How to write about stocks and avoid "pump and dump"

Silver Stock Report

by Jason Hommel, Feb 21, 2006


How to write about stocks and avoid "pump and dump".

One of the best tips I can give you is not the name of a stock.  My best tip is to convince you to write about stocks!  If you write, you will learn more about stocks, and your readers will send you stock tips in your email.  And if you write about great stocks, and if you develop a following, you may even be able to help out your own investments by succesfully promoting them.  But here are some rules to follow, to avoid trouble.

Since I began writing about stocks, I have been occasionally accused of doing a "pump and dump".  Here are only a few of such web pages containing such criticism:

http://www.321gold.com/editorials/mathews/mathews100404.html

http://tinyurl.com/8kkrg
http://www.goldismoney.info/forums/showthread.php?t=7908
http://www.gold-eagle.com/editorials_03/hommel100603.html

Let me deny this false accusation and set the record straight.  I have never done a "pump and dump", which is illegal.  And why should I bother to sue the accusers for libel?

“Blessed are you when others revile you and persecute you and utter all kinds of evil against you falsely on my account” (Matthew 5:11).

True, I have written about cheap stocks, seen them rise until they became expensive, and then sold.  And why shouldn't we?  Isn't that the entire point of successful investing?  Am I supposed to hold the stocks forever, regardless of how the fundamentals change?  Of course not.

Aren't investors supposed to sell after getting gains of about 100%-1000%?  Furthermore, if the company itself changes the fundamental picture by issuing shares that may increase the market cap many times higher, it may become time to sell, because the stock may no longer be cheap!  But that is not a "pump and dump" and is not illegal.  That's the point of capitalism.

For proof:  The SEC says, at
http://www.sec.gov/investor/pubs/cyberfraud/newsletter.htm

"Because the U.S. Constitution's First Amendment protects freedom of speech, the SEC cannot simply prohibit newsletters from recommending or touting particular stocks."

Yes, I tout.  I advertise.  I tell the truth.  Don't all businesses across America advertise?

So, what is a "pump and dump", and how does it differ from what I do?

The SEC says at
http://www.sec.gov/answers/pumpdump.htm

""Pump and dump" schemes, also known as "hype and dump manipulation," involve the touting of a company's stock (typically microcap companies) through false and misleading statements to the marketplace."

Ah, here's the difference:  "Pump and Dump" involves lying!  

As an example, in the movie, "Boiler Room", a group of shady characters lure kids into cold calling to sell shares in a non-existant medical company, which is clearly fraud.  

There are three main SEC guidelines to follow if you want to write about stocks (I strongly encourage you both to write, and to follow these guidelines).

1.  Always tell the truth!
2.  Disclose whether or not you own shares in the company.
3.  Disclose whether or not you have been paid by the company, or any source whatsoever, to promote the stock, and if so, how much.

Internet Fraud: How to Avoid Internet Investment Scams
http://www.sec.gov/consumer/cyberfr.htm states:
"the federal securities laws require the newsletters to disclose who paid them, the amount, and the type of payment"

One writer for CBS Marketwatch, Thom Calandra, wrote about a stock, saying it was a good "long term" investment, and then sold shares the very next day.  Thom also failed, in a few instances, to disclose whether or not he owned shares, and whether or not a company paid him to promote their stock. Companies had, in fact, been giving him shares.  And so, Thom was sued by the SEC, and I believe he settled with them.

Now, there is no hard and set rule about how long one should wait after writing, and when one can sell a stock!  

However, a rule of thumb often observed by major media seems to be that a writer, talking head, or staff member, cannot sell for at least a day, or as long as one week after discussing a stock.  My stock broker, who works for one of the large brokerage houses, asks me every time I put in a sell order, "Have you written about this stock in the last week?".  If so, he won't let me sell, which I think is reasonable, because it allows time for the market to "calm down" and find a rational price after a promotion.  Kitcocasey.com requires writers to not buy or sell a stock for three weeks before or after an article has been written.  

So, while writing my weekly silver stock report, I was presented with a particular challenge, since, in theory, I would not be able to sell any stocks I owned!  So, my broker and I settled on whether or not I had written anything NEW in the last week.  If I wrote something new, then I could not sell for a week.

Typically, I wait much longer.  

