If you are thinking of getting into self-directed investing, you know you will have to start with research and understanding the world of investment in stocks and bonds. In your quest for that research, you will come across several newsletters and investment advice material. Investment newsletters come in various formats and under many names. They are usually online, and some charge a fee to access their newsletter, and others will offer it for free. However, the intent of putting these investment advice newsletters out can be sketchy. In this article, you’ll learn the top 5 tips to identify fraudulent investment newsletters
Like in any business, there are plenty of players out there who will try to make a quick buck out of unsuspecting customers. It is very important to decipher the newsletters and advice and determine which ones are authentic and genuine and fraudulent.
The US Securities and Exchange Commission heavily regulates the investment and stock market sector and sends alerts to consumers to be very vigilant against fraudulent investment newsletters.
That begs the question: how does one determine which newsletter is authentic, and which ones are fraudulent?
In this article, we have put together five tips to identify fraudulent newsletters. To explore a legitimate newsletter and stocks review site, check out StocksReviewed.com.
Tip # 1: Look out for Schemes
Our first tip is to understand the intent of fraudulent newsletters. Once you understand why they do what they do, you will be able to pick out the fraudulent ones from the good ones.
Fraudulent newsletters generally intend to create a hype about a particular set of stocks to drive up buying so they can sell those stocks and shares and make a profit. Generally, fraudulent newsletters have certain schemes specifically crafted to deceive investors. The schemes are:
Schemes To Identify Fraudulent Investment Newsletters
- False Promoting: Some newsletters falsely promote stocks where the writer has vested interest. They will ‘tout’ shares and stocks to create a hype and buzz, hoping to create a buying frenzy.
- Pump up the Price and Dump Shares: Some players in the industry would first hoard some stocks and shares and then create a hype to pump up the shares’ price. If they are successful, there will be a huge buying frenzy that will drive up the price so they can dump the shares to profit. In actuality, the hype they create are inaccurate and leaves the buyers with junk stocks that have been overinflated due to the frenzy.
- Scalping Shares: The other scheme to deceive is to talk up a particular company and its stocks and then sell shares to the followers at an artificially inflated price – like scalping tickets.
- Dishonest about Conflicts of Interest: Genuine newsletters will be upfront and honest about their disclosures and conflicts of interest. The fraudulent ones will be dishonest about their conflict of interest to get you to buy into the frenzy they hope to create. Some investment gurus will claim to be unbiased in their opinion when the reality is that they stand to make a huge profit if their readers buy the stocks they recommend.
- Inaccurate Fabricated Claims: Fraudulent newsletters can be easily identified by their false claims that their recommendations have earned people thousands of dollars in profits in just a short few days. They don’t hesitate to present inaccurate information and fabricated claims to give them credibility.
Tip #2: Understand their Disclosures
If a newsletter promotes and recommends a particular stock, research carefully what their disclosure is in terms of what they gain from making these recommendations. By law, they must provide full disclosure of how they stand to gain from the recommendations they are making.
Short of direct and full disclosures, be suspicious to identify fraudulent investment newsletters of the following:
- Disclosures: Firstly, look out for how much of an attempt the newsletter has made to make it very difficult for you to uncover its disclosure statements. Very small fonts or hidden from plain sight are all reasons to be suspicious.
- No Disclosure: Secondly, beware if a newsletter provides no information whatsoever of how they gain from providing recommendations. Nobody does this type of work for a charity or as philanthropy. There is nothing wrong with receiving financial incentives to recommend certain stocks. Claiming that the newsletter writer does not gain anything from their recommendation is a red flag.
- Vague Disclosure: Finally, if the details of disclosure are not adequate in terms of how much the writer gains and what types of compensation they receive, then that is also a red flag.
Tip #3: Unrealistic Promises To Identify Fraudulent Investment Newsletters
Look out for unrealistic promises made by newsletters. Follow the golden rule of “. If it is too good to be true. It certainly is NOT true.” If newsletters claim that their advice has provided a 300% return. In just a short period, that is a red flag!
Tip#4: Urgency and Pressure
Look out for urgency and pressure to buy in the recommendations of newsletters. If anything makes you feel like you are about to lose out on the opportunity to become a millionaire overnight. If you don’t buy the stocks these newsletters recommend, then run away from that newsletter!
Tip #5: Intrusive Questions
Some fraudulent newsletters will try to gain legitimacy. By asking you to buy through your brokerage firm to prove that they are not gaining anything from their advice. However, they will then make a phone call to you to solicit to you directly. They will then ask you intrusive questions about your trade. How many shares have you bought, when you buy it. Which broker you are using, etc. they are trying to identify your trade to claim their commission. Moreover, if you are experiencing intrusive questions from such a newsletter publisher. That should be a clue that the newsletter cannot be trusted.
Identify Fraudulent Investment Newsletters Final Thoughts
The world of investing is complicated and involves scrutiny every step of the way. Yes, it is true; there is a lot of profit made by investing in the right stocks and buying at the right time. Finally, there is tremendous value to solid sage advice from newsletter publishers in the investing space. It is educational to read about how the publisher came to the recommendation they are advising.
In conclusion, keep a very keen eye out for the fraudulent publishers and always be vigilant. If you are ever in doubt of a publisher, you can always look them up on the SEC IAPD website to see their background, history, and track record. Good luck with your investment journey!