A summer tale
“You are acquainted with the thinness of the partitions which separate the little apartments, the ‘cabinets particuliers’ in the most elegant restaurants in Paris.” Thus begins “Firm of Nucingen”(1) In this short work of Balzac (and yes Balzac also wrote short works), four newspaper men dine in one of these indiscreet private rooms discussing the rapid social ascension of Rastignac. At this stage of the story, Rastignac was already the lover of the Baroness Delphine de Nucingen, living a very comfortable life and had turned his hand to investing in the stock market.
The four comrades speculate: “But where did he get his fortune?” asked Couture(…) “He inherited” said Finot. “Of whom?” said Blondet. “Of imbeciles whom he met,” answered Couture.”
Without necessarily being familiar with this work from Balzac’s “The Human Comedy”, the founders of Neuromama offers an excellent example of the method used by Rastignac for getting rich. Before the SEC(2) suspended its trading, the market capitalization of this improbable company – that had not published a balance sheet since 2013 and released information covering an eclectic range of activities from audiovisual to distribution platforms and even the nuclear industry – amounted to US$35 billion, a market capitalization comparable to Tesla or Estée Lauder…
The technology universe has accustomed us to these extraordinary stock market stories where enormous value is created in a very short time, along the lines of WhatsApp valued at US$20 billion just five years after its creation. An inspiration for the creators of Neuromama that from its very inception proceeded to register their company on an over-the-counter platform, the Nasdaq OTC Board bulletin. And even though this trading venue’s name evokes that of the prestigious NASDAQ stock market, its operating rules are very far from those of its eponym: no controls are imposed on companies listed on this medium. It was still however possible to sell a dream, or as Neuromama’s homepage proudly stated: “We have dreams. I have dreams for our children”.
Neuromama thus joins the long list of stock market scams. Scams that start with the introduction of penny stocks(2) listed on more or less exotic stock exchanges and promoted by unscrupulous financial intermediaries. Share prices are pushed up by purchases of new buyers that continue to acquire shares and it can sometimes take several years before the scam is ultimately unravelled and what was considered to be hot stock is revealed to be nothing more than a phantom company no real activity. In this case Neuromama, the scope of the stock market manipulation remains exceptional: a “virtual” market capitalization of $35 billion turned into fairytale gone wrong! This figure confirms the continuing relevance of Balzac’s observations: there are just as many imbeciles today as they were in the 19th century. The difference is that Internet allows them to join their forces more quickly.
To return to considerations about financial markets, one might find it surprising that – even though regulations are becoming increasingly stricter every day for our businesses in the name of protecting the retail investor – universes (much?) too regulated coexist with stock exchange platforms that remain completely below the radar, like the legendary forest of Bondy, well-known as a haunt of bandits and robbers…Our principles that are simple in nature will thus remain valid irrespective of future regulatory developments: focusing on the major stock exchanges, visiting the companies in which we are interested in investing, and retaining that small dose of paranoia that all prudent investors must possess.
(1) La Maison Nucingen, also translated as The House of Nucingen as well as Nucingen & Co, Bankers.
(2) The US Securities and Exchange Commission.
(3) Shares trading at very low prices often on secondary markets not listed on a national exchange and often traded over-the-counter.
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