If Billy the Kid, Jesse James and Wild Bill Hickok were still about today, they would feel right at home as residents of Western Australia.
The stock-slingers of the wild west, and the odd one out east, have a new caper going. It’s a “pump and dump” scheme with a digital twist. A “pump and dump” is when people in the know – brokers and assorted promoters – ramp a share price then sell their holdings on to people who are not in the know. From there, despite the glowing recommendations, it can only be deemed to be an accident if the share price actually goes up.
Often company directors take advantage of the rising price to raise new capital or exercise share options. The buzz is created in the stock chat forums such as Hot Copper. But now the chat rooms are teaming up with brokers, PR companies and stock-tipping websites to co-ordinate their promotion.
So, when you see phrases such as “leading analyst says share price set to triple”, “ten bagger” (a stock rising 10 times in value) or “don’t miss out, stock to soar” … selling is the best option.
A cursory examination of a few of these stock promotions will show many – all of the ones we reviewed in any case – result in the share price falling. Most fall substantially, and mostly straight after the research report.
Take the veteran speculative explorer Sun Resources, for instance.
On October 1, Hot Copper issued a missive to its many followers: “Drilling complete, oil pay confirmed. Now sit back and watch this stock soar!”
Sun Resources shares were changing hands at 0.01¢ when the report came out. Trading volumes just beforehand were heavy. Sun Resources closed at 0.006 last Friday, a tidy fall of 40 per cent in just a few weeks.
You would have done even worse had you indulged in this alluring offer at 0.011 when this recommendation was made on September 25: “Don’t let the Sun set on your chance to buy this stock before it goes ballistic!!”
Sun has been meaning to go ballistic since this writer had the misfortune to briefly trade it as a stockbroker last millennium and, to be fair, one day it just might – though you wouldn’t borrow to bet on it.
The company attracted a speeding ticket from the ASX (please explain why your shares have shot up so quickly) on August 11. Its share price had rallied to a heady 0.02. Sun advised the ASX that it was “not aware” of any explanation for the sudden rise.
Duly, on August 25, came the announcement of a $10 million rights issue. It closed at 0.015 that day. Perth stockbroker Patersons Securities was the underwriter, and source of the glowing Sun research too, though by the time the offer had closed “Pattos” had pulled out and the share price finished below the offer price.
Funny thing, the T3 trading summaries appear to show that Patersons was doing more selling than buying.
Then there was IMX Resources. On August 19, this advertisement emerged from Hot Copper: “UP UP UP +400% – 12 month target price $0.15 – IMX Resources makes its graphite breakthrough.”
IMX is yet to embark upon its 400 per cent price rise. When the recommendation was made, it was 0.03. It is now 0.02. For those unaccustomed to dabbling at this spicy end of the market, this is akin to buying a stock for $3 only to find it changing hands at $2 a couple of months later; very good for tax losses. The broker research in this instance was BBY and the big volumes occurred the day before the research and recommendation were touted.
Then there is Northern Star, which featured on Hot Copper and also in a report by a website called Resources Rising Stars. Resources Rising Stars is owned by PR company Read Corporate, which doesn’t tout an Australian Financial Services Licence (AFSL) on its website but nonetheless wrote this: “Ten Bagger – Northern Star the standout for gold bargain hunters, says Patersons”.
Mind you, Northern Star does mine actual gold (rather than wallets) and may well be cheap but the day before the report it opened at $1.06 – having fallen from $1.20 the week before and from a high of $1.37 on October 22. Last trade was 97¢.
Attila Resources is another one. “Significant gains” predicted but significant losses ensued. Share price was 54¢ on February 24 when the euphoric recommendation from The Next Mining Boom website was advertised in the chat rooms. Last close 30¢.
Ram Resources (Read Corporate, Hot Copper and Beer & Co and Hartleys) “set for take off” but down from 0.012 to 0.008 is another. And Centaurus Metals (Wise-Owl, Hot Copper) was said to have “huge upside” at 0.1 but is now 0.063.
A lot of stock spruikers these days are unlicensed. And it is a reasonable expectation that if you buy a stock on the say-so of a chat room, a tip sheet, a PR company or a stock broker, you can’t reasonably expect to hold anybody to account if it bombs. The point of the story is that there is an uncanny trend of these stocks sinking the moment they are promoted. It is a trade in itself. Of the recommendations we perused, all have gone down.