Can You Trust a Teaser?

By Travis Johnson, Stock Gumshoe, January 27, 2009

Most of us are quite familiar with investment newsletters and trading services. I focus on the newsletters that advertise heavily to retail investors, and the most successful type of ad is apparently the “teaser” letter, a well-argued case for a particular stock or investment … that withholds the actual name and ticker until you throw your subscription dollars into the hat.

Thankfully, with a little research and some critical thinking we find that many of these “teasers” can be solved, letting us reveal the names of the stocks, get people started on their research, and make patient decisions about newsletter subscriptions (and investments) without relying on impulsive “tell me the name of that stock” urges.

The implicit promise is that these “teaser” stocks represent the best ideas of these often well-known newsletter editors, whether it’s the Gardner brothers at the Motley Fool, Louis Navellier, Paul Tracy, or any of dozens of others whose names you would probably recognize.

One stock in particular represents the promise, and peril, of these kinds of teasers — and the ad is still circulating today, so let’s use it as a quick case study.

Have you heard of the “forever battery?”

The company that “makes” this battery was first teased by the folks at the Untapped Wealth newsletter in a heavy ad campaign early in 2008 — it turned out to be, once we followed the clues, a small firm named mPhase Technologies that used to develop DSL technologies, but was now throwing itself into the nanobattery development business. I like to talk about this one because it has been actively promoted at several distinct times in the past year, and because it’s a microcap stock that is easily influenced by what could be even a small number of new investors. And because, of course, the company has few fundamental drivers like earnings, or sales, that would help to explain movements in the stock.

The first newsletter ads teasing this “forever battery” went out in early March of 2008, and they must have struck a chord with investors because the volume of email picked up dramatically by the beginning of April, with Untapped Wealth promising that the company was on the verge of a public demonstration of their technology (they actually did demonstrate the technology, as promised — at a steakhouse in Manhattan, of all places).

Then the promotion was sent out sporadically for the following few weeks, including a number of times in early May that caught my readers’ attention. I continued to see occasional copies of similar ads for much of the summer, but nothing that was in such heavy rotation that my email box filled up as it had in the Spring.


Can you guess where on the chart those emails hit? Hint: Just look at every point where volume increased and the shares rose, those were almost all timed exactly following periods when many of my readers received this email ad.

More ads came out in September that claimed a “catalyst” for the shares was around the corner, which helped to slow the stock’s decline for a few weeks. Then in early December a couple of industry awards and an announcement that the company had entered a “critical partnership” with Porsche Design to develop their “AlwaysReady” emergency flashlight provided a big boost in volume that helped drive the shares up significantly (though they remained well under the price they traded a year ago, before the newsletter hype began in earnest). This was the first time all year, in my opinion, that the shares had moved without heavy advertising by Untapped Wealth, but just as with those ad-fueled spikes, the move was quickly reversed.

This week? Yet more campaigns rolled out, using much the same ad copy and argument as they had made a year ago, with the shares about 90% off their highs of the year.

Back in March of last year, the promise was that these shares were expected to go up by 3,600% in the next twelve months, with the shares then trading at six or seven cents a share and spiking briefly to nearly 15 cents … now the shares are trading for about one and a half cents each, and in the current ads these same folks are expecting, you guessed it, 3,600% gains in the next twelve months. [Another flurry of press releases has since helped to drive the price up to two cents, including one that announced that they were “close to finding a manufacturer.”]

The point here is not to single out Untapped Wealth or mPhase, but to point to the impact that even an apparently legitimate newsletter teaser campaign can have on a stock, and to provide one example from among hundreds of an ad that is sent out repeatedly (sometimes over the course of many years), with very little change to the copy, not because a stock idea is working but because the ad is working to bring in new investors.

Similar patterns have held true for many stocks that have been actively teased by investment newsletters, especially when a newsletter with a big advertising budget or large email list hits on a stock with a relatively small market cap — a good ad drives new subscribers, and those subscribers are primarily motivated by this one stock idea, so they’re likely to buy the stock immediately.

Some of my readers have tried on occasion to trade off of these touts, but of course it’s never quite that easy — as you can see from the XDSL chart, you would have had to be very nimble for this one, and even for stocks with market capitalizations of $500 million or more the resultant action can be wildly unpredictable.

Louis Navellier, for example, ran two very aggressive ad campaigns for his newsletters last Summer that promised dramatic near-term moves in a chosen stock — in one case, the ad apparently worked well and it was repeated several times, which helped drive the shares of Gran Tierra Energy (GTE) higher for a few weeks. In the second case, with an extremely similar ad for Fuel Systems Solutions (FSYS), the ad went out only once, on a Sunday, and the bounce from that ad was very brief — not because the fundamental prospects for the company were necessarily different, but, one assumes, because the ad didn’t work well enough at bringing in subscribers, so they didn’t mail it a second, third or 15th time. [And those who were paying attention noted that Robert Hsu used much the same strategy with the ad that I wrote about yesterday.]

