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With more and more people entering the markets each day, the potential victims to scam and manipulate grow. Of course, we all want to make money as fast as possible, so you can see why it would be so easy. Did you know that there people who are paid to solely hype and promote a stock to raise the price?
Most notably stock promoters are hired individuals or companies with one goal in mind: to spike the price up as much as possible. Seems like a relatively reasonable idea considering the whole idea of the market is to buy stocks low and sell high; however, because most stock promoters scam, weasel, and use sneaky tactics, stocks that use promoters are generally a one way street to crash.
If you’re not familiar with stock promotion, then you’re probably wondering what’s so wrong with it? After all, companies enter the stock market with the idea of having their price go higher. The problem is the promotion falsifies the actual growth of the stock price. There is generally no substance to it and the raise in price is typically based on some embellishment. It could be a day or a couple weeks, but almost 100% of the time the stock does come crashing down.
While there are no clear ways to tell whether your stock is being promoted or if it really has some solid potential, there are some signs to look for:
First off, stock promoters are generally assigned to stocks with prices under $1. Many times they are actually less than a cent. Another reason why penny stocks are considered very risky plays.
Promoters use mailing lists, message boards, and even Twitter to pump up their stocks, while trying to impress you with solid fundamental company numbers and rarely use technical analysis to persuade you.
Although you can’t really tell whether somebody believes a stock is really good or just trying to promote it, looking out for the above traits will give you a chance of spotting the “scum”… which is why its always nice to have your own trading strategy to analyze any stock recommendations.
Example of Stock Promotion
You CAN make a lot of money from timing these stocks. While many traders would advise to stay away from these promoted stocks, there are actually some that make a living simply buying these stocks on the way up and shorting them on the way down. It takes a lot of research and a couple panic attacks, but if you can get the hang of it, then there is huge money to be made.
There are different levels of stock promoters, and this is really where you need to watch out. Whether it be various users on social networks and message boards just trying to get people to buy a stock because they are holding it or CNBC bringing on guests and analysts with a secret goal of pumping something up, there are promoters of all types and range of voice. Obviously some have the audience that can manipulate more than others.
While there are trusted sources available (i.e. Wall Street Journal, International Business Daily), its important to remember that you really never know who is behind a stock… so always perform your due diligence.
Below is a great video that shows you common practices of stock promotion in action.