Investor Awareness Campaigns: A Look at the Other Side

So you’ve signed up for a newsletter which promises to give you great stocks picks. Trust their stock picks and you wont miss out on the latest stock market darling. You dont want to miss out on another company who’s shares have moved up over 100%. Follow their advice and you will never have to do your own due diligence again!

If only it were that simple!
Stock promotion has been around for decades and when done for the right reasons, can provide potential investors with an opportunity to get in on the ground floor of an up and coming company. Unfortunately, like all good things, there are just enough bad seeds out there to give the whole investor awareness industry a bad name. Far too many investors have been caught in a game of pump and dump. Perhaps a look from the investor awareness side of things will help you avoid being caught.

Why do companies hire investor awareness firms?
Many small businesses are great at what they do. Many have found their own niche and continue to build their company. The problem is, they have difficulties getting the word out about their success story. As such, with no new investors, the share price remain stagnant, and long time insiders are unable to either raise money to finance growth, or to cash out some of their hard earned equity.

An investor awareness firm can help publicly traded companies get the story out to newsletter subscribers. With the facts in hand, these subscribers may decide to turn into investors. The more investors out there, the more opportunity for everyone to make money.

What should you, the subscriber, be aware of?
a) Investor awareness firms are paid a fee. It costs money to generate campaigns, press releases, newspaper articles etc, and the fee helps to compensate for these expenses, as well as pay for the firms time in creating the campaign. These firms are either paid out in cash, or if the investor awareness firm feels strongly about the future of the company, they may become shareholders. If the share price moves up, their compensation moves up also. Quite the incentive to do a great job for the company.

Its recommended that if the newsletter you subscribe to receives shares for their compensation, find out if these are restricted shares, or free trading shares. If they are free trading shares, you may end up buying their shares as the firm sells to cover expenses. Not all firms sell immediately, so its best to make sure. If the shares are restricted, its a safe bet that you and the firm are in it together for at least the life of the campaign or until the shares become unrestricted.

Most campaigns last 1-3 months, but many firms in fact provide coverage past that point.

b) Watch for insider selling. While there is nothing wrong with an insider monetizing their investment, if you see a substantial number of shares being sold at the same time as the campaign is going on, you may find yourself buying shares from the insiders and be left holding them for awhile.

Remember, if the company outlook is so bright, insiders will know better than you, and will hold knowing they will eventually get a much, much higher price.

c) Pump and Dump – its not just insiders you have to worry about. Its in the best interest of a company who has been compensated with shares in the company to see the share price move higher. Watch for an overly bullish spin on stocks that are being promoted by those who have received shares in the company. Find out if the firm has to hold the shares for a period of time, or are they able to sell the shares anytime. If there is a restriction placed on the sale of shares, you stand a better chance of making money on an even playing field.

Most credible newsletters will provide their subscribers with the facts and let the information speak for itself. You dont need to spin a good story: it spins itself! 

d) Do your own due diligence – is this company making money? Do they have a product that will be in demand in the future? Is the company creating new products? Investing in penny stocks is no different than investing in large caps; only the risk is different. Ask the questions and only invest when you feel 100% behind the company.

Don’t automatically assume that just because an investor awareness firm accepts shares for compensation means that they are part of a pump and dump scenario. Here are a couple of things to keep in mind from the perspective of the IA firm as to why they might accept shares over cash.

1. Chance for a higher payoff. If the campaign is successful, they stand to make more money. Many of the owners of these firms are also investors. If the future looks good for the company, why wouldnt they want a part of that future?

2. It may have been the only way to make the deal. The investor awareness firm will do its own due diligence before deciding that the deal is worth it. Its their money on the line. For many publicly traded companies, they may not have enough funds available to pay $50 000 or more for a high profile campaign. They may however have enough shares on hand. Once the share price is high enough, they can go after financing, providing the company with cash to finance further growth.

Can you make money when a stock is being promoted? Of course, and many investors make a lot of money thanks to the attraction of new investors. The key is to find the companies who are geniunely attempting to increase shareholder value versus trying to line their own pockets at the expense of shareholders. Only your due diligence can help you do that. Penny stocks can provide investors with a high return, however, it takes more due diligence than luck to jump onboard the right one.

Investing In The Stock Market: How To Get Started

In the world we live in today there is no shortage of access to investment information. This in itself however, can be an enormous problem. Asking questions about how to invest, where to invest, and what to look for, can bring you many answers from lots of different sources. The trouble is diving through all the clutter to find relevant information to suit your needs.

So when looking to invest in the stock market, where should you start?

First things first, invest in what you know. If you are trying to evaluate a company, make sure you know how it works. The great Warren Buffett has often been criticized for not investing in technology during the dot-com boom. His answer was simple. If you don’t know the business model, what the company does on a day to day basis, or how it generates revenue now, and in the future, then stay away from it. It is because of this that he has earned billions of dollars year after year for himself and his investors.

