Scamming investors is a very old practice. Way before a centralized stock market institutionalized the dreams of investors looking to get rich, there were unsavory tricksters looking to pray on those dreams.
Are Investing Newsletters Scams?
Not all newsletters are scams. However, it is important to remember that even legitimate newsletters seldom have a solid, long-term, track record of beating the market. The statistics and returns are often carefully calculated in the just the right way as to show the newsletter in the best possible light. For example, a newsletter may only report it’s “best picks” returns. This allows a retroactive look at what the “best picks” were.
Other FinanceGourmet articles on finance schemes:
First, a legitimate newsletter won’t promise the sun and the moon, especially, after you have subscribed to it. Companies frequently boast a little big when they are advertising to new customers. However, once you buy that new car, the manufacturer doesn’t include a section in the owner’s manual about how to beat a fighter jet in a drag race.
Second, look out for newsletters that seem more interested in getting more subscribers than providing solid investment advice. While a legitimate financial newsletter will always want new subscribers, it will get them by providing you with good information, not by constantly suggesting that you get your friends to subscribe now so that they aren’t left out.
Third, beware of newsletters that try too hard to get personal information. A newsletter publisher shouldn’t need the times and dates of trades you make, for example. Try and avoid giving out your phone number, if possible. Many newsletters are just fronts so that an aggressive broker can call you with “urgent” recommendations. Remember, if you subscribe to the newsletter, then you have an “existing business relationship” with that company. That nullifies any Do Not Call List you might be on.
Fourth, beware of high pressure to BUY NOW. A pump and dump scam, or just a flat out fraud, often requires as many buyers as possible in a small amount of time in order to be successful. A legitimate investment opportunity should be good, for you or the publisher, without having to get a bunch of people on the bandwagon.
Fifth, beware the penny stocks. The allure of penny stocks is that you can buy a lot of shares, and that small movements of those stocks can make you rich. However, penny stocks, are penny stocks for a reason, and it isn’t because everyone else in the investing world is stupid.
Finally, anyone claiming to be a financial professional is required to provide various disclosures about what stocks they already own, and how they are compensated. Many times, newsletter publishers are paid in order to promote certain stocks, putting a layer between the fraudster on the other end who is pumping and then dumping the stock.
Check out this SEC Investor Bulletin for even more information.