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.

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