With a headline like that, it’s no wonder that Gumshoe readers have been asking about the latest pitch from Lombardi Financial.
Lombardi is pitching a service I haven’t written about before called Payload Stocks … the editor of the letter is someone named Moe Zulfiqar, which is probably too cool of a name to be made up. He was a research analyst at Lombardi, apparently, and I guess he’s now getting a chance to run his own letter.
What’s the letter about? The pitch is that they’re going to tell you about stocks that are the focus of “investor relations” PR campaigns, before those campaigns start, and that you’ll be able to profit as these promotional firms drive up stock prices for their clients.
Sounds kind of sleazy, right? Perhaps not quite as bad as the strategy that we looked at from a service called Passive Income Trader last year, since that one claimed that they were identifying offshore pump-and-dump stock promotions just as they started and that they could get you in and out for quick hits (later, it turned out, it looks like they decided that they would instead just try to help paying subscriber front-run the promotions they themselves had been hired to publicize). But still, kind of sketchy — just that it’s not quite so close to “riding in the criminals’ wake.”
Payload Stocks specifically says that they’re looking for firms that hired investor relations companies — which means there’s a small but probably ethically important difference between these kinds of promotions and the pump and dump operations that we more typically see. “Pump and dumps” aren’t usually run by the actual company whose stock is targeted, not if the company is real … they’re run by offshore funds that trade the stock up and down and just use stock promotion to manipulate the price. Of course, they’re usually teensy and unimportant companies if they’re real, or completely manufactured reverse-merger shell companies if they’re not real. (Yes, you can buy a “clean” publicly traded shell company, often for less than $100,000, and build whatever kind of story around it that you like.)
But yes, legitimate and operating companies often hire investor relations firms too — and it’s the job of those firms, just like any good PR firm, to drive attention to the company and, yes, get the stock price up. Legitimate firms usually do this because they need to raise money for the business and aren’t a great enough business that they can get large or institutional investors interested. And I’m sure there are sleazier operations that are somewhere in the middle, too, with insiders hiring IR firms because they want to cash out some of their shares at higher prices, etc.
There are also big investor relations firms, and publicity-minded IR employees at large corporations — that’s absolutely true, and they mention Krispy Kreme to give you an example of a stock that was driven in part by a PR campaign. But a billion-dollar company hiring a new IR firm is not going to be the catalyst that brings a double in the stock in two days (or even a 20% gain in a month) like they’re teasing they can do here. At that size, stocks certainly sway with changing sentiment but they don’t catch fire with investors because of a cheap email campaign run by an IR firm.
Lets look at what Zulfiqar is saying… here’s how the ad gets us interested:
“We recommended a small, relatively unknown stock called SafePay Solutions. Within two days, this stock went up 142%
“The stock more than doubled in two days!
“Next, we picked another little-known company called China 3C Group. Within two days, this stock jumped 103%.
“The second recommendations more than doubled in two days as well!
“When a gambler in Las Vegas, Atlantic City or any other casino hits the jackpot with a big paying slot machine, he’s hit the proverbial payload.
“Just like a jackpot, payload stocks are poised to explode out of Wall Street’s starting gate and deliver a never-ending rush of profits.”
Well, SafePay Solutions seems like it was probably a pretty scammy payment processor from all the complaints I’ve seen, though the website still exists, and the stock changed names and is now Emaji (EMJI), which says its a web portal but looks like it’s not much of anything. It has a stock that trades for mere fractions of a fraction of a penny (on the rare occasions when it trades at all). If this stock exists for any reason today, it’s to be a pump-and-dump promoter’s lunch hour activity. (Before it was SafePay Solutions, by the way, it was Netoy.com, a crappy dot-com retailing story in the late 1990s dot com boom — a “web portal for selling toys — that traded up to at least $7 in 1999 before the world fell apart for such lousy stocks in 2000 — probably it spiked up even higher).
China 3C Group is now called Yosen (YOSN), according to Yahoo Finance, and it looks like a little shell of a stock promotion company even though it’s hugely grander than Emaji (market cap is under $20 million, the business is still China 3C’s electronics retailing business, apparently — it actually had some revenue last year).
So yes, they’re talking about trades of terrible stocks, not actual investments. Of the winning examples they give to entice you with their trading skill, most don’t exist as stocks anymore and not one is an actual business that you’d have any interest in owning for even a day. If that’s not enough to make you think, “hey, maybe I don’t want to even know any more about this,” well, we’ll move along and look a little more closely.
We have no idea when Moe claims to have traded these junky stocks for big two-day gains, though it looks like the Lombardi folks did have a similar kind of strategy they were selling at least as far back as 2005 (I didn’t write about the old “Payload Stocks” letter then and haven’t heard much about it in the interim). Unlike most publishers, the Lombardi marketers rarely make an effort to update their sales pitch and often re-tease the same pick for many years without changing the sales letter — so maybe those are just some old ideas they helped subscribers profit from five years ago. Dunno.