As for that “Forever Battery” from mPhase? It may well be that the company’s technology ends up working someday, or becomes a real product, even beyond the flashlight that they’re close to building. Perhaps even a profitable one, in the distant future. The stock? A great story, well told by a master copywriter, that sold a lot of newsletter subscriptions … so far, that’s about it.

This article originally appeared as a guest post on INO’s Trader’s Blog, it has been slightly updated.

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11 Comments on "Can You Trust a Teaser?"

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KA
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0
January 27, 2009 10:51 am

I actually got more than one FSYS spam from Navellier…

http://investorcrap.blogspot.com/search/label/FSYS

Daryl Johnson
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Daryl Johnson
January 27, 2009 11:26 am

Investor Place Media seems to have a great majority of these stock picking guru’s that bombard you with ads to use their service. I’ve subscribed to four so far on a trail basis and cancelled all of them to receive my full refund back. It was interesting to read the information, but ultimately if you can formulate your own strategies, your way better off.

TV Guy
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TV Guy
January 27, 2009 3:32 pm

From your comment on the stock interest and sales…as related to what teaser hit the mailboxes.

There is a report of Jim Cramer and Mad Money…wherein…folks try and get the names of the guests that he is receiving on his show…in advance….the run-down sheets as they are called…

The blabber takes place…the stocks being touted rise…sell-offs occur within 48 hours of the broadcast.

Not “investing”…but game-playing.
UGH !!!

Lou Giattino
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Lou Giattino
January 27, 2009 4:17 pm

Way back in the 70’s I developed a Lithium battery. VC’s financed us. The comapny was bought and dissolved in 1988. I have some D cells from late 1985 that I am using in my batteries. They are over 23 years old and still working. That’s a real forever battery!

chico  59
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chico 59
January 27, 2009 4:57 pm

I’ve received many promo pieces for newsletters in which the fine print dicloses that the newsletter is being paid a promotional fee for touting the stock. even some of the bigger names in the newsletter world have this arrangement. Again in the fine print. Enjoy your comments .Thanks

Donal McNally
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Donal McNally
January 27, 2009 6:11 pm

My experience with teasers is that they make astonishing claims, hype the “secrecy” of the route to wealth they are pushing, and cite data that can kindly be described as selective.

These things offend me so much that I now tear them up. Burn before reading, in other words. The Gumshoe does a fantastic job of ferreting out the occasional grain of wheat amidst all the chaff.

tt tan
Guest
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tt tan
January 27, 2009 11:43 pm

I used to contribute to a writer
under the Breakaway Investment but
have not really achieved any profits from it. Perhaps some of the recommendations were too early at that stage, moreover I had no
idea that some teasers are for only
a short span of time – being a
new investor, there there were no clues until I read your nice
columns. Thanks gumshoe – tt

Simon
Guest
0
January 28, 2009 12:51 am

The real question becomes… is the teaser promoting a legitimate stock with good fundamentals that has a logical reason for moving up in value… or is it just promoting a pump and dump style stock that has no chance of really growing. This is where i feel stock gumshoe is so valuable, as he decodes these and we can pull up the charts and see for ourselves what it is. As a general rule i say away from promoted stuff listed on the tsx venture and OTC exchange.

Norm Ross
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Norm Ross
March 7, 2009 3:41 pm
Stansberry is now touting 5 free months of Phase I Investor, with the no-obligation gift expiring on Monday, Mar 9. This is one of their most expensive newsletters (now discounted). The “teaser” is a biotech company which will publish its Phase III results on an obesity drug. Stansberry says, “This is the kind of situation that can literally change your life … where a $10,000 stake can let you quit work, forever.” A little research came up with Arena Pharmaceuticals, which is releasing phase III results on its obesity drug, lorcasarin, at the end of March. Why don’t you check… Read more »
theaccusersgift
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theaccusersgift
January 27, 2009 5:03 pm

The same thing would happen for Louise Rukheiser’s Wall Street Week when Lou was alive. The show was taped Friday morning but aired Friday night after market close.

People would get the guest list and buy recommended stocks on Thursday and sell into the rally Monday to viewers of the show.

I subscribe to Oxford Club and they can move the market with a recommendation, so I always wait a few days for the stock to go back down to buy.

Forbes magazine can REALLY move a stock when it features a glowing article on a company.

Gravity Switch
Admin
11
March 7, 2009 4:53 pm

Have written about this one a couple times:

http://www.stockgumshoe.com/2009/02/this-is-the-kind-of-situation-that-can-change-your-life.html

and

http://www.stockgumshoe.com/2009/02/a-good-old-fashioned-newsletter-fight.html

The stock took a wild ride — huge bump from all the touting, big decline after that, and we’re just about back where we started at $4+. I know a lot of folks will be watching to see what comes out of that study at the end of the month, but there will probably be any number of moves in the stock after that — there are other Phase III trials to report, and plenty more opportunities for good or bad news to come out before they even file for FDA approval.

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