Stocks that I've recently traded, I've typically held for about 6-9 months. Two of my stocks, OTMN & MMGG, I've held for more than two years.  I've held IGMI for 14 months.  With a few stocks, I've traded in and out several times within a year;  such as Avino, Clifton, and a few others.  In these cases, the stocks were simply too illiquid for me to buy much on the open market, and after I bought, the stocks took off, so I sold them.  

Some people complain that I never say when to sell a stock, or I never say when I have sold a stock.  This is not true.  When I was writing my weekly silver stock report, I disclosed in four locations within the documents, whether or not I owned particular stocks (at the top and at the bottom of each document, and at the top and bottom of each company profile.).  Those who paid attention,
would have noticed, within one week, when I had sold any position.  Which other writers have provided such a disclosure?  Personally I don't know of any!

Today, if you want to find out whether or not I have sold a stock, you may
purchase the "look at my portfolio", and I provide this information on a monthly basis.  I'm not required by the SEC to provide such detailed information, and not very many newsletter writers make such information available, but I feel such information is invaluable.

I want to encourage you to become a better investor, and even to write and compete with me by starting your own newsletter, because this improves the entire industry and helps every one of us to become better at what we do.  

I also don't just "hype" a stock like you may see in spam that provides no useful information, and are emailed to millions such as:

*******BUY XXX.OB NoW!!!*******
XXX stock is breaking out, and headed up!!!

Buy now or miss the boat!

Don't be left out on making serious money!

Don't forget to trade at the top!

*******************************

In contrast, I send out my emails to a relatively small opt-in list of about 17,000.  

Also, I provide useful, fundamental, truthful details about a company, combined with my insights on the market in general that I believe will provide a compelling reason to consider doing further research into the stock itself, or other, similar kinds of stocks.

I want you to do further research, and learn about the types of fundamental factors that make a stock a compellingly good buy.  I assume that the more knowledgable you become, the more you will be likely to tell me if you know about, or find out about, another company that you think is better.  And that makes both you and me better investors.

Furthermore, I often provide useful information about stocks that I don't own.  In several cases, I've added stocks to my silver stock report, and bought them much later at higher prices than they originally cost.  I have done this with Clifton, Abcourt, MGN, SRLM, and many more.  Isn't that the reverse of "pump and dump"?  It's actually "pump and buy" that I have engaged in.  Interestingly enough, why do you think that nobody has ever accused me of doing a "pump and buy?"  The reason is that such behavior is as honorable as it gets!

The most recent "pump and buy" I've done is with IGMI.  I wrote about it in August at $1.00 - $.90/share, and then bought later in December/January at about $1.15, after more research!  

A few weeks ago, two investors enthusiastically told me about zinc stocks they thought were better than my zinc stock, Metalline (MMGG).  These were stocks that I had not heard about before.  The names of those stocks are:  TAMERLANE VENTURES INC (TAM.V) and Herald Resources (HER,AX) www.herald.net.au

I do not know if these stocks are, indeed, better than MMGG.  These are both zinc/lead stocks, and not zinc/silver stocks, which could explain why they may be cheaper, if you measure just the zinc and compare to the market cap.

So, why do I give stock tips to strangers?

Wealth is a good and godly thing that helps mankind to develop and prosper.  Even a casual reading of the book of Proverbs shows that gaining wealth is the natural result of growing wise and applying many godly principles.  If I can make money for myself by investing, then I can help others make money.  The Bible says that you will know a true Christian by their fruits.  And if I help others, others help me.

I think there is a reason that America became the wealthiest nation on earth, and I think it has mostly to do with our forefathers' Christian principles.

When silver prices rise, I want the wealth to be in the hands of well educated, experienced (especially Christian) investors.  Because there will come a time to invest in something other than silver--things that will help the rest of society continue to grow and prosper.  It vexes me that after the last gold bull market ended in 1980, that most gold investors turned to bonds or collectibles: such as antiques, art, baseball cards, comic books, stamps, and other so-called tangibles that were more like idols, which later plunged in value.  I want to help you avoid making the mistakes of the prior generation.

If you've missed a recent email, you can find them at silverstockreport.com

SEC Disclaimer:  I currently own SRLM, MGN, Abcourt, Clifton, IGMI, MMGG, OTMN, and nobody has paid me to send out this email.  

Sincerely,

Jason Hommel