The market is full of people giving out tips on what to buy and what to sell. There are advisory services which charge traders a very nominal monthly fee and give out hot tips on stocks they should buy for exorbitant gains. Their messages read as under:
“ABCD launches a new project. Buy by the truckload to obtain maximum profits” or “ABCD bags a new contract. Stock prices expected to soar. Buy to your full capacity!” They keep rolling out very promising tag lines to lure the masses into buying stocks for exponential gains. More often than not these so-called companies that are being promoted are either loss-making companies that have not even paid the basic salaries to their staff or are so low profile that no one has even heard of them.
How do they get hold of such information? Are they such great experts in fundamental and technical analysis that they can predict the outcome of the stock price based on some positive news for the company? Or do they have inside information on the functioning of the company, the management, the projected profits, and losses? Has the management decided to share all the company’s information with them before declaring it to the governing bodies? Can the stock price be expected to soar to the levels being promised by them based on such information?
Such advisories are nothing but scam operators that thrive on the desire of people who wish to get rich quickly. They lure them only to fuel their evil motives.
The advisory first build a huge customer base and once that is in place, they identify a dud company whose stock price is extremely low, say Rs.1/-.They then buy the stock of this company in huge quantities at that price. Once they are settled they start giving out calls to their customers promising great returns. Once the demand for that stock is created and people start buying, the price of the stock starts moving up and soaring. Just before the price is about to reach the target price, the operators start selling their bag of stocks in huge quantities. This massive dumping of stocks creates a supply of stocks which brings the price down. The falling prices create panic amongst the investors who also start selling which causes the price of the stock to tank further and eventually it comes back to Rs.1/-
The operators have earned a huge profit at the cost of the masses and investors who are left with huge losses and depleted bank accounts!
Trading the market without absolute knowhow of the various pros and cons is the biggest mistake made by traders and investors.
Thus, one should only trade or invest in stocks when he has a certain level of knowledge about the stock, the company, and the market as a whole. Relying and depending upon others to earn money for you is the surest way of losing money in the markets.