(And for whatever it’s worth, a previous editor whose name was used to pitch this Payload Stocks idea, among a bunch of other Lombardi letters she was involved with, says she’s out of the business and has asked me to note that she is no longer associated in any way with Lombardi Publishing).
Here’s some more of their sales pitch:
“Our payload system of super fast stock profits takes advantage of an overlooked early indicator of near-term stock appreciation that’s deadly consistent! It’s so fiendishly unfair to all who don’t have it that it barely seems legal. But I assure you it is totally legal and all based on information available to anyone who has the energy to ferret it out!
“I’m not exaggerating… nor am I overhyping when I tell you this is something truly different. As soon as I explain why this early indicator almost always foretells a huge, fast rise in a stock’s trading price, you’re going to agree that it seems almost too good to be true.
“It’s so obvious (once you see it) and such a no-brainer that you’re going to wonder why you never thought of this yourself, and why every savvy investor isn’t taking advantage of it to rake in (with clock-like predictability) huge profits!”
And here’s what they say they actually do:
“Okay… here it is… the practically fool-proof, early-indicator that’s been the giveaway signal that the stocks we’ve tracked were on the verge of explosive profits:
“When a little-known micro-cap company retains a top-tier investor-relations firm to promote the company… or when the company announces a reverse takeover is taking place (which almost always results in new management coming in)… or when that new private placement comes in for debt restructuring or major investment… it’s as close to a guarantee as possible that new blood is brewing at these companies and that their stock price is about to take off! …
…what we’re talking about is perfectly legal! And, if you know when a promising but little-known company retains a top-tier investor-relations firm to drive up its stock price – you’re almost guaranteed fast and significant profits. It’s just that simple. It really is a ‘license to steal!'”
Well, as with the Passive Income Trader ridiculousness, I don’t really want a “license to steal” … but if I did, would it work?
Here’s how Moe says it works:
“It’s perfectly legitimate for a corporation to retain an investor-relations firm to flood Wall Street with a carefully crafted awareness-building campaign. Who do you think gets all those CEOs on the morning financial shows?
“On the other hand, it’s totally illegal for the employees of either the hiring company or the investor-relations firm to buy stock, because they know a contract is about to be announced – that’s insider trading. But, when the contracts become a matter of public record, the name of the game becomes, ‘Who knows about it first?'”
And then Moe says they pick the best ones:
“We’ve already done the homework to know which investor-relations firms have the best record of success. And, we overlay that information with a careful look at a target company’s technical and fundamental data before making a recommendation. Remember, the most successful investor-relations firms won’t take on a dog. They want to protect their own record, so by sticking with the winning companies, we greatly increase our odds of success, too.”
Well, if the examples they gave in the ad above this point are real examples of the stocks they’re picking using this criteria… then one should struggle to keep a straight face at this point — as far as I can tell, none of those firms had technicals or fundamentals that would have provided any justification for recommending the stock at any time in the last ten years. And any investor relations firms taking on those stocks were, in my opinion, taking on a dirty stray dog and hoping, after a flea bath, that they could sell it to a nice new home before someone realized it was actually suffering from epilepsy, dropsy, meningitis and mange, or that it had three broken legs.
Here’s some more from the ad:
“That’s what this is all about – making sure you are among the first to know when a promising, but still undiscovered, stock is about to take a rocket ride, thanks to a newly inked deal with a prominent investor-relations firm. And, when the stock starts moving… we’re out of there! We don’t need to be greedy; we don’t need to time the sale at the absolute top. We know these payload stocks have the potential for a quick 50% to 100% profit when their new investor-relations campaign kicks in, and that’s all we care about….
“You could have bought shares in 24/7 Real Media Inc. for as little as $0.19––if you were right about timing––and sold them at $2.49 for a gain of 1,210%!
“A small-cap by the name of Tripath Tech had a low of $0.16 and a high of $8.65. Again, with the right timing, you could have stashed a profit of 5,306%!
“The stock of Intrusion Inc. went from $0.12 to $1.38––a profit of 1,050%!
“Within 52 weeks, the stock of a software company named Brooktrout Inc. went from $4.61 to as high as $17.20, which translates to a profit of 273%.
“Another small-cap software company, Jacada Ltd., saw its stock soar from a low of $1.20 to a high of $4.73 for a gain of 294%.”
Did any of those soar because of the investor relations campaigns they hired people to run? I have no idea. But most of them have merged into other companies or disappeared entirely at this point, and the days of their spikes in share price were likely, in most cases, to have been nearly (or over) a decade ago — which means we can’t easily check for those quick two-day moves or for the catalysts that might have caused them… and the world of investor relations campaigns and pump and dump operations was very different then. And note that Payload Stocks doesn’t say they picked these stocks or these prices, just that these are the kinds of gains you could have had.
And here comes the part where you snicker again:
“The good investor-relations firms won’t risk failure by taking on a shaky company.”
