Tuesday, January 11, 2011

A Mother@#$%ing [Stock] P.I.M.P.

In many studies in asset pricing, it is common practice to not include stocks with prices less than $5 - they're too small and unreliable in terms of what information is included in the price. And for good reason too, as told in the story of the 50 cent stock.

In another version of the famous story of Entremed story, Curtis '50 Cent' Jackson buys $750,000 in shares in a crappy stock, H & H Imports (HNHI in the over-the-counter markets). How crappy? Let MSN tell the story:
H&H is an extremely sketchy investment and even got the dreaded "going concern" notice last March as its auditor shared doubts about the company's future. The company reported less than $300,000 in revenue last quarter but lost $1.3 million, the Post reports.
So it might not exist as a company next year. What's the big deal?
There are some funny loans at the company as well, the Observer notes. H&H lent $141,000 to what it describes as "an entity in which our chairman's brother is an officer and owner." 
Now that's governance you can take to the bank! As long as it's a bank owned by your cousin's husband.

Okay, so you've lost a ton of money in a stock because you're a dumbass. How can you double down on stupid? Simple - start giving out dubious financial advice to people to buy the stock! Everyone knows the SEC has a great sense of humour about that kind of thing.

So in a move straight out of the Rene Rivkin playbook, 50 cent decides to start spruiking the stock to his twitter followers.
"You can double your money right now,"
"Just get what you can afford."
"They are no joke get in now."
Because people who invest in OTC markets are largely imbeciles, the share price rose 240% by the close of the next day's trading. Originally this was reported as a stroke of financial genius - 50 Cent had just increased the value of his holding by $8.7M!

Eventually, 50 cent (or more likely his lawyer) figured out that randomly posting tweets about stocks he owns and recommending their purchase (especially without disclosing his clear conflict of interest) was probably in breach of several securities laws, not to mention exposing him to a range of civil suits from morons that actually followed his advice. Some of the tweets were deleted, and he posted a series of hilarious follow-ups:
"I own HNHI stock thoughts on it are my opinion. Talk to financial advisor about it."
"HNHI is the right investment for me it may or may not be right for u! Do ur homework."
Apparently the financial genius is having second thoughts about the whole thing.

Shylock's prediction - given how ferociously the SEC pursued Martha Stewart for making about a buck eighty five on a dubious insider trading charge, I'll be surprised if we've heard the last of this incident.

Red hot tip kids - buy index funds, not shitty OTC stocks. If you're tempted to make an active trade based on something 50 cent says, it ought to be to short any publicly listed stock that he's pushing. And if you have a brain meltdown and decide to follow the financial advice of people whose business experience consists of making rap albums, save yourself the bother and just set fire to the money now.

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