Pump & Dump

I haven’t been investing for very long but one thing that I find hard to understand is what is the purpose of just posting a message, Tweet, or post mentioning a specific ticker/company without explaining the underlying fundamentals to detail why you’re recommending this stock. All I see is people sending out message that a certain stock is “hot” or other such hyperbole.

The one stock that comes to mind is $TQQQ (ProShares UltraPro QQQ). Around September 2, 2020 I saw someone continually post on a FB group that if people weren’t investing in this stock they were missing out on a “runaway train”. That piqued my interest. I check out the chart and saw that it took a major DIP at the beginning of September. I also saw that it didn’t pay dividends so that stock held no interest for me. But I’m not an expert so I replied to the original poster asking him why he was recommending that particular stock. I felt is was a legitimate question but what I got in response to my question from the poster was a mocking and ridiculing response telling me that I had no business investing if I couldn’t read a chart.

It then occurred to me that the best defense from con-artists is a strong offense. He never answered my question. It also occurred to me that maybe this was someone who had bought a large number of shares at the high end in August and didn’t want to take a loss or wait for the stock to turnaround (depending on how long that would take) and was trying to pump up the stock in the beginner investors groups on FB. Maybe if he could get the knowledgeable newbies to invest in large enough numbers then he could, at best, recoup his losses or, at worse, minimize his losses.

I wrote the poster off as a someone not to be trusted and moved on. A few days later I was notified that some others have posted replied to the original message. To a person each one stated that they had followed the original poster’s recommendation and had bought shares and were now taking major losses. It’s unfortunate that these people took losses on their investments but there’s a lesson to be learned here. You can’t swing a dead cat on the internet without encountering someone recommending a stock investment. But the key is to understand WHY they are recommending that particular stock. Even someone like Jim Cramer will give you details of why he recommends that you either buy or sell a specific stock. He doesn’t just tell you to buy XYZ.

If you are a newbie to investing like me then you should approach each recommendation with extreme caution. Ask yourself some questions like –

  1. Why is this person recommending this stock?
  2. Who is the person that is making this recommendation? What do I know about him?
  3. Does the stock being recommended fit into my investment strategy?
  4. Does the person giving the recommendation give enough information where I can use to find additional information?

To me the 2 key questions are #1 & #2. I find a lot of stocks being thrown around on Twitter but the problem there is the usernames are not the poster’s real name, with minor exceptions. I can’t check them out anywhere to find out who they are or uncover their agenda. I know of Jim Cramer so when I see a recommendation from him I know what is the basis of the recommendation. But when someone who uses a name on Twitter such as “Dividend Hunter”, how the hell am I supposed to know who they are? This also hold true for those on Twitter who are there to sell their investment e-books, But that’s for another post.

But things are a bit different on FB. Normally, people there use a full name and not some ambiguous handle/username. You can at least check out their FB profile to find out the basics about them. You still have to ask probing questions and determine the poster’s motivation. But joining investment groups on FB has its own issues. Again, a topic for another time.

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