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Apprenticed Investor: Seven Steps for Handling Stock Tips
Posted By Barry Ritholtz On April 24, 2006 @ 11:30 am In Apprenticed Investor,Investing,Psychology,Technical Analysis,Trading | Comments Disabled
Its finally here! After a quarter’s hiatus, the Apprenticed Investor  makes its long awaited return.
Today’s column deals with two elements of investing/trading: 1) the huge surge in trading volume on the OTC bulletin board (shown in this chart last week ); and 2) what this means — typically, we are witnessing the return of the hot stock tip!
Here’s a quick excerpt:
Yes, stock tips are hot again. Activity on the Nasdaq bulletin board (OTC:BB)
is on the rise — volume has exploded nearly 40% recently (see chart below). And
that is over the bulletin board volume record set in February.
I refer not to the small-cap stocks on the Russell 2000 but to the tiniest of
them all — the delisted and Pink Sheets stocks. They have become movers once
again, and that often means bad news for unwary investors.
I don’t mean the so-called spam stocks either, which TheStreet.com’s
Kelleher revealed to be huge money losers. No, what I am referring to are the word-of-mouth stock tips passed from
person to person. Emails and instant messaging now help to spread the word
faster than ever before.
The vast majority of these "tips" are for horrific little stocks that don’t
have a snowball’s chance in hell of ever amounting to anything, at least not on
a sustainable basis. Many so-called tips are nothing more than the work of paid
promoters whose sole role in life is to run up the price of some worthless paper
so sellers can exit at a higher price while the "tippee" is left holding the
Yes, you read that correctly.
Stock promoters operate in the shadows, just beyond the reach of the
NASD and the Securities and Exchange Commission, avoiding
regulatory scrutiny by exploiting the fine line between legitimate
investor/public relations and outright touting.
Under a variety of different names and aliases, touts often post breathless
tales on the Yahoo! and Raging Bull message boards. Anyone who posts factual
information that contradicts the story will be harassed on the boards and
shouted down. Typically, stock promoters have a broad network of followers –
traders who can get in and out early of a promoted stock, pocketing a quick buck
and leaving the unsuspecting retail investor holding the bag.
I could have very easily just written: "Avoid Stock Tips! They are almost all scams" – but who would listen to that?
Instead, the column details 7 steps to take to help reveal when something has a high probability of being a hunk-o-$#%& !
Prior Apprenticed Investor columns can be found here .
UPDATE: April 24, 2006 2:19pm
A reader brought this story to my attention: Anatomy of Stock Fraud 
Seven Steps for Handling Stock Tips 
4/24/2006 7:54 AM EDT
Article printed from The Big Picture: http://www.ritholtz.com/blog
URL to article: http://www.ritholtz.com/blog/2006/04/apprenticed-investor-seven-steps-for-handling-stock-tips/
URLs in this post:
 Image: http://www.thestreet.com/tsc/landingpages/apprentice
 this chart last week: http://bigpicture.typepad.com/comments/2006/04/more_signs_of_s.html
 Anatomy of Stock Fraud: http://www.junkfax.org/fax/profiles/wsp/wsp.htm
Seven Steps for Handling Stock Tips: http://www.thestreet.com/university/personalfinance/10280539.html
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