Understanding Stock Promoters

Investing in the stock market can be an incredible feeling similar to gambling.  The risk may not be quite as high, but the feeling during a major win is very similar.  In fact, many of the same people that find thrills in gambling are the same people that invest in the riskier stocks in the stock market in hopes of hitting it big. The problem is that many investors don’t realize that most stocks, especially those in the micro caps are controlled by groups. Hitting it big isn’t as much about finding a stock with potential as much as it is about finding a stock that a group is likely to promote. These groups are typically referred to as awareness groups or stock promotion groups. 

What is a stock promoter or stock awareness group?

A stock promoter is simply someone that promotes a stock in one form or another. Often times stock promoters are referred to as awareness groups as they are responsible for making investors aware of the current developments in a stock. The idea is that these promoters will bring volume to a stock for a number of reasons. The reasons are different depending upon the type of promotion that is being done by the promoter. 

There are basically a few different types of promoters. Each type of promoter is similar in many regards but they have a different function in the promotion of the stock itself. The first type of promoter is one that goes out and finds new business and then hires awareness groups to do the promoting for them.  This type of promoter is often times paid in cash or stock from the company.  There may also be a large block holder that could front the transaction to keep the company out of it. These promoters are normally brought in so that a company can get volume coming in so that they can sell shares onto the market to raise funds. This type of promoter will also buy shares at a considerable discount from the company in what is called a private placement or debt conversion. By doing this the promoter is able to sell their shares faster without getting in trouble for scalping although the profit margin is lower as a result of buying directly. 

The other type of promoter is the type of promoter that is going to do the work.  This group could be hired directly by the company or by a third party to push the stock.  This could be done in a variety of different ways and often times depends upon the budget. Normally a stock newsletter is sent out informing subscribers of the benefits of buying a specific stock. Some will send out faxes, bulk emails, or even letters. It is common to also see posting on message boards where investors frequent as well. The idea is to get the ticker symbol in front of as many people as possible. By having a large viewing audience a slight movement will result in greater buying as many investors are afraid to miss the boat completely. 

Promotions can also be done as list builders. These promotions are done on stocks that the promoter may have a small block of or might not have any shares in.  These promotions are done in order to show their subscribers large gains in order to get them to buy more frequently on the paid promotions. The idea here is that by showing users big gains they are more likely to listen to their buying advice and will take advantage of future picks that they make.  It is important to have plays that do incredibly well in order to give the list some credibility and clout. Pricing is impacted by effectiveness. By showing that huge gains can result from using the list it is more likely they will obtain future business and that business will pay more to get it. 

What to know about promoters?

Promoters are running a business.  It isn’t a business of making stocks run, it is a business of advertising.  Advertisers would like for the companies they are advertising to do well as it could mean more future business but in stock market promoting sometimes what is considered a good job is simply pushing enough shares that the third party can make money. This could mean that a stock dropping 20% on the day of awareness could be considered a great job because it did 50 times the volume of a normal trading day for that stock. Since success is measured in volume moreso than actual price it means that subscribers to these lists need to be very aware that there is just as much potential for a stock to drop hard even on large volume.

The other thing to know is that promoters aren’t paid tens of thousands of dollars so that someone can make a few thousand dollars. The amount invested tells how much they need to sell in order to get their money back.  More money paid for awareness simply means more shares that need to be sold in order to recover that investment. By checking the websites of the promoter it is possible to see how much they were compensated for their services. Compensation should always be taken into consideration when thinking about investing in a stock that a promoter is doing awareness on. If the compensation is low then the third party isn’t going to need to sell as many shares and will be less likely to sell at the bid as they won’t need to. 

Final thoughts on promoters

Promoters are all part of the game. They help some stocks move that would never have moved on their own. It is also important to note that some promotions are going to go better for the investor than others. By paying attention it is possible to make good money on promotions but it requires grabbing the shares before the group does and selling into a rally rather than selling on the way down.  A good stock flipper or promotion chaser will know how to buy and sell these stocks for a good profit. 

If investment in a promoted stock is considered it is a good idea to check recent filings and charts. By looking at the charts it is possible to see if the stock has an elevated price. If the price is already elevated then the stock has already been alerted to others early. This means that there will be an even larger group selling into the buying. By buying a stock that is already up there’s a greater chance of loss and a much higher risk level attached to. 

Bottom line is that by paying attention and doing a small bit of research first it is possible to select stocks that should have a great return on investment as long as you don’t get too greedy.