Avoiding Whisper Stocks
In the world of investing, there is a very dangerous creature called the Whisper Stock. It is a stock that someone tells you about in a quiet voice, as if it were a holy secret. It is a fairy tale for adults who don’t want to perform the Two-Minute Drill.
It is usually a small company with a big dream: a “cure for cancer,” a “car that runs on water,” or a “machine that turns base metal into gold.” It has no earnings. It has no products. It only has a “whisper.” If you find yourself in the middle of a whisper, you should start thinking about When to Sell.
Peter Lynch, a man who liked to see the money before he gave it his own, realized that if you buy a whisper stock, you are an artist in search of a tragedy.
The Miracles
- The Miracle: The company is going to change everything. They are “disrupting” a massive industry before they’ve even sold a single widget.
- The FOMO: You are afraid you will miss out on the next Apple. This is a very efficient way to buy a lemon.
- The Lack of Proof: If it’s a miracle, it should be in the earnings. If the earnings are zero, it is not a miracle. It is a fairy tale.
The Smartin Warning: NKLA
Remember the truck company that rolled its truck down a hill because it didn’t have an engine? That was a whisper stock.
- Smartin Roast: If we ran the Smartin App back then, it would have told you that the PEG ratio was non-existent and the revenue was zero. The app doesn’t listen to whispers. It only listens to the cash.
Stay away from the whispers. Wait for the proof.
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