Should You Ever Take Those Stock Recommendation E-mails Seriously?

October 22, 2006 –

spam.gifRecently, a friend of mine sent me an email about a spam email advising about a great stock opportunity. I’ve had no time to reply to him as of yet so thought I ‘d just blog about it today. In fact I haven’t even had time to look at the attachment as my friend wanted my opinion on it. I didn’t even need to open it and look at it though to know it was junk.

Studies have shown that enough naïve people exist out there that actually act upon Spam emails they receive, dreams of tripling their money overnight floating through their minds when they buy the “recommended” stock. And studies actually have proven, that because spammers always send emails about “fantastic stocks poised to skyrocket this week!” to literally hundreds of thousands of people, if they get just a small percentage of the spammed population to act upon their “can’t miss” opportunity, the price of the stocks they recommend will actually move higher within a 24 or 48 hour period. Why?

Because the spammers always send out carefully crafted messages screaming about “CAN’T MISS OPPORTUNITIES”!!! regarding penny stocks with extremely low trading volumes. So all they need is a few hundred or thousand people to move on their recommendation, and the stock will rise signifcantly. And this is exactly what the spammers desire. They buy the stock before their spams go out. They know the lowest common denominator rule prevails and that there will ALWAYS be several hundred people that will bite on their load of crap and buy the stock. When these people do, then they immediately dump their shares as soon as the stock has moved up in price. Consequently, the price of their recommended stocks then plummets downward and the naïve people lose their money. And they use this strategy over and over and over and over and over again to reap short-term profits off the naiveté of people.

Personally, I don’t know why these spammers aren’t shut down. I guess maybe the domain of email spamming is largely unregulated just like the world of hedge funds (such lack of regulations allowed Brian Hunter at Amaranth hedge fund to lose $6.5 billion of clients’ money in a matter of weeks). Or if it is not, maybe the email spammers are boiler room operations that move too quickly for the law to catch up with their unethical behavior.

And by the way, the majority of spam emails you receive from “professional” investment newsletters that promise an “857% return by January, 2007 but time is running out!” are not far behind the penny stock spammers in lack of credibility. Just from being in the profession, even though these newsletters will not reveal what these incredible stock picks are unless you pay several hundred dollars for their newsletter description, I’ve been able to figure out what some of these “secret, explosive stocks” are.

Out of curiosity I tracked five such stocks, all which these newsletters promised would return triple digit gains because of “secret” information they had; however, they would only reveal the identities of the stocks upon a paid subscription fee. So I tracked these five stocks until the date these newsletters promised they would yield triple digit gains. Not only did not a single one reach triple digit gains by the promised date, but all five had declined in value by their stated deadlines. After my little expeirment, my curiosity was satiated that their claims were absolute junk as well.

Of course, there are reputable newsletters where the above is not pertinent. But I’m just describing the majority of spam newsletters that are mass mailed.
Either way you look at it, if you receive such an email, just delete it.

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