Investing Answers Building and Protecting Your Wealth through Education Publisher of The Next Banks That Could Fail
Investing Answers Building and Protecting Your Wealth through Education Publisher of The Next Banks That Could Fail

Goldbrick Shares

What it is:

Goldbrick shares are shares of stock that appear valuable but are actually worthless or worth very little.

How it works (Example):

For example, let's assume that Company XYZ is a tech company with growing revenues but growing losses. Its stock, which trades on the New York Stock Exchange (NYSE), is valued at $20 per share even though the book value of the company is only $1 per share and its inexperienced management knows little about how the grow the company successfully. Nonetheless, Company XYZ gets a lot of press, does a lot of marketing, and has a charming sock puppet for a mascot. This fuels hype for the stock, which motivates people to bid the price up in order to get their hands on some shares. In reality, Company XYZ shares are goldbrick shares -- their value is based mostly on hype.

Why it Matters:

Goldbrick shares can often be found at the tops of financial bubbles. For example, plenty of companies were goldbricks during the dot-com bubble: they garnered a lot of hype but never made any money and eventually went under. Sometimes, fraudulent accounting practices can be involved.

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