Wealth Burning Stocks
The worst 25 wealth-burning stocks have lost investors, collectively 1.2 Trillion US dollars, since 1926.
What common characteristics do these wealth-burning stocks share?
Most of these wealth-burning stocks listed on the stock exchange were engaged in accounting fraud, better known as cooking the books to inflate their financial accounts.
Another common thread of wealth-burning stocks is that eight were involved in the telecommunication industry.
The classic trap of feeding the sheep for slaughter is another theme of wealth-burning stocks
Hype, extravagant or intense publicity surrounding an Initial Public Offering IPO creates mania buying and overinflated prices. So insiders sell at the top to the general public in an IPO.
The overinflated value and prospects of the company touted in an IPO often do not correlate with reality.
It may be best to wait several months after an IPO when the hype dies down when the investor psychology cycle buying mania flips to depression as prices come tumbling down.
“Be greedy when others are fearful,” Warren Buffett.
If the company offers a valuable service or product and you can buy it at a deep discount, be greedy. Likewise, if it is selling hot air, riding a fade, or a temporary craze, remain fearful of buying.
Naming and shaming the worst wealth burning stocks
Telecommunications company WorldCom from 1980 to 2002 was number one on the list, a long-distance phone provider that handled internet data. In response to a surplus of telecommunications capacity that reduced pricing power, WorldCom began to “cook its books” to meet growth targets.
Boiler Rooms and Wealth burning stocks
I have memories of being cold-called by a stock peddler, just a few months before the stock price collapsed, trying to persuade me to buy WorldCom stocks. “I would mortgage my home to buy this stock,” said the stock seller. I replied, “Outsiders like me don’t get tips like that, so I bet you are pedalling BS, goodbye.” So I didn’t buy the stock, but damn, I should have shorted it.
Energy company Enron was another company engaged in cooking the books. The company destroyed 74 billion dollars of wealth.
Capitalism and declining moral standards do not jell well
Unprecedented increase in the money supply of central banks during the early 20s accelerated the wealth burn of these wealth burning stocks.
The second worst wealth burning stock, Rivian, EV stock, evaporated 92 billion dollars of shareholder wealth in just 13 months.
The company sold 5,700 EVs in 2022.
VIAVI SOLUTIONS was third on the list of wealth burning stocks, losing a staggering 87 billion dollars from December 93 to December 22.
The current investment environment has never been so challenging, with escalating war in Europe, central bank tightening, unprecedented stress in the treasury market causing tremors throughout the entire system, and wealth-burning stocks being just another red herring.
See a comprehensive list of the 25 worst wealth burning stocks here.