In the news this week is the story of John Babi****  (I do not give his full name because I do not need this blog identified on Google search.  I know nothing beyond the news)

Anyway, this 26 year old guy apparently has made $100 million on pump and dump schemes.  He buys a major position on a worthless penny stock company and then sends out false emails to a million people saying the company is about to make a fortune.  99.9% of the people ignore the email but enough think it is true to temporarily drive up the stock price.  Penny stocks can do this overnight.

So the guy dumps his stock when the price triples and bails out.  The stock immediately falls back to its original value and the suckers lose.  Actually not illegal although a bit immoral. He did this dozens of times.  As a result he owns a Bugatti but is running away from his wife’s lawyers and the police, but $100 million allows for lots of running.

Many years ago (way before  internet) there was a story that I read that was an earlier version of this.  This guy wrote a letter to 5000 people (somehow came up with a list of minor investors)  In half the letters he predicted that a particular stock was going to go up. In the other half he predicted that the stock would go down.  Purely statistical.  A couple of months later he wrote the 2500 people where the stock price had gone as he said and gave another 50/50 prediction.  Not asking for money just saying he was a specialist.  This went through 5 iterations where finally he wrote those few that his predictions had proven out and asked for $10,000 for the next prediction.  Apparently enough people signed on and he was able to cover all his costs for the mailings and make a good profit without actually knowing anything.

I have often thought that if I received 5 letters with correct predictions in a row would I jump on.  These days with all the scams I would not trust anyone but in the 70s this was not as well known.

In 1980 I joined Gulf Canada as a financial manager.  At the time everyone in the office was playing the stock market.  Good pay but a significant reason was because everyone had a computer with early on-line access.  The guy I replaced spent the first hour every day checking on his stock portfolio.  At coffee breaks this game was the normal conversation.  It was like a year-round hockey pool.  Now remember at the time I had just graduated with a rare MBA so thought I was pretty smart.

With little delay my co workers had lined me up with a broker and I put in $500 (which at the time was more than we could afford)  I invested in a series of penny stocks and on one great weekend I made $700 on a minuscule gold mine stock.  I was bragging in the office about my skill when a couple of days later it crashed as it was a pump and dump and I had waited too long.  I took the lesson and cashed out, took the capital loss and thanked my lucky stars.  We had kids to feed, mortgage to pay, car payments to pay.

Since then I have followed a conservative and happy lifestyle……. but I never did get a Bugatti.