A lot of spam these days is from internet share tippers. They bombast email addresses with the word that a small stock is likely to soon double or triple.
But in reality those who are foolish and greedy enough to buy on these unsolicited tips are odds-on to lose money.
A $69,000 Investment Shrinks to $23,000 in 15 Months
An interesting website www.spamstocktrader.com (which is now sadly no more) did a study where a virtual investment of $1,000 was put into every stock tip received by a spam email.
Over a 15-month period the account lost 67% falling from an equity starting balance of £69,000 to just $23,000.
The Scammers Target US ‘Pink Sheet’ Stocks
The spammers normally always target small stocks usually traded on the American ‘Pink Sheet’ market. This is semi-unregulated stockmarket that caters for the smallest and most speculative stocks. They focus on these stocks because the float (amount of shares outstanding in the market) is often tiny therefore any sudden buying or selling can dramatically alter the price.
How The scam Works
Normally there's two different ways the scam can be played -
- The scammers buy a lot of stock in a pink sheet company (usually in a go-go sector like tech, oil or mining). They then send out millions of emails. Some naïve people who receive the email will buy and force up the price, the scammers will then be the sellers to take their profits
- The scammers have no position in the shares, send out the spam, buyers force up the price and the scammers then aggressively short it. Shorting means they can profit from a fall in the price. So when the price does fall they cover their positions to take profits
Summary
Next time you receive one of these 'hot tip' emails do the sensible thing and delete it before you even read it. Otherwise as these studies have proved all you'll have to show for your efforts are losses.
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