A Penny for Your Stocks?
By James J. Cramer
3/28/00 6:56 AM ET
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Do you know that you could have bought Cisco (CSCO:Nasdaq - news - boards) for 6 cents a share 10 years ago? Does that inspire you to go to the bulletin-board portion of the Nasdaq and find the next Cisco?
If it does, you would be Wrong!
There is a word that doesn't get mentioned enough when we look at the fantastic performers of this era; it is "split-adjusted."
Cisco has split nine times. That means its current price of 80 has to be adjusted nine times to figure out what it came public at. It did not come public at 6 cents. It never traded at 6 cents. In fact, I remember the day it came public, and it never traded at 18. It was hot (meaning it went to a premium) from day one.
(As an aside, I used to go to quite a few hedge-fund dinners with other managers before the Trading Goddess explained the facts of being a dad to me -- very hard to quiz daughters about the multiplication tables while you are at the Remy table talking stocks. After a while I got tired of having to defend Cisco from the ceaseless "overvalued" attacks of my colleagues and I would just doodle, or whistle or do something disruptive to voice my displeasure. I can't believe how hated this stock was by the intelligentsia during the 1990s.)
But people persist in thinking that they can find the next Cisco by looking for penny stocks. If there is a theme that rivals "taking something off the table" for my passion, it is the desire to make you realize that penny stocks are a joke, often a fraud, and a huge mistake to own.
People who push penny stocks prey on the notion that you won't understand what "split-adjusted" means and you will just cruise around looking for the next Cisco among the 6-cent litter pile. I know this stuff goes on because periodically I sneak in to these chat rooms and sites to see what stock people are pushing.
It revolts me. I don't think you could give the SEC enough dollars to shut down all of these scams. Sure somebody is going to win at this game. Somebody wins on the slots too. And there are winners in football pools and the numbers games.
But that's not what trying to beat the market is all about. That's not what picking winners is all about. Most of these penny-stock games are rigged games, and only those who get out while the pumping is going on make any money.
If you think you can find the next Cisco in the bulletin-board stocks, may I suggest that you at least stop lying to yourself? Own up to the fraudulent nature of the pursuit.
Oh, and while I am dissing your investment skills, please play 754 tonight. That's my lucky number.
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James J. Cramer is manager of a hedge fund and co-founder of TheStreet.com. At time of publication, his fund was long Cisco. His fund often buys and sells securities that are the subject of his columns, both before and after the columns are published, and the positions that his fund takes may change at any time. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. Cramer's writings provide insights into the dynamics of money management and are not a solicitation for transactions. While he cannot provide investment advice or recommendations, he invites you to comment on his column at jjcletters@thestreet.com.
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