Falling for Hype

My dumbest investment was investing in shares of a company that had an innovative, reportedly environmentally friendly fracking technology: pumping a propane gel deep into the ground to release natural gas instead of pumping in water, which would get polluted. (The propane was recaptured above ground.) This technique was supposed to revolutionize the fracking industry, but my shares went from trading for about $10 apiece to bankruptcy, which the company filed in 2015. That was the first and last time I bought into a company without doing fundamental analysis prior to purchase. It was a great learning experience about dealing with hype. — S.H., online

The Fool Responds: This was a classic penny-stock fiasco. Digging online, you can run across excerpts hyping the unprofitable little company with words such as this: “an extraordinary new technology ... which will fuel the fracking Mega Trend for decades.” “It is a fortune in the making. Keep reading to learn how you can collect yours, starting now.” “In addition to immediately solving every environmental concern over fracking in the U.S., there’s a very real possibility this company’s technology could actually get MANDATED ... by every oil- and gas-producing country in the world.” Breathless language like this is a big red flag.

The company’s technology was intriguing, but it would have been best to watch it for a while, waiting for it to establish a track record of growth and profits.