My Thoughts on Traders Mixing Up ZM and ZOOM

Here’s something interesting that happened recently.

Zoom Video Communications (NASDAQ:ZM) IPO’ed on April 18 at $65. The company, a Skype competitor, is growing and logged an impressive $330 million in revenues last year. 

Candlestick Chart of ZM, a newly IPO’ed stock on Nasdaq, from April 18 to April 30.

Simultaneously, another stock, Zoom Technologies (OTC:ZOOM) began to rise as well. Except this company has had $0 in revenues since 2012. Despite that, people mistakenly bought the dead penny stock, ZOOM, on OTC instead of the profitable one, ZM, on NASDAQ. As a result, the wrong stock skyrocketed 1,900% from $0.30 on April 1 to a high of $6 by April 15. 


Candlestick Chart of ZOOM, a company that hasn’t had a sale since 2011. April 1 to April 30. Not shown here is that the stock was at $0.006 on March 22 before ZM’s IPO announcement.

It is tempting for a trader to see a stock like ZOOM go up 1,900% and mentally calculate how much money they would have made if they had bought into the madness. They might lament, “I could have turned $10,000 into $190,000.” But this is an example of why there’s the saying, “Hindsight is 20/20.” It’s easy for someone to delude themselves into thinking that what just transpired was so obvious that everyone should have been able to take advantage of it. But during the actual moment, it never is.

Even though everyone knows by now (hopefully) that ZOOM must revert back to its intrinsic value (because no one in their right mind is going to buy and hold a stock for the long term whose underlying company hasn’t made a sale since 2011), no one could have predicted, as it was occurring, when the unfounded madness would cease.

Who says you would have sold at the top? You don’t know that. You don’t know if the ZOOM bubble would have popped after 200% or 300%. In this case, ZOOM peaked at an astonishing 1,900%, intra-day before coming back down.

Moreover, who says you would have been confident enough to put enough money into the speculation to make it worthwhile? Until you’re in the moment and actually trading a penny stock – where being wrong might mean bag holding a halted stock for the next two years – you have no idea how willing you are to risk your capital on a complete speculation.

Even if you told yourself, “I won’t be greedy, I’ll only wait for a double or a triple” – you have no idea if a stock will double or triple, let alone go parabolic – false breakouts happen all the time.

Despite the mistake now being brought to light, there’s no telling if the madness is over; ZOOM stock is still at $1.85 – well above the $0.30 it used to be at the beginning of April, and exponentially higher than the $0.006 it was trading before ZM announced its IPO in late March.

Disclosure: I have no position in any of the stocks mentioned in this article and have no plans to initiate a position within the next 72 hours. This article expresses my opinions only, and is not to be misconstrued as investment advice or a recommendation to buy or sell stock. For more information, refer to the Terms of Use and Privacy Statement.

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