There are a couple of considerations. There was a horror story around 12 or 15 years ago in Australia, where a toll road was listed as a partly paid security, and buying that security came with the obligation to contribute additional capital in two extra tranches at defined points in time. What happened was that toll road was going bust, and the share price dropped to the minimum share price allowed on the ASX around 0.01 cent. This stock cannot go any lower unless it goes bankrupt, but I can buy a bazillion shares for 100 bucks and all I’ll lose is my 100 bucks. People thought I’m clever because of the huge reward and minimal risk, which equates to great trade.

These people bought a relatively modest amount, around 10, $20,000 worth of this stock, expecting to become bazillionaires. However, they didn’t read the fine print and realised that these were partly paid securities. This is such a great story because, for instance, the share price was 0.10 cents, and you bought $10,000 worth, so $10,000 divided by 0.001 means they bought 10 million shares. If you bought 10 million shares of a stock, that was at .001 dollars per share, and it went up just a little bit. Then you’re going to make a decent amount of money. However, if you didn’t realise that those 10 million shares came with the obligation to contribute an additional dollar of capital per share, what happens when that obligation falls due and no one is willing to buy these from you. You go bankrupt. I don’t think a kidney sells for that much money. So these people went bankrupt because they bought partly paid securities.

Therefore, my philosophy upon observing that debacle was to not buy partly paid securities because there’s just a world of hurt that you don’t know what’s going to happen. There’s no free lunch. It probably is if they think something is too good to be true. Just like these people who are also in a similar situation, people who bought oil futures at one cent. They will think that the price can’t go below zero and they can’t lose, since it’s only up from here. However, it doesn’t work that way, it went to minus 30. Thus, you have to be careful in assuming a free lunch because there’s not. In conclusion, I don’t trade partly paid securities, and there are not that many of them, I don’t even know if they exist anymore. But if I ever saw one, I wouldn’t buy it and just forget about it.

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