The Investor

Arabian Nights with Boots & Coots

Why a company named Boots & Coots is the most actively traded stock in America. Is there a Halliburton connection?

By 3.26.03

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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.

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About the Author

Michael Craig is a writer in Scottsdale, Arizona.