The Bull Hunters Guide

Investment scams aren’t limited to the fast paced interaction of bulletin boards, of course. Newsletters are another popular way to scam unsuspecting investors who are looking for a valuable tip on where to put their money next.

Newsletters Can Be A Scam

There are a lot of stock pick sites out there. Not surprisingly, each one claims to have the best strategy or formula when it comes to picking stocks. One of the most popular features of these sites is that they offer periodic newsletters, sometimes as often as one a day.

Some of these newsletters are legitimate, and actually offer the unbiased market advice that they claim to offer. However, just as many or even more of them are written by companies under the guise of a third party pseudonym to boost and promote their own stock!

Obviously, this can lead to all sorts of trouble. A legitimate company that was doing well in the marketplace through honest means would have very little reason to artificially inflate the value of their stock through disseminating disinformation in a newsletter. Any company with a future would also be wise enough to realize that this tactic is only setting themselves up for failure in the future.

In addition to the artificial inflation by paid companies, newsletters are also a popular place to run the pump and dump scam, offering what looks like a valuable tip, but is actually intended to ruin the investors who are duped into acting on it.

Newsletter Advice Things To Check

When you get an online newsletter that offers what looks like good advice, make sure of a few things. First, ensure that you actually subscribed to this newsletter. If it comes from an unknown source, you should delete it immediately, because it’s certain to be spam, and therefore certain to be a scam or at least a terrible waste of time.

Secondly, make sure that the newsletter you subscribed to accurately discloses who paid them to write it, how much they were paid, etc. Federal law requires this, so those newsletters who skirt around it are probably looking to hide something.

Lastly, proper grammar is critical. A professional newsletter might have a single typo, but it definitely won’t be full of misspelled words, use all capital letters, or endless streams of exclamation points.

See you next time when we talk about actual investment fraud.

See you next week for part 5 of Investment Scams.

Sean Rasmussen
The Bullhunters Guide
Universal Wealth Creation © 2004 - 2008

Social Bookmarks:

The internet is set up in such a way that it’s very easy for people to gather around a common interest that they all share and form communities. The form that these communities take is typically that of a message board, or bulletin board. These are websites where users can sign up and engage in discussions on a variety of topics pertaining to their interest. So, for example, on an investing bulletin board, most of the discussions would revolve around investing.

Bulletin Boards And Scams

The internet puts us in contact with a lot more people in a given day than we would have in the course of a regular day offline. Because of this, the ratio of questionable encounters to good encounters increases quite sharply. Nowhere is this more abundantly clear than on online bulletin boards. While there might be a handful of contributors on most bulletin boards who know what they’re talking about and are there to dispense genuine advice and conversation, many people view bulletin boards as just another place to find a mark.

It stands to reason that when investors get together and talk, there’s going to be some advice given, or “hot tips” passed around. Scam artists take advantage of this by appearing to be “just one of the guys” and offering what seems like a friendly stock tip. In reality, this is a pump and dump scheme, designed to make lots of people invest in a stock, spike its value, and let the scam artists walk away with bundles.

Use Your Common Sense

Of course, bulletin boards do contain valuable and legitimate information from time to time. Not every stock tip you see mentioned on a bulletin board is a scam in the making, but you have to use your common sense. Just as in real life, you’d be wary about taking a tip from a stranger, treat people on the internet the same way. As you spend time online, remember that all those usernames represent someone who exists in reality. Observe their reactions and get a real feel for their character before you decide to believe anything they say.

See you next week for part 4 of Investment Scams

Sean Rasmussen
The Bullhunters Guide
Universal Wealth Creation © 2004 - 2008

Social Bookmarks:

Lately, we’ve been talking a lot about short selling in this blog. In particular, we’ve been talking about the pros and cons of short selling, and last time I mentioned that there was a distinct dark side to the practice that causes many to cringe when they even hear the term. This time, we’re going to talk about exactly that.

Short and Distort

Short selling is a somewhat cryptic process that is rarely understood all that well by the amateur investor. Because of this, it creates a ripe opportunity for unscrupulous traders to take advantage of short selling and twist it into a market-harming “money making machine” that doesn’t respect the true meaning of free commerce and investing.

When this happens, investors resort to using a tactics known as the “short and distort”. The way it works is this. Imagine that you have a bear market. The prices of stocks are almost universally down, and prospects all around aren’t so great. Traders might take this opportunity to buy a bunch of short options in a stock. Of course, that in itself is perfectly normal and ethical. However, what makes the “short and distort” such a terrible practice is that the investors then go on to spread slander and lies about the businesses that they’ve bought shorts in.

