Newbie Do's & Don'ts

[Mariner*]

Beware of the Pink Sheet Promotion: Provocative Statements and Investor Greed
Originally posted by:Capt_Nemo
http://www.investorshub.com/boards/read_msg.asp?message_id=6988439

Investors, especially small cap traders, are often lured into buying a company's stock in order to live up to the dream of making a quick buck, easily and without pain. To do this, one would have to bypass the higher exchanges such as the New York Stock Exchange, Nasdaq and American Stock Exchange in order to scout for companies to purchase on lower market trading venues like the Over the Counter Bulletin Board and the Pink Sheets where higher percentage returns on investment is the norm. These are public markets where regulatory requirements are practically invisible and disclosure through Securities and Exchange Commission filings is limited. Yet, an investor is still able to keep his mouth watering because of the potential of doubling or even tripling his investment in a matter of hours. Even though those risks would scare off any rational or conservative investor, the high reward is able to outweigh that risk, giving a strange comfort to the investor who is able to ignore those risks in exchange for a chance of a profit.

To reach a few of these investors, it does not take much for any company or management team to entice them to buy their stock. However, it does take a cunning, masterful and sometimes scheming promoter to capture many of these investors who are gullible to greed and desire to reap profits.

It all begins with a plan by the chief executive officer of the company, sometimes the only real or sole employee of the company, who goes out and hires consultants to help with his vision. The vision, at the surface, is an ambitious plan to create some sort of long term value through a legitimate operation. However, what meets the eye is not always true, and time and time again, a company's quest to create value is just an excuse to raise money through a scheme that is devised to stash as much money as possible, not for company operations, but for the management's piggy banks.

The promotion is underway when the consultants get to work with direct supervision of management, and this is where it gets interesting. Usually, the promotion starts off with a flurry of press releases filled with forward looking statements that have yet to be proven or backed with real results. Then if it is a real top notch promotion, a coordinated visibility campaign would occur with a well known investment newsletter that would successfully convert readers into buyers of the company's stock.

Take for instance, the June edition of the Kissinger Financial Letter, which is helping to create a bit of publicity for some undiscovered company. In this particular edition, the newsletter uses a seemingly very reputable source, an oil giant who has made billions in the Giddings Oil Fields of South Texas to help promote Am-Tex Oil & Gas (Pink Sheets: AMTX), a tiny oil and gas exploration company in which 25% of the project is jointly owned by the oil mogul's company. With his untarnished credibility, the newsletter leaves him as the backdrop for which they could now paint a picture of a sure thing investment. The newsletter provides even more incentives by claiming that if oil is produced at certain levels, the stock price of Am-Tex could appreciate thousands of percentage points.

While this may seem like a sure bet to snatch a pot of gold, this mind frame is what makes the average investor susceptible to risking their money in these types of investments. If you closely read the fine print, the editors of the publicly distributed report provided by Kissinger Financial Letter have received an editorial fee, as well as distribution costs of the newsletter by a third party. What is even more eye opening is that the newsletter was paid an astounding 100,000 shares of Am-Tex Oil & Gas by a third party.

When thinking logically, in a promotion with typical publicity stunts through major newsletters or otherwise, one should be able to see the red flags in a case like this. If the corporation has that much potential to produce a highly lucrative supply of oil, with the support of an oil giant, why would there need to be any reason to promote it? A good investor needs to ignore the hype and take off his rose colored glasses. Every investor must realize that money comes with responsibility, and if it is too good to be true, than it most likely is.

And that is this month’s real deal.
http://www.antandsons.com/therealdeal/pinksheetpromotion/