Once you know the types of companies to look for, you’ll need ideas. Message boards, newsletters, financial news shows, and stock screeners are all good places to find ideas. Stock screeners are especially useful, because in addition to finding ideas, you can narrow the search down as you go to fit your qualifications. I’ve personally had good luck using the screener at http://finance.yahoo.com.

So you’ve found some companies worth looking into, what next?

1. Insider trading — This is anyone who is considered to have an inside knowledge of the company, and also has money invested in company stock. This could be someone who owns 10% or more of the company, a director, CEO, CFO, etc. Watching when the insiders buy and sell stock, and at the prices they do it, can be very useful in predicting a stocks future. You don’t want to buy a large stake in Company X when all the people running it are getting out. Therefore it’s always a good idea to watch what the “smart money” is doing.

2. P/E ratio — The price to earnings ratio can also be a useful tool in evaluating a company. The P/E ratio will tell you if the company is relatively undervalued, or overvalued. A company that is undervalued should have a P/E ratio that is lower than other stocks in their sector. This is a great value to plug into a stock screener to find profitable companies.

Note: P/E can be manipulated (think Enron). Also P/E ratios vary wildly depending on the sector you are looking in. Technology stocks could have an average P/E ratio of 60, while oil companies could have an average P/E ratio of 10. Whenever I evaluate a stock, I don’t look at the P/E against all other companies, but I look at it against their competitors in the same sector.

3. Technical analysis and charts — This is another tool that can help you see where a company has been, where the company stands now, and where it’s headed in the future. It shows the company in a graphical form where you can see the stocks activity and volume over a period of time. You can find many tutorials on the internet about this, and you can even get a free DVD that shows you the basics from http://www.technitrader.com.

4. Management team — Some people just look at earnings, charts, and other technical ways of evaluating a company. This isn’t always a bad thing but to really know about a company, you should know the management. You should know what other companies they have been involved with in the past, and how they did when they were there. You should also know where they plan to take the company you’re evaluating, and in what length of time they have allocated to get there. It’s a bit like evaluating a sports team. You wouldn’t pick a championship team without looking at the coaching staff.

These are a few of the ways to help find companies to invest in. Like with anything though, due your homework, write out your goals, and when in doubt, ask for advice from someone who has already accomplished what you are trying to do. Knowledge is the key to being successful at just about anything.

Investing in Penny Stocks – How To Make Huge Profit From Small Beginnings

Investing in penny stocks is all about defining the rules and playing by them as all of the big time investors have before you.

Big time stock traders and investors have played by the rules and started out small, or even very small, swearing by a defined set of rules that basically state they will not continue any cycle of failing that loses them money, over and over.

Losing money instead of learning these rules is something that is unacceptable and potentially crippling to a new investor – even though your brain is trying to tell you that “Heck, it doesn’t matter, they’re only Penny Stocks after all!” (Damn you brain!!)

However, follow a few simple rules and you should be ahead of the penny stock investing game.

Number One and MOST important – Never, ever, under any circumstance borrow money to invest; this is possibly the biggest rule to stay out of investment trouble.

Yes, I know! You think you have the upper hand with some “inside” information that could help you build a huge portfolio in no time!

So have thousands of others before you – and they were all WRONG!

Please, don’t jump on a story with the only answer being borrowing money. If you start to lose money on the stock market, then the debt repayment will come directly out of your pocket. If this happens, trust me – you are now in big trouble.

Even if you begin to make money then you will be spending it to repay the loan instead of saving or reinvesting the funds. This money will stand by and haunt you as you continue to try to make a living off of the stocks you are trading.

Always save up to be able to invest as a rule of thumb, debt will be chased until you finally catch up by being farther behind than you were to begin with.

DON’T DO IT!

Investing in profitable companies is a big rule to keep in mind when investing in penny stocks. I know that reads and sounds awfully silly and a waste of breath but believe me – sometimes people simply invest in a company without determining if the company is profitable or not.

Either they like the name itself – or the product / service the company offers – or even they know a cousin of the manager of the typing pool and reckon it’s keeping it in the family!

Don’t be the sucker that buys a stock and then tunes in to the television or logs on to the internet to see that its quarterly earnings are down and its revenue per share is dropping like a four-ton boulder of the Empire State building – very hard and very fast!).

Find information on how to find a profitable company, it is readily available on the internet, and then determine which company to invest in. Guides for how to evaluate companies, their accounts declarations and markets are readily available.

Also, do all of your homework, research and analysis before you buy a stock that is not garnering any type of attention.

One of the most important things for investors to look at is volume, anything less than one million shares per day is not worth touching. It is a pointless task to purchase a stock that is trading 9,000 shares a day because it will be nearly impossible to sell once you are ready to do so.

Stocks need attention to have liquidity, which basically means that for it to sell it must have value. Don’t be stuck with a rising stock that you will be unable to sell later. Don’t just thinkof all the lovely profit you’ll generate – think about the mechanics of actually being able to realise that profit. After all – so what if you’ve made $1.20 per share in three months – if you can’t actually sell them!

Oh – and in case you forget! DON’T BORROW MONEY FOR INVESTING!!