So, you signed up for a newsletter that says it will tell you which stocks to buy. If you trust their stock picks, you won't miss out on the next big thing on the stock market. You don't want to miss another company whose shares have gone up by more than 100%. If you do what they say, you'll never have to do your own research again.
We wish it were that easy!
Stock promotion has been around for a long time, and when it's done right, it can give investors a chance to get in on the ground floor of a company that's on the rise. Unfortunately, like all good things, there are just enough bad seeds out there to give the whole industry of investor awareness a bad name. Too many investors have been taken in by "pump and dump" schemes. You might not get caught if you look at things from the point of view of the investor.
Why do companies hire firms that make them known to investors?
A lot of small businesses do great work. Many people have found their own niche and are building their businesses. The problem is that it's hard for them to tell people about their success. Since there aren't any new investors, the share price stays the same and long-time employees can't raise money for growth or sell some of their hard-earned equity.
An investor awareness firm can help companies that are traded on stock markets get the word out to people who sign up for their newsletters. When these subscribers have all the facts, they may decide to become investors. The more people who invest, the more chances everyone has to make money.
What should you know as a subscriber?
a) Firms that help investors are paid a fee. Campaigns, press releases, newspaper articles, etc. all cost money to make, and the fee helps to cover these costs and pay for the firm's time when making the campaign. These firms are either paid in cash or, if the investor awareness firm feels strongly about the future of the company, they may become shareholders. If the price of the shares goes up, so does their pay. What a good reason to do a good job for the company!
If the newsletter you subscribe to gets paid in shares, you should find out if these are restricted shares or shares that you can trade freely. If the shares are free to trade, you may end up buying them as the company sells them to pay for costs. Not all companies sell right away, so it's best to check. If the shares are restricted, you can be sure that you and the company are in it together at least until the campaign is over or until the shares are no longer restricted.
Most campaigns last between one and three months, but many companies offer coverage for longer.
b) Keep an eye out for insider trading. There's nothing wrong with an insider making money off of their investment, but if a lot of shares are being sold at the same time as the campaign, you may have to buy shares from the insiders and keep them for a while.
Remember that if the company's future looks so good, insiders will know it better than you and will hold on to their shares because they know they will get a much, much higher price in the end.
c) Pump and dump is not just a problem for insiders. If a company pays someone with shares in the company, it's in their best interest for the share price to go up. Watch out for people who have stock in a company to talk about it in a way that makes it sound like it will go up a lot. Find out if the company has to keep the shares for a certain amount of time or if they can sell them whenever they want. If you can't sell your shares as easily as everyone else, you have a better chance of making money.
Most trustworthy newsletters will give their readers facts and let the facts speak for themselves. You don't have to make up a good story; it does it on its own.
d) Do your own research to see if the business is making money. Do they make something that people will want in the future? Does the company make new things? Putting money into penny stocks is the same as putting money into large cap stocks. The only difference is the risk. Ask the right questions, and don't put money into a company unless you fully trust it.
Don't just assume that if an investor awareness firm takes shares as payment, they are part of a "pump and dump" scheme because they accept shares as payment. From the IA company's point of view, here are a few reasons why they might take shares instead of cash.
- A chance to make more money. If the campaign works, they could get more money. A lot of the people who own these businesses also invest. If the company's future looks good, why wouldn't they want to be a part of it?
- It may have been the only way for the deal to go through. Before deciding if the deal is worth it, the investor awareness firm will do its own research. Their money is at stake. Many companies that are on the stock market might not have enough money to pay $50,000 or more for a high-profile campaign. But they might already have enough shares. Once the share price is high enough, they can get financing, which gives the company cash to pay for more growth.
Can you make money if a stock is getting a lot of attention? Yes, and bringing in new investors is a big reason why many investors make a lot of money. The key is to find the companies that are really trying to increase shareholder value instead of trying to fill their own pockets at the expense of shareholders. You can only do that if you do your research. Penny stocks can give investors a high return, but picking the right one takes more than just a little luck.
