Total loss of 12%, but I doubt Becton Dickinson (NYSE:BDX) has much to fear.
Voyager Entertainment (OTC: VEII) cost me 94%. Planning the world's tallest Ferris Wheel, in Las Vegas, of course. No revenues.
TS&B (OTC: TSBB) took in $10,000 in revenues for its last nine months, down from $400,000 last year. Share count up 150%. 92% loss.
Ameridream Entertainment (Pink Sheets: AMDR). I don't even know what this is anymore. There's no record of it except as an entry on the pink sheet site. I "purchased" it at $0.90 per share, just like the man said. Total loss: total loss.
Star E Media (OTC: STRE) came courtesy of Stock Upticks. It's a children's education company, "positioning itself to become a participant in a global market estimated at nearly $4 billion." Down 64%. A very, very minor participant, apparently.
Broadband Wireless (OTC: BBANE) is an all-time favorite. I panned these guys in 1999, and here we are again a hyped penny stock in 2002. Not much better the second time around. Loss of 62%, and the company is a month late with its 10-Q.
Thoroughbred Interests (OTC: TBIN) is, you guessed it, a publicly traded horse trader. Should have gone with Seabiscuit; this one came up lame, down 83%.
Hunno Technologies (OTC: HUNN) came via a "service" called Growth Stock Alert. The come-on for this fingerprint identification technology company includes the line "Imagine if you could travel back in time and buy into Cisco Systems (NASDAQ:CSCO) in the early 1990s just as it was going public..." Yes, I'm imagining. I don't see Hunno. Stock drops 90%.
Paystar (OTC: PYST) may be my absolute favorite. It's the "leading provider of Internet Kiosks." At the same time that Stock Upticks was "featuring" this company, filings revealed that it had "going concern" issues. Someone posting as "stockupticks" claimed on the Paystar message board at Raging Bull that his company doesn't recommend companies, that it "simply showcase[s] their business plans to our database without an opinion as to present or future valuation." While this is technically true, I don't recall seeing the "going concern" mentioned, either. Down 62%.
Entreport (OTC: ENPO) died after a December reverse merger fell through. Loss of 100%.
Aampro (OTC: AAPO) currently trades at $0.12 -- a decline of "only" 23%. What does a company with a stock trading just above a dime do? Splits 3 for 1. That's planned for the end of this month and will "assist with current and future corporate goals and strategies." Wow.
Overall, the results are startling. I figured that these companies would trail the market, but the sheer loss staggers me. Sadder still is that if there was an insufficient supply of suckers out there, these promoters wouldn't make a dime. But rest assured they did much, much better than their "clients."
What's the lesson? 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 emails aren't investors; they aren't even speculators. They're marks.
Fool on!
Bill Mann, TMFOtter on the Fool Discussion Boards
Bill Mann owns none of the companies mentioned in this article. To find some straight-shooting, undercovered companies, consider subscribing to Tom Gardner's Motley Fool Hidden Gems.
