What is Goldbrick Shares
Goldbrick shares are stock shares in a company that appears to be worth more than they really are. The share bears the surface front of quality and worth but is in fact worth very little. This term can be compared to painting a worthless brick gold and proceeding to sell it as a real gold bar, a practice used to trick people in the past and where the term derived its name.
BREAKING DOWN Goldbrick Shares
Although goldbrick shares tend to connote a fraudulent or otherwise disreputable company, this is not always the case. Often, during times of market euphoria, the value of certain goods and services get overly inflated - witness the dot-com boom of the late 1990s. When this happens, it's possible to see shares in perfectly legitimate businesses become goldbrick shares when the hysteria wanes.
One reason the term "goldbrick shares" has such a negative connotation is because the act of gold bricking was originally an old miners' trick, in which part of a brick was solid gold, while the rest was merely coated in gold, giving the appearance of much greater worth. Just like those bricks of yore, however, one can avoid getting stuck with goldbrick shares by doing the proper due-diligence in researching before you buy.
Why goldbrick shares can be dangerous
Goldbrick Shares can be very dangerous to potential investors because they may be led to purchase shares that are essentially useless. And just how does a goldbrick share even get created? They may be created through hype or marketing or even fraudulent practices on a company’s part to drive up interest in the shared. There may be people excited about the company’s shares or product, but without the backbone of proper company management or internal structure, the book value of the stock is a losing bet. Out in public, the goldbrick share may be valued at $15 per share, but internally, the stock is actually only valued at $2 per share. However, again, not all companies are purposely trying to deceive people into buying ill-valued stocks; sometimes, the hype is external and simply misleading.
One of the most famous examples of goldbrick shares is the dot.com financial explosion, in which many company shares were hyped to be valued and worth a lot more than they actually were. The dotcom bubble and inevitable burst is a good reminder that although something may be popular, it doesn’t mean it’s valuable or profitable.