People, or should I call them pigeons, with excess cash they don’t know what to do with, once again are being warned about investing in penny stocks. The lure of putting down a tidy sum under the expectation of raking in a small fortune is hard to resist both for the investor and the swindler eager to help him or her part with their money (https://www.nytimes.com/2021/03/18/business/penny-stocks-trading.html?referringSource=articleShare).
You no longer need beware the unscrupulous cold call from a boiler room stock broker, the kind depicted in book and film “The Wolf of Wall Street.” Technology has turned penny stock shilling into Internet con games.
I know of the seduction I warn of penny stocks, though my experience with them, fortunately, ended up in the black, not red.
It began shortly after I received a sizable bonus in the mid 1980s.
The call to my office came out of the blue. A cold call by an eager young broker from Thomas James Associates trolling for dollars, pushing penny stocks. I knew better than to invest in these high risk shares, but he reached me at a moment of vulnerability. I had just received an unexpected windfall of several thousand dollars. With Gilda’s assent, I gambled $2,000 on a company that promised big returns in the then embryonic laser eye surgery field.
It was hard to follow the stock. Penny stocks weren’t usually reported in The New York Times or The Wall Street Journal. Plus, my eager-beaver of a broker didn’t call back once my check cleared. I assumed my investment was as flighty as my erstwhile broker, an assumption reinforced in my mind when six months later another cold call came from Thomas James Associates informing me my broker had departed the company and was being replaced by the gentleman now on the phone.
He wanted to know how happy I was with my investment. I was ignorant to its value, so I casually said, “Not too much,” to which he responded, somewhat incredulously, that he had never come across anyone less enthusiastic by a tenfold return on principal. My $2,000 investment had increased to $20,000!
I stammered some explanation for my passivity. He then confronted me with a challenge. What did I want to do with my $20,000? We agreed to cash out half of it and invest the rest in a different penny stock, Holiday RV, as in recreational vehicles. Baby boomers like me would be taking to the open road in land cruisers once they retired, he pitched. Now would be a good time to get in on the ground floor.
What the heck? Let’s spin the wheel a second time. Oy! This time it ended in a crash. I got out after losing half the pot. The rest went bye-bye in some other speculative investments.
All in all, I netted $8,000 and a lesson in the risky business of penny stocks.
One more thing. Thomas James Associates wound up being sued for fraud. I seem to recall receiving a small sum from a class action lawsuit against the firm and its successor, but nowhere near the value of the education I learned to stay away from penny stocks.