Voltari a "Bottle Rocket" or a Pump and Dump?
Icahn heavy into Voltari - I'm in on the ride
Am I learning a lesson or is there a chance this will go up again? Reminds me of a classic pump and dump that cost me big time once before. Back before the 2008 collapse when I was actively day trading I got caught in a classic pump and dump with a penny stock called ACTC.
I broke nearly every rule in the book and lost a lot of money. It was so painful I don’t even want to remember how much I lost on that one particular trade but to set the table for today’s lesson, I must recall as many of the ugly details as possible, so here goes.
Lesson from the Past – ACTC is a Penny Stock Pump and Dump
I think it was around 2006 or 2007 and I was riding a high. Nearly everything I tried was working and I was consistently adding to my portfolio using the swing/day trading strategy discussed in previous articles.
I had a rigid set of rules that was keeping me out of trouble and allowing me to make money on “teenies” – small moves with large amounts of capital behind them yielded me decent gains nearly every day.
Unfortunately I acted on a tip from a friend (another absolute “no-no’) and bought a large position in a penny stock in the same manner I worked the large caps. I had tens of thousands of my hard earned dollars tied up in a worthless, no good company that was pumping garbage into the media.
The stock “rocketed” (remember that term because we will come back to it in a minute) over two or three days and people were blindly jumping into a company that had no revenue, no profits and from what I could tell, no place to call home. “ACTC” was the figment of some scoundrel’s imagination and before I was done, I doubled and tripled down and most of my two years’ worth of trading capital was wiped out.
I was amazed to learn that you could actually still buy this piece of %$#*& but if you want to find out anything about the company, they are nowhere to be found.
That brings us to the Present and the Voltari Sequel
I am writing this “as it happens,” live and real time! I’ve lived this movie before and it was a painful lesson. Don’t play with fire! How in the world could I blindly jump into a stock I know virtually nothing about just because a chart looks attractive? Remember my reference to a “rocket” and the penny stock game. Here are the two news headlines I read AFTER I entered but should have seen BEFORE:
- “Carl Icahn Plays The Penny Stock Game With Voltari”
- “Icahn Investment Turns Penny Stock Voltari Into Bottle Rocket”
Here is how it played out. I was tweaking my screen and did not realize I left the market cap field open so a couple of very small companies “slipped through my screen.’ That reminds me of a song I will listen to the next time I get “full of myself,” and think this is an easy game:
Trading with a screen that is not well thought out is as useless as a screen door on a submarine! If I sound miffed at myself, I am! Here are the rules I broke in no particular order but it all happened very quickly and before 11:00 on a Monday morning all my winnings from a couple of weeks work went up in smoke.
Is there Good News in these Two Trades?
As I am writing this, my second trade of the day also went up in smoke. The second company I actually bought before VLTC so now this article expands to discuss how I also blindly bought into Memorial Resource Development Corp (MRD) and was in and out within the same hour. I actually bought MRD before VLTC but was so consumed in getting out of VLTC that I had to let MRD ride while I bailed on VLTC.
This is sounding a lot like a Greek Tragedy but the good news is nobody was killed and I was not risking more than I could afford to lose. Yes, I quickly lost my gains from the previous trades but it caused me to SLOW THE BUS DOWN until I get my act together again. “Eating humble pie, we are and I am!” Humility is certainly one of my new found traits!
Never Throw Good Money after Bad
The good news is that I am out and my base portfolio is intact. I was in essence “playing with the house’s money,” and I remembered the most valuable lesson of all, “don’t throw good money after bad,” or as one of my new virtual mentors, Oli Hillie says, “Never, Ever, Under any Circumstances Add to a Losing Position – Not Ever!
This is a mistake I have made a number of times and I pretty much lost money every time.”
I am relearning so many of my own lessons from the past it’s hard to get them all down on paper, but here goes with what I have already “re-learned” early on a Monday morning:
- Never trade before 10:30 in the morning – that time is reserved for the sharks. They are circling the waters waiting for unsuspecting shmucks to enter positions they can later take out and take their money with you. BTW, the same advice applies to after 3:00 in the afternoon because the sharks are also active during that time of the day.
- Never buy a stock before researching the company and reading the latest news – This one was so obvious that had I taken the time to see that Voltari was a pumped up penny stock, I NEVER would have made the trade!
- Avoid trading on a bad night’s sleep! – I slept lousy last night for different reasons and was barely awake before I was in front of my computer making trades! WOW!
- Double check screens to make sure all the proper fields are in place – This is actually a new one because I don’t think I made that particular mistake before. I always trade mid and large caps and somehow left that field open so Voltari slipped through the “screen door on the submarine.”
We Live to Fight another Day!
I’m actually out of space for this article so will pick up my story in the next article. More lessons learned and how to avoid making the same mistakes over and over again!
Thankfully I was trading with money I could afford to lose and my base nest egg was not touched so the most valuable lesson is trading is a deadly serious game and I need to be deadly serious moving forward.