Lest we forget!!
This was posted on MSNBC Tuesday 12/7/99:
WHAT?S ARIEL WORTH?
Every day brings gross and obvious examples of this stratagem in action. Consider a worthless piece of dreck named Ariel Corp. In the last 12 months, this New Jersey-based maker of networking cards for computers has lost $15.2 million on revenues of only $12.6 million, sending its stock price crashing to a pre-Thanksgiving low of barely $3.50 per share. But then on Nov. 24 at 6:01 a.m. Eastern Standard Time ? in other words, at a conveniently timed moment to catch day traders as they were waking up on the East Coast and heading sleepy-eyed to their computers ? the company issued a press release claiming that it had received certification for a networking card to be used in computers connecting to the Internet over so-called T-1 lines.
Within 34 minutes, this release had been spotted by a day trader and posted on what had until then been a largely inactive Yahoo message board for Ariel Corp. As day traders began to buy up shares in the premarket, the stock began to move up on the Island top-20 list, and more message board posters began piling on. Result: an instant 40 percent profit for the early birds as the stock opened at 9:30 a.m. for trading at more than $5 per share ? a ?gap up? of more than $1.50 from its previous day?s close of $3.50.
But with the rest of the market rather sluggish that day, traders from everywhere began piling into the stock, and by day?s end it had climbed to $10.75, or triple its day-earlier closing price. Yet that was nothing compared to what happened thereafter. The next day being Thanksgiving, the market was closed, and in the 24 hours of downtime that followed before trading could begin again, an absolute riot of rumormongering and hype erupted on the message boards, with more than 3,300 messages being posted on the Yahoo board alone. Consider the following, which got posted 10 minutes before the open by someone calling himself Floorwax 2000: ?They have a deal with AT&T, lots of other high-ranking companies. The product competes with Cisco and is $100 cheaper. Cisco might just buy them.?
Result of such hype? By 10 a.m., what had been a $3.50-per-share stock on Tuesday was selling for $56 a share. But the euphoria lasted exactly that long and no longer, for the very instant buying pressure began to weaken, the traders who had started the whole thing began cashing out, and an avalanche of selling hit the stock, sending it careening within minutes back to $19 per share.
Unfortunately, believing what they?d been reading on the message boards about Ariel, na‹ve investors saw the plunge as an actual buying opportunity and rushed in to scoop up these suddenly ?underpriced? shares, sending them back to a closing price of $37. But by the following Monday it was all over as short-sellers descended on the carcass and began picking it clean, with the shares closing Dec. 3 at barely $10 per share and heading lower.
Christopher Byron's column appears weekly on MSNBC.
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