Ruminating on the Canned Meat (Spam) Portfolio
April 12 marked the conclusion and "liquidation" of the oh-so-experimental Canned Meat (Spam) portfolio I created on Stockpickr. Two full months of tracking the results of stocks selected via unsolicited emails proved ample time to draw some salty conclusions. While most of the results were predictable, the experiment reinforced some basic assumptions and - not unlike a can of pressed and formed meat - offered a few surprises.First, the obvious: Investing in - or rather, gambling on - these "companies" is a really poor idea. My diversified portfolio lost 45% in just 2 months. And you thought the 3% you lost on February 27th was bad.
Also obvious: Spam campaigns succeed in pumping the price of the stock - albeit temporarily. Apparently there are still enough foolish and unsophisticated "investors" out there who actually move upon these suggestions. This is frightening, especially when you consider that you share the roads with these people, walk past them in the aisles of the grocery store... perhaps you even let your kids play with theirs. I'll posit these folks are the same type of "investors" who are currently sitting on empty, unsellable condos in Fort Lauderdale and Las Vegas. Not savvy.
Not blatantly obvious, but makes perfect sense: Spam campaigns create temporary liquidity in names that are otherwise dry. Some of the names in my portfolio average a volume of just 100,000 shares traded per day, with most trading significantly less. At the height of the China Fruit (CHFR) campaign, daily volume peaked at 1.65 million shares. This is the crucial second piece necessary for perpetrators to make serious cash on these scams (the first being the artificial price spike). Hey, if you need to dump 750,000 shares, it helps if the volume is there. And as I found early in this observation, the combination of a price spike and high liquidity worked quite well for a major holder of China Fruit.
Now, as far as surprises go, this blew me away. One of the names (CBRP) broke even, while another (ACEN) finished up 47%. While CBRP is now down again, ACEN is up higher than it was when I liquidated. A quick glance at the volume chart suggests that another spam campaign was launched on or about April 5, although I never received any of the emails. The takeaway from this: while not statistically significant, one can casually infer that there is a 1-in-8 chance of making money in this arena. Maybe it's just me, but I'd rather take the 3:2 blackjack at the Tropicana.
The biggest surprise was what stopped happening midway through this project. The once steady flow of unsolicited stock suggestions completely dried up. Indeed, I received my last suggestion on March 9, roughly one month after I created the portfolio. Don't get me wrong. My Inbox is still inundated with crapmail. The difference is that now the spam is exclusively composed of invitations to indulge in life's finer pleasures, such as weight loss products, erectile dysfunction cures, pirated software, and fake designer watches. Could it be that the stock spammers got wind of my portfolio and took me off their list? I highly doubt it. But the stock spam is gone, which suits me just dandy.
Labels: blackjack, housing bubble, Las Vegas, spam, trading
2 Comments:
Thanks for the work. I was also interested in how the spam stocks worked. Stupidly,I "invested" in one last year. Not much, about $800 worth, but never the less I should have bought a couple more GOOG's. I did homework on a bunch, and decided on swnm. They looked like it had some great upside, but then came the SEC investigation and it is stuck @ .01-.02 down from the .11 that I paid for it. This was less then .05%
of my port. at the time, but it was still an expensive lesson learned. I bought it at .11 and in a couple of hours it jumped to .17. A day later it fell to about .05. I still own those shares, probably costs me more than its worth to sell. But is it worth the gamble sometimes, as your model showed with ACEN?
P.S. I drive a black truck, so you better be weary on the road, and I'm probably in the beer aisle.
Anon, yours is a valid situation that I failed to include in my assessment: not everyone who buys into these names is an infomercial-watching dolt. I personally know of a handful of informed investors who did just what you did, usually "just to see what happens." I'd still content that the majority of the liquidity in these stocks come from the naive, though.
To answer if the gamble is worthwhile is really up to the individual. Most everyone buys a lottery ticket in their life, and I'd go nuts if I couldn't hit the tables in Vegas on a semi-regular basis; neither are sound investments. If you can lose your tail on a small, dubious allocation of capital and (this is the important part) learn something from it, is can't be all that bad. $800 is a lot less than a graduate degree.
Thanks for the warning. I'll keep an eye out on the roads and try to stay in the liquor aisle.
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