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Spamming Penny Stocks

Steer clear of low-priced stocks that are publicized in mass e-mailings.

The future looked amazingly bright for TrimFast Group, an Edgewater, N.J., company that said it supplied prepaid debit cards, long-distance phone cards and prepaid legal services. Or so one would have gathered from its publicity, much of which came in mass e-mailings last June. But if you responded by buying TrimFast's stock, your portfolio almost certainly would have suffered a fast trimming. At 2.1 cents in mid November, the stock was down 86% since the e-mail blast.

Investing in penny stocks has always been super-risky. Now comes evidence that low-priced stocks that are publicized in mass e-mailings are just as dangerous to your wealth. Bombarded with penny-stock spam, Joshua Cyr, a 31-year-old software developer in Portsmouth, N.H., decided to see how the shares actually performed. So with a universe of 37 stocks that were touted in e-mails between May 5, 2005, and June 27, 2005, he started a hypothetical portfolio. Says Cyr: "I figured I'd see what would happen if the average Joe, who doesn't know much about what these stocks are, were to actually invest in them."

The results are dramatic. As of mid November, the portfolio was down 52%. Sixteen of the stocks were down 75% or more (one appears worthless). Only six rose. During this period, incidentally, the small-company Russell 2000 index climbed 12%.

As for TrimFast, its Web site is no longer operational, and the phone number shown in its most recent Securities and Exchange Commission filing has been disconnected.

--Dan O'Connell