How to Spot Phony Newsletters

How to Spot Phony Newsletters
By Brian Hunt, editor in chief, Stansberry Research
November 30, 2009

Allen came to me with the fax sheet in his hand. He had gotten it at work.

"I think I'm going to buy this stock. It sounds amazing."

Allen was holding a tout sheet. Some tiny medical company was going to introduce a revolutionary new wound spray. Its stock traded on the pink sheets, the Wild West of the stock market. Shares were going for 11 cents.

I shook my head and asked, "Allen... do you really think someone out there is handing out great free stock tips? By fax? Anonymously?"

Allen sobered up. "Probably not. Why send it to me though?"

My friend Allen is a smart guy... without much real-world investment experience. He didn't know what every investor should know: There is a thriving industry based on the art of the "pump and dump." If you're not careful, you'll get burned.

You see, some financial publishers rent their mailing lists to stock touters (aka "promoters"). These firms get paid to write pseudo stock reports on tiny companies.

I'm on a lot of mailing lists, so I get stock touts all the time. Many are about tiny companies sitting on big resource finds... like a gold mine or oil deposit. These touts name the company. They give you the stock symbol. They spend eight pages telling you how great the company is.

And then... in tiny type on the last page, the promotion will say something like: "This publisher was paid $250,000 by Company X to write this up. This publisher, his family, or his associates may own shares of Company X. They may be selling their shares as this report is being disseminated. This publisher is not liable for any financial loss you may incur from acting on the information in this report."

In other words, "Hey buddy... Here's a great stock that's going to go way higher. And I'm happy to sell my shares to you."

Like most disclaimers, the ones on touts usually go unread. And the tout will send shares of the tiny, thinly traded stock way higher. Insiders dump their holdings on the way up. Outsiders who don't know any better end up holding the bag.

Sure... it's distasteful. But these "pump and dump" operations are 100% legal in the eyes of the U.S. government. A group, company, or individual can say all kinds of rosy things in order to get you to buy a stock so he and his cronies can dump their shares onto you... as long as they include a disclaimer about their conflicts of interest.

Can you end up winning on some of these pump and dump stocks? Probably a few. But you should ask yourself: Do you really think someone out there is handing out great free stock tips? By fax? Anonymously?

A Dirty Secret of the Newsletter Business

The Headline All Great Traders Hunt For

You'd be better off answering "No" and moving on. You'd be better off taking investment advice from someone who only works for his readers... and not the companies they write about. If you're not sure what your newsletter's policy is, call 'em up and ask.

Next time you receive a free hot stock tip, especially one you didn't ask for, consider the source. Read the fine print. Read it over the garbage can and let gravity do the rest.

Good trading,

Brian Hunt

P.S. Now, not everyone who hands you a "free investment report" is a touter. Many stand-up advisors use the old business technique of offering prospective customers something of value for free in order to get them interested in a product. Again, call 'em up and ask their policy.

Curious about Growth Stock Wire's policy? You'll find it below.

Don't Do It
It's time for the U.S. to end this madness...

Obama Watch: Eyes on the Prize
Change was the hallmark of his campaign, but change to what?

•	Chinese drug firm Wuxi PharmaTech soaring... up 100% in last five months... sitting at 52-week high.
•	Inflation-protected Treasury fund hits another high.
•	Pipeline stocks surge... Kinder Morgan, Magellan Midstream, ONEOK, and others crowd the new highs.
•	Middle East stock markets hammered overnight... Dubai down 7.3% on debt crisis.

	Last	Change	52-Wk
S&P 500	1109.30	+1.45%	+27.03%
Oil (USO)	40.29	+2.99%	-12.75%
Gold (GLD)	111.63	+1.72%	+52.29%
Silver (SLV)	18.01	+5.01%	+92.41%
U.S. Dollar	75.37	+0.68%	-13.15%
Euro	1.49	-0.70%	+17.54%
VIX	22.89	-2.01%	-65.48%
HUI	475.53	+3.26%	+155.07%
10-Year Yield	3.33%	-0.10	-0.37

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Company	Sym	Industry
Enbridge Energy	EEP	pipelines
WuXi PharmaTech	WX	pharma
Power-One	PWER	electronics
Dillard's	DDS	dept stores
Kimberly-Clark	KMB	toiletries
Kinder Morgan	KMP	pipelines
Williams Pipeline	WMZ	oil & gas
Nidec	NJ	electrical equip
Reynolds American	RAI	cigarettes
Tyler Tech	TYL	software
ONEOK Partners	OKS	pipelines
RINO Intl	RINO	industrial equip
Minas Gerais	CIG	electric utilities
Techne	TECH	biotech
Iowa Telecom	IWA	telecom
Magellan	MMP	pipelines
iShares TIPS	TIP	inflation safety
A-Power Energy	APWR	electric utilities
3SBio	SSRX	biotech
BNSF	BNI	railroads
Plains All Am	PAA	pipelines
Perrigo	PRGO	health care
Duke Energy	DUK	electric utilities
Boston Beer	SAM	beer
Buckeye Partners	BPL	pipelines
Sunoco Logistics	SXL	pipelines
El Paso Pipeline	EPB	gas utilities
Centrais Electricas	EBR	electric utilities
CorpBanca	BCA	bank
Boardwalk Pipeline	BWP	pipelines
SIGA Tech	SIGA	pharma
Warner Chilcott	WCRX	pharma

Company	Sym	Industry
Cogent	COGT	software
Energy Con	ENER	semiconductors
First Commonwealth	FCF	bank
WesBanco	WSBC	bank

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