Beware the whisper stock

There’s a chapter in One Up on Wall Street where Lynch describes stocks he’d avoid. Among them is the whisper stock.

This is the stock when someone at work, a family get-together or party can’t resist telling you about. It’s usually involved in something too complicated to understand. Also, whatever industry it’s in it’s going to “revolutionize”, “disrupt” or “insert trendy business jargon” it.

Whisper stocks have a hypnotic effect, and usually the stories have emotional appeal.

Peter Lynch, One Up on Wall Street

These sorts of hustles happen routinely and can make a sucker of the best investors. Think about all the investors in Theranos. Many of them were seasoned enough to know better. Yet, it’s these types of investments that prey upon a universal desire to be in on the early stages of something big.

My own whisper stock story followed this outline. Years ago I invested in a long-shot junior mining company that was drilling for diamonds in northern Canada. I had been primed by someone whom I thought I was reputable.

The Lure of Canadian Diamonds

Before I got to the point where I invested I had been given the vision of Canadian diamond mines by Chuck Fipke and his Eldorado-like discovery of the Ekati diamond mine. Before him, Canadian diamonds didn’t exist. They were mythical and Ekati proved to be a black swan event.

It wasn’t just the myth of diamond hunting in Canada that reeled me in. Just before I bought into it I had successfully invested in a junior gold mining company called Canplats. It gave me the sense that I could do it again.

The rest of the story is simple. The drill results turned out to be a bust and all the capital I had invested in it vanished. Luckily, I was smart enough to risk just a small percentage of my portfolio. Somewhere in the back of my mind I knew this was speculation, not investing.

Lesson Learned

Since then I’m highly skeptical of any junior mining stock that gets recommended to me. I won’t invest in any listing that is a small-cap based in Vancouver, Canada anymore. There are a lot of hustlers there and to those who don’t know it has a reputation it deserves.

Anyways, I hope that story helps you avoid the whisper stock. I’m a big believer that everyone has the ability to successfully invest in the stock market. If you’re not already doing it subscribe to my newsletter. I routinely share the wisdom of investing giants like Peter Lynch.