A large proportion of the spam I receive lately seems to hype for certain stocks (an example is at the end of this post)
What I don’t understand is the mechanism by which the sender of this type of spam profits.
these spam messages don’t seem to contain links, contact information etc. that would indicate that it’s some kind of stockbroking business soliciting for the recipients’ patronage
the spam surely cannot be commissioned by the referenced companies themselves, as communications of listed companies to potential investors are heavily regulated by the regulators of the respective stock exchange - surely these regulators wouldn’t countenance companies pushing their stocks’ fortunes by spam?
one mechanism would be the sender of the spam counting on a predictable short-time rise in the price of the stock (once the spam has hit its recipients and some marks have followed the “investment advice”.) The tactic would be: buy some little-traded stock, send spam, wait for the short-lived rise and sell at the peak.
But wouldn’t the hitch in that be that other speculators also are recipients of that spam, recognize the spammer’s strategem, anticipate that momentary rise and sell the stock short at the peak? Which would much decrease the amplitude of the rise in the price.
GFPE sure looks poised to corner the market in whiplike unsure superfluid – I’d buy now and ask questions later! Seriously, though: the spammers already have their purchases made. They bought low a week ago. They have hundreds or thousands of shares (because these are “penny” stocks, that doesn’t take much capital outlay) and probably a pretty good understanding of how much of a jump you can expect on a recommendation. For a good example of this, go to The Motley Fool and look at what happens to small-cap stocks that they recommend to their subscribers, and you’ll understand how important it is to read the words “…owns no shares in any stock recommended above” at the end of an article.
All that remains is to set up a selling strategy that earns them their percentage. This could be simple, like “sell when it’s up 50%” or it could be more aggressive, as in a series of limit orders that sell 1/2 of the original outlay when the stock doubles (locking in a no-loss situation) and immediately issuing a stop-limit on the rest of the shares for that price. Selling them off at a trickle as it continues to peak is just a matter of timing one’s greed. They’ll get their selling price, because they know there are buyers out there – for a very short time.
Everyone else who tries to play the game is starting late, with fewer shares, and no information about where the sell point is; they are the buyers that the scammers are counting on. You could make a profit, but you don’t know whether the scammers are trying to double their money, triple it, “settle” for 25% per scam… or whether the company president paid a scammer to make his majority holdings worth something, and intends to fold the company as soon as he can find a few suckers to buy his worthless shares.
In a good market, anyone can sell anytime – but if there are no buyers, you have to take a lower price, and that’s where you’re going to get scammed. If there are a glut of sellers holding shares, and the trading volume is suddenly 20 times what it was, they get out for a profit. When the volume dries up, you get stuck with the bar tab.
I see your point, which is a clever one. But I suspect the counter-mechanism doesn’t work because people sophisticated enough to think of shorting on this basis have jobs, opportunities and spam filters. I doubt there’s enough money in it to be worth attracting the sort of attention engaging in this sort of trade would bring. I’m guessing trading on the basis of information you know to be a con could be a problem (either legally or to reputation). But maybe your idea accounts for the small gains seemingly available to the spammers:
Stocks with this sort of price are also usually thinly traded, so a relatively small number of buyers can move it by an appreciable percentage. It’s like the $1,000,000 glass of lemonade: one buyer, and you’re set.
OTOH, penny stocks have serious hurdles for a first-time buyer. Any broker is required by law to discourage neophytes by giving them a strongly worded warning that these stocks are dangerous and should only be purchased with money you can afford to lose. I would also think that any responsible broker would point out that any of these e-mail are very likely a scam.
At the same time, people who get bit with the “get rich quick” bug have a way of ignoring any warnings.
How do they know when the peak is? Suppose you sell the stock short, but it continues to rise, or doesn’t fall as quickly as you anticipated; you could be up to your ass in unsure superfluid in no time.
There’s also the stock tip “newsletter” that asks you to pay for the latest “tip”, which consists of sending out different emails to different people claiming a stock each week will either go up or down, 1/2 of the population receives one, the other half receives the exact opposite prediction
Then, send out the newsletter the next week to everyone whom you sent the “right” letter to, only with a different stock. Repeat for 5 weeks and 1/32 of the people you sent it to think you are a freakin genius!
People who fall for this kind of thing are much more likely to use some online discount broker. At most, such a warning will amount to one more annoying “Ok” button to click through on the way to presumed riches.
You get spam on stock trades?! You are so lucky! My spam is always mortgage rates, increase your penis size, buy a rolex, or watch girls get it on with farm animals. Sorry to go OT, but I’m jealous.
