I started writing about investing in 2000, for a now-defunct
magazine called Online Investor. My favorite topics came
from the Message Boards. Message Boards are forums set up by
financial websites like Yahoo! and CBS Marketwatch for members to
post messages on particular companies.
During the day, the messages usually consisted of nothing more
sophisticated than “here comes the action!” “shut up,” “no, you
shut up,” and “wanna make me?”
They all come out at night, though: angry loners, the
chronically unemployed, dweebs, insomniacs, and losers. My crowd. I
thought these sites fell apart when the dot-com bubble burst:
daytraders and penny-stock touts lost their shirts; the busiest
forums concerned the most speculative dot-coms and those companies
are long gone; and the financial websites themselves restructured,
retrenched, or, in some cases, went out of business.
That’s why I was thrilled to see that the most traded stock in
America, in four of the last five sessions (through Tuesday),
wasn’t Intel or Microsoft or Cisco. It was Boots & Coots
International Well Control, Inc., a nearly-bankrupt,
nearly-delisted American Stock Exchange company in the business of
putting out oil well fires. (It also has a cozy relationship with
Halliburton, which just got a contract to clean up the oil well
fires and said it would subcontract some of the firefighting to
Boots & Coots and another company. Halliburton has doubled
since George W. Bush teed up Iraq as part of the Axis of Evil, but
it’s apparently no fun to trade a stock that has as many digits to
the left of the decimal point as to the right.) It’s been a wild
seven-day ride, with the stock gyrating, from the first trade to
the last trade of each day: up 66%, up 23%, down 10%, down 23%,
down 51%, up 10%, up 16%. The stock has traded between 66 cents and
$2.47 per share.
I don’t care how risky you like your investments. This stock is
a textbook example of why you should stay away from low-priced
stocks that attract amateur speculators. The company is in default
on its credit agreements, all but officially in bankruptcy. If the
subcontract doesn’t make Coots & Boots a lot of money, and
fast, it will file for bankruptcy or be forced into it by
creditors. The stock will fall to zero. But what if the subcontract
is really profitable? With the company at the mercy of creditors,
they can still enforce the default by forcing bankruptcy and
converting their debt into equity, pushing current shareholders out
of the suddenly-profitable company. It also seems pretty likely,
since the company has virtually no working capital, it may have to
file for bankruptcy just to get access to a working-capital
loan.
Guess what? None of this matters to the Message Board denizens,
where never is heard a discouraging word. Never a discouraging
word, that is, unless you want to challenge the conventional
wisdom. If you want to be popular with the
wide-awake-at-3-a.m.-crowd, this is what you have to do:
1. Be paranoid.
If anything bad happens — and everything bad happens
to the kinds of companies that generate heavy Message Board action
— you have to have a theory for blaming short sellers, the media,
creditors, or other posters on the board, who are in league with
short sellers, the media, and creditors. One member of Boots &
Coots blamed creditors for weakness in the stock, on the following
theory: “I have experience in reorganization strategy and I’m not
concerned about anything except the negative press. In my mind,
everything has changed for them. I would suspect the creditors
seeking to get their hands on the company are pouting right now
about it! Unless they’re the ones who keep the story going.” If
that guy is really an investor, I have reason to believe his
“experience in reorganization” is as a debtor.
2. Get your information from the friend of a former
roommate’s stepfather.
Rather than reading financial statements or acknowledging they
were living on a prayer, members of down-at-the-heels Message
Boards develop their own information. One member of the Boots &
Coots board reported that his answering machine contained a message
from his brother, who had “a bud” at Boots & Coots who was
getting ready for “a long trip to Iraq.” Another poster volunteered
to pass on ahead-of-market information from his Kuwaiti stepfather,
who lives in the U.S. but works with the government. (This was part
of a spirited discussion about the benefits of such information
because the twelve-hour time difference between here and Gulf meant
that investors are getting their information twelve hours
late.)
3. Have an opinion on bankruptcy law, the more uninformed
the better.
One member of the board, on the night of March 24, asked, “How
long has the company been in credit trouble? Is it possible that
the war came too late?” Just a day later, the same person
apparently mastered the situation: “As you no doubt know, when a
company files for bankruptcy, its creditors lose big time. The
banks were probably in the process of calling the loan when this
war broke out. However, now that the company has an opportunity to
collect some serious revenue, it’s certainly in the creditors’ best
interest to see how this plays out. After all, getting all their
money back plus agreed interest and late fees is certainly miles
better than court arbitrated payments of some reduced percentage.”
Unfortunately, this is the opposite of true. When a
company files for bankruptcy, creditors get the collateral, which
could be good or bad. The shareholders are the ones who lose big
time. The creditors’ best interest, if that subcontract is any
good, is to seize control.
4. Be able to turn on a dime.
As the bankruptcy theorist discovered, any question worth asking
is worth answering yourself, especially if you have no more
information than when you asked it.
The past week-and-a-half of trading has shown that wartime makes
for volatile financial markets. Don’t get caught up in the
speculative fever. You can count on only two things from this war:
(1) The U.S. will meet its objectives; and (2) Halliburton will
make a bunch of money.
