One minute after the stock market opened, I knew there was a problem. The stock (let’s call it ZXA) didn’t jump out of the gate, raring to go, as it usually did. But when two more of my Bulletin Board stocks also didn’t show any trades in the first few minutes, I thought it might be due to a simple computer glitch. Before calling my broker, I brought up the active ZXA message board on Investors Hub. If anything was going on with this stock, these guys, many of whom had owned this stock for years, would know. And yes, something was going on all right…Trading in ZXA stock had been suspended.
For I don’t remember how long, I stared at my computer screen while a thousand thoughts zoomed and banged into each other in my head. Had trading been halted for good or bad major news? I immediately suspected bad. For weeks, indeed months, the stock price had been falling from a high of $2.24 in October to an opening of $.88 that morning. A conference call that was supposed to outline the company’s progress had suddenly been cancelled only hours before the event. Add that to a new financial officer who had flown the coop a few months after his appointment, blaming his departure on the company’s failure to obtain insurance formerly agreed to in his contract.
Then boom – the reason for the suspension hit the message board. ZXA’s auditors had withdrawn their audit opinions for three year’s of ZXA’s financial statements after ownership of some foreign funds could not be verified. Boy-oh-boy…oh-boy! The ZXA forum exploded with posts, scattering shock, anger and doom in every direction. Some shareholders instantly kissed their stock investment goodbye. My gut said they might be right, but my inner optimist piped, Hold on, all is not lost yet. What did I have to lose here, you ask? Not terribly much, thank god. I had sold before the big drop, but had taken a small position at what I hoped was near the bottom — $.79, planning to quickly sell on the bounce up. (And, oh yes, at this point there was going to be a bounce all right, but in no way did it look like it was going to be up).
Other shareholders fared far worse, like the despondent investor who wrote that he had probably lost his entire nest egg of $8,000. In the following days another shareholder somberly told us he was poorer by $30,000, an amount that would not be easy for him to make back. Another wrung out, weary holder confessed he had lost it all and was too old to start over again. A younger investor cursed his father-in-law for recommending the stock and wiping him out. Gloom and depression permeated messages with reports of sleeplessness and feeling sick about the whole situation.
The company CEO stopped returning calls. All Communication with ZXA evaporated. Their website went down. Still, in the face of this mountain of negativity, a few optimistic ( some labeled them delusional) shareholders clung to the belief the stock might have been suspended because of an eminent buyout by a large corporation.
This proposition was blasted out of the water when an enterprising stockholder decided to visit the company in person. After finding the “Address of Principal Executive Offices” on ZXA ‘s SEC filings, this activist did what nobody else had ever done and took a drive out there. He was surprised to find the address in a shopping center. And even more surprised to see at that address a pet groomer, a Karate studio and a UPS store. Nosing around still further, he tracked down the “Principle Executive Offices” to a PO Box in the UPS store.
This story is still unfolding with a threatened class action suit now added to the mix. Maybe the stock will resume trading on March 5th as originally announced. Or may not. Maybe every shareholder dime will flow out to the sea. Or maybe we’ll all get lucky.
Either way the story holds some valuable lessons that we’ve all been taught, but apparently not well enough. No matter how good an investment looks (and ZXA looked very promising on paper) Never but never put all those blasted eggs in one basket. If that poster who faces the possible loss of his entire nest egg had instead divided his investment into different baskets, he would now be contemplating a small hole in his financial future instead of a large zero.
Then there were those who fell in love with the stock — another big No-no. While the company’s numbers and growth had been good, the big draw of ZXA had always been its’ potential – its perceived ability to conquer and prosper in a new, up and coming business area. So the long term lovers had held on with all their might, even as their beloved stock fell further and further down, taking their money with it. Blinded by love, they either pretended their losses weren’t happening or trusted that their beloved ZXA would somehow rise again and not only magically restore their lost money, but multiply it.
And then there were the short-term courters of the stock — and I was one. Warning signs had beeped all along the road, but I had brushed them aside. Instead of getting out of the stock and staying out, I had dived back in for a quick profit. And now, if ZXA’s tents were about to fold, I would pay the price for that.