Tuesday, February 23, 2021

Eager traders race to buy hot app Clubhouse stock, or so they thought

Confused investors waste millions of dollars every year buying the wrong shares.

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The past few months have been a tumultuous ride for investors in the audio social network Clubhouse.

The app creates audio chatrooms in which users can listen to live conferences, but only if they have already been invited to join the platform by current members.

Launched in March 2020, by early this year the exclusive Clubhouse audience had grown to at least two million active users, including Oprah Winfrey and Elon Musk.

Clubhouse offers a measure of privacy in that it does not record contributions from members, so the app soon took off in China as enthusiastic users flocked to discuss the government’s detention of Uighurs, aggression towards Taiwan and the plight of protesters in Hong Kong. But not for long.

On Feb 9, it was blocked by China’s “Great Firewall”.

Investors are always anxious to buy into social media’s latest promising fad, hoping it will make them millions, according to the Economist.

After Musk tweeted that he was joining the platform on Jan 31, the share price of Clubhouse Media Group soared by 117%.

Unfortunately, traders with quick-draw wallets had failed to spot that ownership of the Clubhouse app, like membership, is by invitation only.

Clubhouse Media Group is a wholly separate firm, based in China. Once its new shareholders spotted their mistake, its price sank back down.

Musk’s tweets have led to similar confusion before. On Jan 7, he instructed his 46 million Twitter followers to “use Signal”, an encrypted messaging app.

On seeing the tweet, investors promptly bought shares in Signal Advance, a medical-device company from Texas with one full-time employee. At the peak of the frenzy its share price rose more than six times before realisation dawned and it fell back.

In 2013, traders intending to purchase shares in Twitter instead bought Tweeter Home Entertainment, a bankrupt consumer-electronics firm, a month before Twitter itself went public.

In 2017, investors confused Snap, the parent company of Snapchat, a messaging app, with Snap Interactive, a software company.

Last year some investors even confused Tesla, Musk’s electric-car maker, with Tiziana Life Sciences, a biotech firm with the stock ticker “TLSA”.

A covid-induced surge in users for video-conferencing service Zoom, coincided with a spike in investment for Zoom Technologies, a small Beijing-based holding company that traded under the ticker “ZOOM”.

Mistakes such as these, can be highly expensive to careless traders who buy the wrong shares at too high a price.

Of course the cost of their embarrassment and damage to their reputation is often even greater.

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