The Malcolm Berko Blog

Dear Mr. Berko: We have a very good-quality portfolio of stocks and every once in a while my wife and I like to take a speculative plunge in cheap stocks selling less than $1 a share. We’ve never made any money speculating like this, but we can afford the risks and kind of enjoy the gamble.
Last week, while on an extremely difficult and very confusing business trip to Miami, we met this money manager who has his own firm in Miami. To shorten a very long story, this man made a very convincing presentation and would like us to invest $80,000 with him. All of the stocks in his managed portfolio sell under $1 today and he believes that most of the issues on his list can at least double or better in the coming 12 months.
My wife is 100 percent convinced and I must tell you that this man was professional, knowledgeable and sincere. He’s almost a new friend.
His “batting average,” as he calls it, is fantastic. In 1999, he was up 152 percent. In 2000, his portfolio was plus 261 percent and in 2001, his managed portfolio was up 202 percent. In 2002 and 2003, he was plus 179 percent and 136 percent, respectively.
The references he gave us verified those numbers and they were very enthusiastic about his performance.
My wife is chaffing at he bit to invest but I’m not as certain as she, which is why I’m writing this letter. Martha (my wife) says if you can recommend better low-priced stocks, then we will put $40,000 in your recommendations and $40,000 in his managed portfolio. Please advise us.
R.S.
Oklahoma City
Dear R.S.: Miami is a mecca for con artists, grifters, drug dealers and schlock brokers like your “knowledgeable and sincere” new friend. I’ll wager good money that his sincerity is 100 percent synthetic with a single, natural fiber.
Yes, that track record, in perhaps the worst-ever market environment, is phenomenal. However, a good con artist/schlock broker knows that a big lie is much easier to believe than a small lie, and you’re letter to me is living proof.
I promise you that this guy is so crooked he’d cheat on his prostate exam. I’m willing to wager money to mangoes that the references with whom you spoke are in this fellow’s employ. If you ring them once again, you will hear the same story, word for word and comma for comma.
I don’t know enough about penny stocks to recommend issues that can go into intergalactic orbit. Frankly, I don’t recognize a single name on that penny stock list, but the few I checked looked minutes away from bankruptcy.
I suspect someone at the Internet firm that you and Martha came down to visit – because they need start-up financing – introduced you to this fellow. When you and Martha had lunch with the firm’s someone, I suspect that this schlock brokster (who is certainly a friend of that someone) just happened to be at the same restaurant. How am I doing so far? Be mindful that I heard all this before.
Now, if you listen to me, I think you will avoid a $80,000 tax-loss this year or next. I’d like you to place that list of stocks in front of Martha. Ask her to close her eyes and with a pencil just mark any stock on that list.
Let’s assume that she marked Medi-Hut Co. Inc. (MHUT). Please note that MHUT is priced at 45 cents on your list and while it’s a legitimate company with employees and revenues, you can buy this stock all day for 8 cents a share.
OK, it’s your turn. Close your eyes and place a pencil mark on any stock on this list.
Let’s assume that you marked ZKid Network Co. (ZKID). ZKID is also a legitimate company with employees and is priced at 81 cents on your list. Well, you can buy shares of ZKID all day for 14 cents each.
In fact, every one of those small penny stocks on your list is probably marked up at least 500 percent. In essence, you’d be paying $80,000 for penny stocks that have a current market value of $16,000. This is a nice day’s work for your professional, knowledgeable and sincere new friend. It would also be a sad experience to memorialize your first visit to Miami. You’re in the process of “being had!”
Please address your financial questions to Malcolm Berko, P.O. Box 1416, Boca Raton, FL 33429 or e-mail him at malber@adelphia.net.
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