If your faith in humanity — and specifically, investors — was already dwindling, I’d imagine Tuesday was a pretty bad day for you.
In a case of mistaken identity, penny stock Nestor Inc. (NEST) ramped up some 1,900% on absolutely no news of its own … but on the news that Google (GOOG) announced a $3.2 billion buyout for a wholly different, privately held company called Nest Labs.
And it’s not the first time something like this has happened — back in October, investors ginned up bankrupt Tweeter Home Entertainment, then with the ticker TWTRQ, thinking it was Twitter, which had announced plans to go public (but hadn’t even actually gone public yet) under the ticker “TWTR.”
This is the rookiest of rookie mistakes. But apparently since it has become “a thing,” a primer on how to avoid this kind of confusion is in order.
So here’s how to not mistakenly buy a penny stock that isn’t the company you thought you were buying. And it only takes about a minute.
1. Go to google.com/finance
2. Start typing in the name of the company you’re interested in. Google will auto-fill as you go along, so you’ll see things such as “Nestle SA” and “Nestor, Inc.”
3. If you keep typing the full name correctly and it doesn’t show up (“Nest Labs” won’t), there’s a good chance that company doesn’t exist or is privately held. If it does show up but doesn’t have a ticker, there’s a good chance the company is privately held.
Now, Google Finance is fallible, so this isn’t a perfect solution. You also could do a regular search for “COMPANY NAME investor relations.” Publicly traded companies have investor relations pages on their websites. If the company’s website doesn’t have an investor relations page (Nest Labs doesn’t), the company probably is not publicly traded.
But, let’s say for argument’s sake that you went all willy nilly and typed “NEST” anyway, figuring that would do the trick, and you looked past the company name, too.
I’ve got a backup plan!
So, you’re on the ticker page for your supposed dream company. Scroll down and look at the company description.
In this example, please look for mentions of “thermostat” or “smoke alarm,” which are the core of what Nest Labs does (from Google Finance):
“Nestor, Inc. is a provider of automated traffic enforcement systems and services to state and local governments throughout the United States and Canada. The Company offers both a video-based automated red light enforcement system and a multi-lane, bi-directional scanning light detection and ranging, (LiDAR), speed enforcement system. It also offers a Video Detection and Ranging (ViDAR) speed detection and imaging system to complement its other products. It also offers CrossingGuard, a red light enforcement product; Poliscanspeed, one of its speed enforcement products, which uses technology developed by Vitronic GmbH. ViDAR uses average speed over distance calculations to detect and record evidence of speeding vehicles.”
Does this sound like the amazing company whose products so interested Google (and yourself) that you felt compelled to buy it ASAP, hoping to ride along for some extra buyout boost down the line?
Then it’s a completely different company, and this isn’t the stock you’re looking for. And by taking literally just a minute of time to do the most basic of research, you prevented yourself from making a critical investing mistake.
And if you can’t do any of the above, contact me on Twitter — I’ve got a hot new tech startup that’s just dying for new funds.