These companies were, in many cases, plenty lousy when they spiked, though your definition of “shaky” may differ — but if you’re talking about just a company trying to ramp up a stock price for a short period of time then the evidence is pretty overwhelming that a good stock promotion campaign can drive up the price of a worthless pile of garbage just fine… the fact that these were, for the most, actual companies that had products and employees just gave them something upon which they could build the fantasy that would convince gullible investors to take a nibble. At least, that’s my sense from sniffing around the ashes of these names just briefly — a lot of them are companies that tried to be story stocks in the 1990s or early 2000s and never really took off, though I imagine those spikes in the price are accurate or it wouldn’t have gotten past Lombardi’s lawyers.
Here’s some more:
“The Payload Stocks Report is a combination monthly newsletter and telephone/e-mail hotline service that tells you what promising micro- and small-cap companies have just signed contracts with the best investor-relations firms.
“We maintain a close monitor on top-tier investor-relations firms… and by combing the thousands of investor-relations web sites used to self-publicize when a firm acquires a new client.
“We make it our business to know which investor-relations firms have brand-new clients, and we also rank the more than hundreds of firms in the business. We know which investor-relations firms are the winners, which have the best track record when it comes to driving up the value of a client’s stock, and what they’re doing now.”
This just sounds incredibly unappealing. They say that they have narrowed down the list of the best investor relations companies which are good at driving up the shares of their client companies, and that they are a monthly advisory that might get you in and out of 10-12 stocks in a year using the same capital (meaning you buy and sell it in 30-60 days and use that money to buy the next one)… and that, at about $300 per subscriber, they’re limiting the subscription list to 2,000 people to help make sure everyone can get their recommended price (that’s at the $295 intro price — when it automatically renews it will be at the $395 list price).
But even beyond whether or not you want to try to get involved in this kind of stock promotion prognostication, it’s going to be mechanically difficult to make this work if Zulfiqar is really sniffing out the “100% pop in two days” microcaps.
If you take, for example, one of the tiny stocks he gives as a past example, YOSN, then you’ve got a company that currently has a market cap of about $15 million and trading volume of typically maybe 20,000 shares. At 60 cents a share, a full day’s worth of trading is $12,000. Think about an average person maybe wanting to put $2,000 into a trade, and give 2,000 of them the promise of a quick gain — even if only half of the subscribers try to buy that stock after it’s recommended you’re going to see $2 million interested in a quick trade in a stock of a $15 million company that typically trades $12,000 in a day.
So the end result? Yes, the stock goes up. And if it’s a big winner the investor relations firm will probably send Moe Zulfiqar and Michael Lombardi a thank you note, because their attempt to sniff out a promotion would have driven the stock up without the promoter having to do anything.
That’s an exaggerated case, I hope they aren’t suggesting $15 million market caps to their subscribers — but there are plenty of stocks in the $100-250 million range, which is the maximum for where you might expect an “investor relations” campaign to have a real impact and drive the stock up by more than a few percent, which trade far under a million dollars a day. If you operate a trading service that requires quick hits to catch movements in small cap stocks over a period of just a couple days, you can’t do it with 2,000 subscribers. It just doesn’t work very well (remember, all that money has to get out of the stock in a few days, too, which would crash most microcap stocks) — so no one is happy unless, perhaps, each subscriber only has $200 to commit to each trade. But if you’re only interested in trading $200 a month, you really shouldn’t be spending $300 a year for trading advice.
You can go around and around in circles with these kinds of trading strategies and ideas, or with options trading services that are similarly trying to get lots of people in and out of mostly illiquid investments, but you end up thinking that even if the trading strategy is a good idea it’s not something that seems like it would make for a very viable service once more than a few hundred folks are trying to follow the trades.
Well, that ended up being a long soapbox chatter, signifying not much of anything. Sorry, sometimes folks ask a question and I can’t help but blather on for a while.
But no, this does not look like an interesting newsletter or trading strategy to me. It is a perennial idea that entices people, because it seems like it should win and there must be an “insider track” and it almost seems like a way to “get back” at the investment banks who seem to do this kind of thing, writ large, for the S&P 500 stocks. But remember, microcap stock promotion campaigns like these, whether legitimate or underhanded, are not done in order to raise the profile of the next Google … stocks that have really promising products or businesses don’t have much trouble getting venture or institutional investors interested. No, these campaigns are done, by and large, to raise the stock price of a sad sack, and it’s almost always a temporary rise.
And if you go looking for the next stock that will have a successful “investor relations” promotion campaign, you are almost by definition going to be sifting through a huge, stinking pile of junk. That’s no way to spend your time. You’re better than that.
Have any thoughts on this kind of “ride the stock promotion” strategy? Let us know with a comment below.
And yes, I’ll try to find something that looks at least halfway decent next time. After reading these kinds of ads, I feel like taking a shower.
Personal Capital is an advertiser with Stock Gumshoe, but Travis also uses it every day for his personal accounts and finds it invaluable. Here's what he said: "They offer a great (and genuinely FREE) 'second opinion' for your financial plan, but what I love most is their automated financial dashboard -- it will look at all your assets and debts, tally up your asset allocation, project where you'll be at retirement, and suggest ways to manage risk or improve returns. It's free, I think their free tools are great, and I think it's worth checking out -- you can do so here.