Slander Is Believable

Obviously, in a bull market, everyone is already nervous and pessimistic. Slander is thus easily believed, and it’s easy for investors to cripple a company through these means. When that happens, they walk away from the smoking wreckage with a handy profit, purchased at the cost of their integrity as real business people.

Of course short selling has its dark side. So do all forms of investing. It’s the ease with which short selling can be exploited however that makes it a particular target for scepticism.

See you next week for part 8 of Short Selling.

Sean Rasmussen
The Bullhunters Guide
Universal Wealth Creation © 2004 - 2008

Social Bookmarks:

Last time in this blog, we started discussing the ethics of short selling. We mentioned how it’s often the case that short sellers are looked up with something of a blend of derision and skepticism simply because their own profit is dependent upon the losses of others. However true this may or may not be, there are more pressing accusations being leveled against the short seller that demand our attention; namely, the accusation that short sellers actually harm the market.

Controversy Surrounding Short Sellers

Many of you might remember the huge stock market crash back in 1987. While there were a lot of contributing factors to that fiasco, such as the sharp increase in program trading around that time, there are many who are eager to blame the entire situation on short sellers. While there’s not a ton of evidence to support this claim, there’s enough of a correlation between spikes in short selling and downturns in the market for market regulators to have enacted certain guidelines and limitations that inhibit the short seller’s ability to actually affect the direction of the market.

Contribution To The Market

Of course, for all these claims of being bad for the market, there is one aspect of short selling that undeniably makes a contribution to the market that can’t come from anywhere else. It provides a sense of liquidity to the market, keeping trades fluid, and while it tends to drive down the price of stocks overall, it also tends to drive down those that are actually overpriced and should be driven down. In this sense, short sellers can be seen as a fail safe measure against those who would seek to commit fraud by introducing securities that they know are unstable and will soon crash on hopeful investors.

All in all, short selling is a give and take kind of situation. While many aren’t fans of it, they allow it to stick around because of the undeniable benefits that it offers the market in general. Next time, however, we’ll need to take a look at one aspect of short selling that is all-around negative: those investors who make use of distinctly unethical tactics in order to facilitate their short selling.

See you next week for part 7 of Short Selling.

Sean Rasmussen
The Bullhunters Guide
Universal Wealth Creation © 2004 - 2008

Social Bookmarks:

Over the last few entries, we’ve taken quite a detailed look at the process of short selling, or selling stocks that you don’t own under the agreement that you’ll actually put up the money to buy them at a future date. In doing so, your hope is that the value of the stock will decrease and that the price you have to pay is less than the money you received by “selling” them.

Short Selling Is Risky

Of course, this is a risky proposition. There’s an awful lot that can go wrong, especially if the value of the stocks that you’ve short sold happen to go up rather than down. Let’s take a look at some of the major risks of short selling.

First of all, there’s the matter of historical precedent. Historically speaking, stocks do tend to go up rather than down. It’s just a general rule of thumb that has applied to the market over the decades. Because the very nature of short selling involves the assumption that a stock will go down, you’re automatically working against historical precedent, so be aware of that.

Secondly, there is no limit to the potential losses when you short sell. Since you lose out on a short sell when the value of the stock increases, it’s entirely possible for that stock to skyrocket without limit. If that happens, you could quickly be ruined. On the other hand, the distance between the price you short sold for and zero is the maximum possible profit that you can gain.

Lastly, short selling automatically involves the practice of trading on margin. This entails the use of borrowed money, which is a risky proposition in and of itself even without the added dangers of short selling stacked on top of it. You might fall prey to sudden margin calls even, which is one of the most disastrous things that can befall a trader. Even if you’re right, it might take quite a while for your stock to decrease in value, and in the meantime, you’ll be sitting on short sold stocks bought on margin that are increasing in interest and ultimately costing you money.

Long story short, if you’re going to short sell, you need to be absolutely aware of all the risks that are involved. Of course, it’s not all about making of losing money. There are a lot of ethical concerns involved in short selling as well, that we’ll take a look at next time out.

See you next week for part 5 of Short Selling.

Sean Rasmussen
The Bullhunters Guide
Universal Wealth Creation © 2004 - 2008

Social Bookmarks: