My Two Sense: Know Your Stock Purchase, Tweeps

By Michael McLaughlin, Student Intern Fall 2013

twitterOn September 12, 2013, Twitter announced it filed paperwork with the SEC for an Initial Public Offering. An Initial Public Offering or IPO occurs when shares of stock in a private company are sold to the general public on a securities exchange for the first time. The stocks are sold using tickers, which are companies’ abbreviations or acronyms. (For example, Coca-Cola is traded as KO and Amazon is traded as AMZN.). By early October, thousands of investors raced to the securities exchange to be among the first to own a piece of the social-media giant. The problem for these investors, however, is that they bought stock in the wrong company. Twitter didn’t actually go public until today, November 7, 2013—these early bird investors were a month too soon.

tweeterThese early bird investors actually bought thousands of dollars worth of shares of a bankrupt electronics company, Tweeter Home Entertainment. Tweeter had been out of business since 2008, and its stock was worth less than a penny.  Tweeter traded as TWTRQ, and early bird investors confused this ticker with Twitter’s impending ticker, TWTR. On October 4, 2013, the day after Twitter proposed its ticker, early bird investors drove Tweeter’s stock value up almost 700 percent. ABC news reported that “more than 14.3 million Tweeter shares changed hands—the most trades Tweeter had enjoyed since 2007.” The stock jumped from 1 cent to as high as 15 cents because of the confusion. The Financial Industry Regulatory Authority (“FINRA”) ultimately suspended Tweeter’s trading and changed its ticker symbol to THEGQ. After FINRA’s actions the stock plummeted back to its 1-cent value.

These early bird investors wasted time and money on a bankrupt company because they failed to do their investment homework. The mix-up prompted FINRA to release an investor alert to remind consumers about investment best practices. Gerri Walsh, vice-president for investor education at FINRA, warned that, “[w]hen the next big thing is in the news, frauds start swimming like sharks.” So whether it’s an honest mix-up or a calculated ploy, this trading mishap should remind us all how to invest.

In keeping with the Twitter theme, here’s five quick investment tips in 140 characters or less:

  1. Research the Ticker: Check the ticker symbol carefully. Q in a ticker often signals the company is bankrupt so be extra cautious.
  2. Know where the stock trades: Is the company on the NYSE or NASDAQ? If so, there will be minimum standards that companies must follow.
  3. Be a skeptic: Fraudsters persuade investors into “exclusive” IPO offers that supposedly no one else can buy. Ask why me? Ask questions.
  4. Check the Licensing: Fraudsters often sell unregistered securities. Use broker check on the seller and use the SEC for an IPO.
  5. Use Resources: SEC’s EDGAR database describes companies. FINRA explains investments. The NYSE lists tickers. So does NASDAQ.

Basic research on the stock you would like to purchase and the exchange it’s listed on will decrease your likelihood of making a mistake or becoming a victim of fraud. It’s common sense, Tweeps.