Keep off unsolicited hot stock tips

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Stock market traders and investors in India are spammed with unasked for stock advisory SPAM SMS. Sitting in Bangalore, I am getting daily calls from Maharashtra, M.P. and Gujarat. If you junk the number, you get alternate calls. My message inbox has been flooded with lavish, unwelcome tips to buy penny stocks that will “multiply” my money within a few days.

The short message includes a stock symbol and reads: “There is confirmed news that…… (a reputed brokerage house name) is buying 30 pc of business of ……… (stock)”. Price target or prediction of tremendous run up price. 200 pc-profit in a week/month, pressure to invest immediately.

Zooming stock valuations have made stocks beyond the means of the retail investors. When benchmark indices hit new all-time high, few takers line up for large and mid-cap stocks. Different ways are engaged to “misdirect” the impatient investors to part with their money, and influence stock buying decisions. An unfortunate side effect of a strong bull market is that a certain type of, shall we say, ethically challenged groups sense it as a hunting ground, to exploit the unsuspecting public, who can be easy pickings, and push those ‘penny’ stocks that are fraught with grave risks.

New tactic, old scam

Cell phone text messaging to hype a stock is a wireless-age version of the old Pump-and Dump scheme. While the technology has changed, the scam has not. The first tipoff that you are being spammed is that the message is unsolicited, which raises the obvious question: why would a total stranger text you about a really great investment opportunity?

There are over 100 crore mobile subscribers in India. Low tariffs and direct reach to consumers facilitate SMS and cold calling as one of the most cost-effective ways of selling services and products. However, telemarketing had brought with it serious issues of invasion of privacy and has become major irritant to customers.

With email filtering systems becoming more effective, spammers employ the online bulk-SMS delivery services for their nefarious designs. The fabricated demand increases the price of these stocks, and the beguilers eventually offload their holdings. Before long, the price plummets, and you become bare.

Another type of modus operandi: A scam group buys a huge list of phone leads/database. Then, they distribute a certain number of leads to each broker in their centre and give them stock-tips to push. They divide their lists in half and start dialling.  For half of their calls, they’ll tell the customer: “ABC will tank next week and should be ‘shorted’, 100 pc guaranteed”. For the other half: “ABC will go up soon and should be bought. 100 pc guaranteed”.

The following week, if ABC is up, they call all those ‘buy’ guys to say, “I told you so….”, and proceed to give half of them the new stock’s “buy” chatter, and the other half the same stock’s “short” pitch. They repeat this process, always pursue only with those that previously got the correct “100 pc guaranteed” advice. To make it seem authentic, they use look-alike names of genuine broker house.

Can the spam messages be stopped? How do they acquire your number? Most spam texts have no sender telephone numbers, making it difficult to track their origin. Those with a telephone number (which rarely does) can be blocked using your phone settings.

Market-related WhatsaApp groups, websites, software services where you have used your email or mobile number are some of the sources that are mercilessly employed by the tipsters. The staffs of some brokerage firms are lured to sell the contact data to data-miners.

Can SEBI do something about it?

NSE had asked members to inform the exchange about any systemic wrong doing or unethical behaviour they come across. But nothing much has happened. Can’t SEBI, by viewing the CDSL/NSDL database, track the details of the scammers holding those illiquid stocks and distributing bulk SMS to the naïve retail investors, and take up the matter with cybercrime cell?

How to protect yourself?

Ensure the source of information is genuine. If you cannot verify the source, ignore the message. Reject unsolicited investment. Be wary of misleading advertisements that “guarantees” profits.  Check with the broker if they send tips on mobile. Most brokers don’t. Take informed decision without being influenced by unfair tips.

Enlist the services of a certified financial adviser who takes your needs seriously, and who wants to be your counsellor for a lifetime, not for just today’s ‘hot’ buy. Remember, it is our own greed psycho working here, which only we can tame.

Tail:  You can buy a dozen fresh eggs for Rs 48 while rotten ones are priced at Rs 4 a dozen. If you have Rs 4 in your wallet, will you buy one fresh egg or a dozen stale ones? Take care. After all, there is no “free lunch”.

(The views expressed by the author in the article are his/her own.)

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