7 Apr, 2021

As Dr. Per Cap: Worst investment ever – The Cherokee One Feather – Cherokee One Feather

As Dr. Per Cap: Worst investment ever – The Cherokee One Feather – Cherokee One Feather

Dear Dr. Per Cap: 

You once wrote that the most lucrative investment you ever made was a trade for a valuable hockey card at 12-years-old.  What’s the worst investment you’ve ever made?

Signed, 

Just Asking

Dear Just Asking

Fair question!  Back in the nineties I was working in a pizza store and had just started investing.  A seventeen-year-old coworker told me about a European media company with a seemingly bright future.

Yes, you read that correctly.  I bought a hot tip stock on the advice of a teenager tossing pizzas.  I’ll salvage a little bit of dignity by not providing any details on the company other than to say it wasn’t able to successfully make the leap into the digital age.

Within a nine month period I purchased 5,400 shares of this lovely little gem of a penny stock at share prices ranging from $1.16 to $3.10 using an online brokerage account.  My total investment was just shy of $10,000.

All went according to plan when two years later the stock broke $5 a share and my holdings nearly tripled in value to $30,000.  I thought the stock’s run was just getting started so I didn’t even think to sell.

Big mistake – the stock never went much higher than $5 before it tanked.  However, it wasn’t a quick dive so I held on hoping it was just a rough patch.  Unfortunately, the stock didn’t rebound and eventually struggled just to maintain a $1 share price.  This triggered a warning letter from NASDAQ because major exchanges don’t like stocks that can’t secure a baseline level of investor confidence.

Sadly, the company still couldn’t get it together and faced delisting – being dropped from the exchange.  So the company declared a 1:3 reverse split in an effort to pump up the stock price.  Reverse splits are really bad news.  Unlike regular splits where investors receive more shares, a reverse split leaves you with fewer shares; so overnight my 5,400 shares turned into 1,800 shares valued at less than $2 each.

From here the stock continued its downward spiral dropping below $1 again.  The company didn’t bother with any more reverse splits and the stock was delisted.  No longer trading on an exchange the disgraced stock was exiled to Pink Sheets, an over-the-counter market for high risk distressed companies.   There it continued to languish, trading every so often for less than a penny a share.  I didn’t even bother trying to sell and just stashed the brokerage statements listing my worthless shares in the bottom of a drawer.

Fortunately, there’s a semi-happy ending.  About ten years later when I bought my first house I used my $10,000 loss to offset capital gains from other stocks I had bought and sold that actually went up in value.  So I was able to effectively capture $10,000 tax free towards my down payment.  Yeah, not nearly as cool as if I’d sold at the top but certainly better than nothing.

Lesson learned – pizza shops aren’t the best place for stock picking advice.  Not the same kind of dough!

Ask Dr. Per Cap is a program funded by First Nations Development Institute with assistance from the FINRA Investor Education Foundation. For more information, visit www.firstnations.org. To send a question to Dr. Per Cap, email askdrpercap@firstnations.org.

Published at Tue, 06 Apr 2021 17:15:25 +0000

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