I got a call out of the blue about 4 weeks ago from a US based Stock advisor. I have no idea where he got my cell number. When I asked him, he said that my information was on an “Active Traders” list he had received. He was calling me, to give me a hot stock tip. The alarm bells were going off. Why would a complete stranger, call me with a hot stock tip?? So before he went any further I asked him why. There was a pause. So I jumped in with another question.
“Do I have to buy this stock through you?” His answer was a quick, “No. You would buy through your current brokerage.” Even louder Alarm bells. I interrupted with another question. “If you are not even making any commission on this deal, how are you getting paid?” Again a pause. Then he said, “In all my years of doing this, I have never been asked that question.” He went on to explain that the company who’s shares he would tell me about, was paying his company, to promote their shares.
That explained a lot. There are many companies out there who’s job it is to push the price of a stock up. There are many ways for them to do this. Some/most of what they do is legal. Public companies are allowed to do certain things based on the price of their stock. So if you want to do some new financing, but the price of your stock is too low to allow it, you hire one of these companies to Hype the stock. If they are any good at their job, they can raise the price of a 10 cent stock to the $2.00 – $4.00 range.
As the chart shows over the last year the company was at about the $0.15 range. Then look what happened. All of a sudden the stock took off. Wish I had of know about it in July. But my new friend (anyone letting me in on a hot stock is a FRIEND!) just asked me to do my research, and consider buying 1000 shares.
This chart is part of the research I did. I also looked it up on my online trading account. Here is the overview from TD Waterhouse: XYZ company is an early-stage company with no operations to date…(Description of what the company wants to do in the future)… It has yet to enter the market and has no presence in the food preparation industry thus far. It has not yet generated any revenue from its operations. What a glowing recommendation. (I AM KIDDING!!!)
The next day the broker (After the research, he wasn’t a friend anymore.) called to see what I thought. I told him bluntly that no sane investor would buy that stock with that kind of story. He then proceed to tell me about how the company had changed focus and that next day there would be a news release to that effect. He would send me the news release after the market closed. I told him that I was fully invested with the US dollars I had, and so might not be able to participate, but I would keep watching to see what happened for the next time.
Long story short, the stock did issue the press release, and the price went up. My buddy (half way between broker and Friend) had said they believed the stock would go past $2.00 and maybe even reach $3.00. Okay, maybe I should take a chance. I could always sell if it went wrong, and it would not be the first time I had lost on a stock. If they did their job well, the stock could also go up. At the very least it would make an interesting post.
So I changed over some Canadian dollars to American and bought 500 shares. There is an old saying: Bulls and Bears make money but Pigs get slaughtered. As you can see I got greedy. They went as low as $1.57 one day but recovered by the end of the day. (not shown on the chart.) My buddy did call me that day with an explanation that made sense, and assured me they would go back up. But the drop scared me. My first profit level was $1.82. Friday the price was jumping up and down about 15 cents. Better not to get greedy. Placed a sell order at $1.84 and actually sold them. Boy am I glad. Look at what happened on Monday.
Now they might go back up, so I am definitely still watching it. The lesson here is that you have to watch the volatile stocks VERY closely.
This story has a happy ending so far. I made a little over 20%. I’ll kick myself if they go up to $3.00. Of course I could buy them again. But I’ll look like a genius if they continue to drop. I have not named the stock, because I don’t want to suggest you buy or sell. I am using this as an example of what happens in the real world. Some days you win, some days you lose.