I was 15 years old the year was 2000 and in a beautiful summer year and i was enjoying my first experience of online trading. I had moved back and forth into a few positions but made my first real money of my life "BIFS".
Biofiltration Systems Inc was small otc stock that was working on a way to create substances that would keep an airplane wings from freezing. They had some revenues but were bleeding money. None of this gained my interest however, news of a 100 for 1 stock split certainly changed that.
My adolescent mind looked at that as a severe bullish sign and thus had to get in. The reality is though breaking a stock into 100 shares doesn't help your portfolio in anyway. Sure its nicer too look at 100 shares than 1 but assuming their value is the same you've neither gained or lost. Diluting shares doesn't mean anything bullish by definition, and a stock split does not increase your equity into a company. Making mistakes is something any investor will do, the best make points of learning from them. Not only did I buy BIFS specifically because it was going to split 100 for one, but i put my full ~$250 into it. Another huge mistake that beginning investors do even with such a small amount of money I should have bought 3-5 stocks rather than one.
Even though if you're not setting money on fire in the penny stock market, this choice faces us everyday as many retail. For instance you go to buy a pair of socks, the same pair of socks will typically be listed one of two ways.
Price $2.99 a pair
On Sale for $2.99 a pair
Likely given a choice the average consumer would choose the on sale brand believing that they've received something of higher quality, as it normally sells for more. However, in many retail stores the on sale price is really just the sticker price.
So BIFS which was trading for approx $15 when i purchased my shares (between 10-20 hard to recollect exactly) all i saw was myself owning 1000 shares + of a stock that was currently trading at $15. So obviously, it has some chance of going to $15 again or surely as it did hit $1 the day it split, that should be considered natural?
NO! again on defunct companies its hard to find historical trades, market caps etc, but there is a 0 logic that a company say market capped at 10 million should move in value at all because of a split. The bold facts are ice on air planes has never been much of an issue. Airlines as an industry historically go bankrupt only to be bought out and re branded. Spending money researching such an item which wouldn't be useful on all flights would have to carry a very hefty margin and be able to be sold frequently to be profitable. On top the team of people working on it was incredibly small less than 10 i believe. That company working in a niche industry of a larger failing industry burning money to create a product that isn't 100% required has almost no real world value. So yes the day it split it did return huge, but that broken logic of buying for trading purposes rather than fundamental purposes led me to eventually turning those profits into $0. Furthermore, had i stayed and held on to my 1,000-2,000 shares of BIFS i would have ultimately still end up with nothing.
We're not playing the lottery we're investing and we need to find a story we believe in. One that can surge during the good times and stay alive for the bad times. Getting penny stocks because they're cheap doesn't mean more shares, adding the smallest cryptos doesn't mean more coins, nor is buying something that was higher just because its lower. Simply put the less we know, the lower chance we have to succeed.
Less is Less
How stupid in hindsight buying a stock especially with almost all my money at the time I think i had $100 at the time and of course i bought 100% bifs which was trading I believe at $15 or so giving me 6-10 shares. Regardless I was going to get 100xs the shares and knew the lowered price would bring in more buyers and it would go up sharply. Because lowering the price obviously ups the buyers. Very simply though I can't tell exactly when but that company is now bankrupt. I was lucky enough to watch my money 10x and sell out for somewhere around there. Unfortunately that $1000 i so proudly profited that summer was put into several other over the counter companies, and before i knew it i was lower than I started. Thus teaching me my first lesson.
Just because something is cheaper or lower in the market doesn't mean logically there should be more buyers or more of a reason to purchase any stock/commodity/coin. I noticed such a trend today in a crypto exchange chat in which "Hydro Coin" was being pumped up. Of the several people who were promoting it only one could give even a half way answer which was "i am using it on my new exchange" which is proven true is factually a great sign, but however is not yet ready. And to be honest hydro coin might be fantastic its not really relevant to the story i'm attempting to tell here. Simply staring at low coins with high variance and hoping they are "mooning" a term I already despise. You won't be taking cheap shots at getting rich, you are simply blind side gambling. ICO's are now being offered everywhere for under a million if you buy into something worth 100x's that with a 0 understanding of what they do you are going to lose. We have to follow something we believe in. Because the biggest mistakes I made early in my investing career wasn't buying bad stocks after bifs that lost back my profit. My biggest mistake was not finding the types of companies with stories I believed in. That way when it went up I didn't sell because I was young and I had years to let a good story play out. But if you stay short sighted to trading you will always get churned out of the market. So when you look at a coin that is cheap remember the less you believe in it, less you really have. Less is less
About the author:
Stephen Reynolds has over 20 years of online stock/option trading and been trading in cryptocurrency since 2013. He is a licensed broker, who has his 7, 11, and 63 licenses. He is the founder and CEO of Gitsumm Inc (2011).