Adrian Reid warns viewers about the severe risks of trading partly paid securities using a historical Australian example (a toll-road listing ~12–15 years prior) where investors bought near-minimum-priced shares without reading that additional capital calls (two extra tranches) were required. He explains how buying large quantities at a tiny listed price can create massive contingent liabilities — investors thought downside was limited but were forced to pay per-share capital calls and some went bankrupt. Reid’s takeaway: avoid partly paid securities; if an opportunity seems ‘too good to be true’ it often is.
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Have you ever wondered whether it's safe to trade any type of stock that's listed on the stock exchange? Well, the answer is absolutely no. In this video I'm going to explain to you one of the most dangerous types of instruments that's listed on the stock exchange that you can trade. If you're not careful. This could absolutely send you bankrupt. So stick around, check out this video. But before we go any further, make sure you hit the subscribe button and give this video a thumbs up so that you get notified of all of my future videos. Because I've got new trading content coming out all the time and I don't want you to miss a thing. There was a horror story.
Years back, actually not that many years back. Might have been 12 years, maybe 15 years ago in Australia where there was a toll road that was listed, and that toll road was listed as a partly paid security.
And it. And buying that security came with the obligation to contribute additional capital in two extra tranches at defined points in time.
And what happened was that toll road essentially was going bust and the share price dropped to the minimum.
Share price allowed on the ASX. It's like 0.01 cent or something. I can't, I can't remember that. I remember it happening, but I can't remember the price.
And all these people thought, oh, I'm really clever.
This stock cannot go any lower unless it actually goes bankrupt. But I can buy a bazillion shares for like a hundred bucks.
And all I'll lose is my hundred bucks.
So genius. Huge reward, very little risk, great trade, right?
So what these people did is they bought a relatively modest dollar amount, maybe 10, $20,000 worth of this stock, expecting to become bazillionaires, but they didn't read the fine print and realized that these were partly paid securities. And this is such a great story because let's say the share price was. I can't remember. But let's make it up. Let's say it was 0.1 cent and you bought $10,000 worth. So $10,000 divided by 0.001.
So they bought 10 million shares, let's say. And if you bought 10 million shares of a stock that was at 0.001 dollars per share and it went up just a little bit, then you're going to make a decent amount of money. But if you didn't realize that those 10 million shares came with the obligation to contribute an additional dollar of capital per share.
Then what happens when that obligation falls true, falls due and no one is willing to buy these from you.
What happens, you go bankrupt.
So I don't think a kidney sells for that much money.
So these people went bankrupt.
Because they bought partly paid securities.
And so my philosophy since observing that debacle was don't buy partly paid securities because that's just a world of hurt that you just don't know what's going to happen. So there's no free lunch. If they think something is too good to be true, it probably is. And just like these people who also in a similar, similar sort of situation, people who bought oil futures at $0.01, it's like the price can't go below zero. I can't lose. It's only up from here. No, it went to minus 30.
So you got to be really careful in assuming that there's a free lunch, because there's not anyway. So, Scott, that's why I don't trade partly paid securities. And there's actually not that many of them and I don't even know if they exist anymore, but if I ever saw one, I wouldn't buy it. I would just forget it.
