Today, I have an enlightening story for you …
A few years back, I bought quite a bit of stock in a company with what seemed to be a revolutionary idea. Yes, I bought the story, but it also seemed that the company had its act together. It was working with the one of the largest defense contractors, and it looked like a production deal was imminent.
The along came the evolving debt crisis in 2008. Early that year, the company announced that it had financing to go into production for the defense contractor mentioned earlier. All looked good. About mid-year, the company announced the financing it had in place had been withdrawn, but it had another source lined up and ready to go. Of course, when the announcement about the withdrawn financing came out, the stock price dropped.
Well, this new financier announced it would fund the company to get production going, and the price of the stock ran back up quickly, but just as it neared where I bought in, the new financier announced they too were pulling the funding. The price plummeted faster than you can wink, all the way down to less than one cent per share.
So, I tracked down the former Chief Financial Officer (CFO) of the company, the CFO who had been working for the company back in early 2008. I asked him what happened and he told me the following (I paraphrase).
When the new financier came in, we all believed we were back on track. They made lots of noise about where the company was going, and how financially solid all would be. We believed them. As it turned out, the new financiers were sharks. They put out the information on financing, but never actually intended to produce the money. The whole goal was to drive the stock price up so they could short millions of shares when they pulled the funding, and they did, making a bundle of money in the process.
The above represents the yin and yang of all things. There is a dark side out there, and we should all keep our eye out for its emergence. What happened to me happened because I was naïve and pie-eyed. Guard your money with wise strategies that work and protect you. Don’t overbuy because you think you will get rich. In other words, don’t do what I did, if you are so inclined …
Trade in the day; invest in your life …
