Bitter Coffee

My dumbest move was definitely investing in Jammin’ Java. Stupid me. — Joe E., Oak Lawn, Illinois The Fool Responds: Jammin’ Java was a terrible investment for many others, too. In fact, it was a great example of the classic “pump-and-dump” scheme, and it even ended up being charged with that by the Securities and Exchange Commission (SEC). These schemes involve dastardly sorts buying shares of a company’s stock and then hyping up the company online or in mailings, often fraudulently. That causes gullible investors to buy shares, driving up the price. The hypesters then sell their shares at a profit, triggering a collapse in the share price that wipes out many investors. In this case, they touted the success of other coffee-centered companies such as Starbucks and Green Mountain Coffee Roasters (later Keurig Green Mountain and now Keurig Dr Pepper after a recent merger), suggesting that Jammin’ Java might perform similarly well. Alas, Jammin’ Java had no profits and its stock was trading in pennystock territory (that is, for less than about $5 per share) — dangerous ground. Penny stocks are often speculative enterprises, without solid track records of rising revenue and earnings. Jammin’ Java at one point had a market value north of $400 million — and while posting less than $100,000 in revenue, at that! To play it safe, just avoid penny stocks, and with any other portfolio candidates, research them well and favor profitable and growing companies.