The story of Anal Insulin, or how Pete lost his money (part I)
Pete was a fairly level-headed, 37 year old guy who had a nice gig as an ICU nurse in a fairly large community hospital. He was good at his work, well-liked, and was reasonably content making about seventy thousand a year. He didn't have a flashy lifestyle, lived with his girlfriend in a modest three bedroom house, and made regular monthly child support payments on behalf of his two young daughters who lived with their mother in another state. He had never been much of an investor except for a rather futile effort in tech stocks in the late 90's, but made annual contributions to his 401K which had accumulated to about a hundred thousand dollars. Although his employer gave him the option of allocating his own investments, he had chosen the default plan which invested his contributions in a mixture of mutual funds and bonds.
One day Pete was reading a nursing trade magazine when he came across a short article about a company that was developing a new form of insulin that could be administered by rectal insertion, rather than the traditional subcutaneous injection. The article was very optimistic about the research program, and included some glowing commentary from a couple of renowned endocrinologists who seemed to think this could revolutionize the treatment of diabetes. Pete made a note of the name of the company, Gluteus Pharmaceuticals, and went back to his shift. After he got back home he Googled the company and found their website, which seemed very glossy and professional, and linked to more press releases and endorsements. Google also showed him the way to the Google Finance stock quote, which showed that Gluteus was only trading at 6 dollars a share. Pete knew enough about stocks to be aware that 6 was pretty cheap, since most companies he had heard of traded between 20 and 100.
That night Pete didn't sleep well. He had administered thousands of insulin injections himself and become accustomed to the winces of pain he saw on his patients' faces. But just imagine a new insulin which didn't require injection! If it worked it would revolutionize diabetes management. And one little company selling that Anal Insulin to all those millions of patients! Gluteus could be the next Google, trading at 800 within a couple of years. Pete remembered the article he had read. How many other people had read that article and were already buying up the shares?
The next day Pete used his break to determine the procedure for moving his 401K to an online brokerage account. Later he opened the account, and started the transfer paperwork. He wasn't supposed to be on the Internet at the hospital, but he checked Gluteus's share price several times in the course of the day, and was relieved to see it hadn't changed much. That night he transferred his 401K to the online brokerage, and the next day he sold off enough of the holdings to give him twenty thousand in cash to work with. For several days he just watched the Gluteus share price, until he noticed that it moved up several percent two days in a row. That was enough. Clearly the world was taking notice, and it was now or never. He sat down and clicked through the steps necessary to buy three thousand shares of Gluteus at 6.5. He hesitated briefly at the Are you sure? prompt, then hit enter and became the owner of twenty thousand dollars worth of the stock.
To be continued ...