Jim Letourneau's Blog

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Compelling Fine Print

I get stock spam pretty regularly. One of the ways junior companies promote themselves is through the use of mailing lists and newsletter writers (disclosure – I write a newsletter called The Big Picture Speculator). The mailing lists provide reach and the newsletter writer creates compelling copy that paints the company in a very positive light. Usually the newsletter writer will rattle off paragraph after paragraph of home run stock picks giving the reader an expectation that the new pick will take off as well. In this example the newsletter writer already has several hundred thousand dollars invested in the company.

As XXX Energy, the company featured in this publication, subsidized distribution costs, this feature should be construed as advertising. YYY developed and coordinated this mailing having received and administered a budget of $250,000. This edition of ZZZ has been distributed as part of a new subscriber effort. AAA, editor, has received no compensation from xxx in relation to this feature; however, AAA does expect some new subscriber revenue as a result of this effort—the amount of which is unknown at this time.

The newsletter writer gets increased exposure through the large email list and the company benefits from a positive recommendation by the newsletter writer. Everybody wins. The stock might even be a 5–10 bagger, it certainly had some positive aspects. This is probably not the best way to choose an investment as it preys on greed and leaves you a the mercy of someone else’s opinion. Sales pitches aren’t as compelling when they stress the risks and personal accountability.

I have occasionally been asked to write about companies, in fact one gentleman told me that he could “help me build my business”. Of course I’d have to write a positive report on the company that he was doing investor relations for first. I didn’t write about the company and in fact, went out of my way to point out some questionable assumptions based on conversations I had with two leading experts about a “look alike” play they were promoting.

If you see a newsletter writers’ report on a company’s web site look for the fine print. Most of the time they will disclose if they are being compensated by the company or not. In some instances, q company might want to feature a favourable article and reprint it with permission of the writer. Although the newsletter writer benefits from the exposure they were not compensated in any way prior to the article being written. Then the fine print might say something like:

I do not receive or request compensation in order to feature companies in this publication.

In the second example the newsletter writer has an amazing track record which is briefly mentioned in one sentence at the end of the article (as opposed to paragraphs). So watch out for the source of your research and…