A:

Goldbrick shares are securities that look valuable when, in fact, the stock is not worth very much. Goldbrick shares occur most often during surplus times when excitement grows around an undeserving company and its stock price goes up. Increased interest in the company leads more investors, who have high hopes of capturing a portion of the expected profits, to buy shares in the hyped company. In this way, a normally low-value investment escalates to an inflated value.

A famous example of goldbrick shares is the incredible rise of Bre-X Minerals Ltd. Bre-X was a small mining company based in Calgary, Canada. In 1995, the company reportedly discovered a large gold deposit in one of its drilling sites in Indonesia. The news drove low share prices to a peak of C$286.50 as investors fought to benefit from the discovery. Eventually, the amount of gold unearthed at the site was determined to have been exaggerated and share prices plummeted. Meanwhile, investors rushed to withdraw their money from the failing company. Goldbrick shares are not always created by fraud, but fraudulent activity is evident in some cases.

(For more on this topic, read The Biggest Stock Scams of All Time.)

This question was answered by Richard C. Wilson.

RELATED FAQS

  1. Who are the most famous people convicted of insider trading?

    Learn about some famous people who were convicted of illegal insider trading and find out about the reasons for their criminal ...
  2. What techniques can be used for hedging exposure to the electronics sector?

    Learn how allocating portfolio space to counter-cyclical and non-cyclical sectors allow investors to hedge exposure to the ...
  3. What's the difference between insider trading and insider information?

    Learn about insider information and insider trading and the differences between the two; both involve nonpublic information ...
  4. What techniques are most useful for hedging exposure to the banking sector?

    Learn how investors hedge exposure to the banking sector by investing in more aggressive sectors and also by investing in ...
RELATED TERMS
  1. Synthetic Identity Theft

    A type of fraud in which a criminal combines real (usually stolen) ...
  2. Cyber And Privacy Insurance

    An insurance policy that provides coverage from losses resulting ...
  3. Financial Action Task Force (FATF)

    An intergovernmental organization that designs and promotes policies ...
  4. Banker Trojan

    A malicious computer program designed to gain access to confidential ...
  5. Black Market

    Economic activity that takes place outside government-sanctioned ...
  6. Bear Raid

    The illegal practice of ganging up to push a stock's price lower ...

You May Also Like

Related Articles
  1. Mutual Funds & ETFs

    Top Commodities ETFs for Your Retirement ...

  2. Chart Advisor

    3 Commodity Stocks Poised For A Move ...

  3. Stock Analysis

    Today's Top ETFs: Worth a Bet or Should ...

  4. Options & Futures

    Taking Measure: Gold, Diamonds and... ...

  5. Options & Futures

    5 Gold Stocks that Pay Regular Dividends

Trading Center