Greed Hits the Mailbox
Nearly every investor receives them in the mail: slick and
usually colorful PR pieces, disguised as investment research,
which are really nothing more than promoters out to convince you
to buy their stock "on the ground floor."
Many promotions offer unrealistic gains in very short amounts
of time to entice the reader to continue reading. Some suggest
"if the idea of turning $1,000 into $11,200 appeals to you, read
this report." Others claim "we believe this $10,000 investment
in (for example, XYZ oil) will be worth $30,000 this year alone,
and could grow to over $100,000 within the next 2 to 3 years."
Clearly these suggestions of great riches are not made by
legitimate investment advisors. Unfortunately, this sneaky and
misleading gimmick causes many eager investors to invest in
nearly worthless securities.
If you are bitten by the bug of quick profits, here are a few
tips that could save you from a bad investment.
* First, understand the motive of the mailing piece. Many
mailing pieces are motivated by the need to pump up the stock
price so that someone could sell their shares at a better price.
* Secondly, do your homework. Don't take the mailing pieces
claims as true. This is exactly what they want you to do. Don't
trust investment research from an unknown source. Do your own
research. There are many online sources of information that you
should check. If you use an online broker, you may be able to
type in the stock symbol and pull up financial information,
recent news, press releases, and government filings of the
company (called 10q or 10k). Read the government filings first.
These have the best chance of being truthful about the company's
activities. You may find that the vast oil resources the mailer
claims do not exist. Sometimes the company in question has no
proven reserves and no cash to find reserves. No matter the
industry, companies need cash to develop product and to operate.
* Next, check out a price chart of the stock. If the price
plunged, there is most likely a good reason for that to have
happened. If the price is increasing at a rapid rate, it could
be a result of the hype generated by the mail piece. You may
want to give the stock a few weeks or months to calm down from
the recent promotion before you buy.
If you find that you still want to own the stock, go slowly.
Everyone knows that investing takes time. Protect yourself.
Never plunk down an amount of money that you cannot afford to
lose entirely. Your initial purchase should be a small
percentage of the overall amount you want to invest. If the
stock performs well, you could always buy a little more. If the
stock turns into a loser, stop. Don't buy more. "Penny" stocks
can quickly become worthless.
Finally, analyze your actions. Are your taking a businesslike
approach to your investment or are you letting your emotions,
particularly greed, determine your actions? Those who invest too
quickly or by greed are prone to making blind decisions and tend
to panic when the market turns against them. When it comes to
investing, leave your emotions somewhere else. Stay calm, be
analytical, and don't believe all the nonsense and rumors that
come your way.
In the end, promoters are paid to create what seems to be a
great investment opportunity that falls directly into your lap.
Just keep in mind that there are many good investment
opportunities out there, but they don't usually come knocking on
your door, especially not with vibrant colors and outrageous
claims. Think about it: If these companies were this good, they
wouldn't need to create wild and misleading claims to get your
attention. The best advice may be some of the oldest - If it
sounds too good to be true, it probably is. Protect yourself by
researching claims. We work hard to earn our money. There are
many legitimate, solid growing companies with proven track
records of success for you to invest in. You really don't need
the risks associated with dubious penny stocks to make money.