By Chuck Jaffe, MarketWatchBOSTON (MarketWatch) — Touting stocks must work, or the people behind them would try something else.
So when I got a text message announcing that “VIPStockPicks is opening its doors to the public!” and offering a chance to sign up for real-time penny-stock alerts for free on my cell phone, I decided to see what anyone who falls for this stuff gets.
Just over a week later — less than 20 minutes before the market opened on March 12 -— came the first tip, for Toron Inc. (OBB:TRON) . It was just one line, with more information promised on the website vipstockpicks.mobi. Another text came two hours later, saying TRON “is already up 20%+ today. Get in now before the BIG news comes this week!”
With about 20 minutes left in the day’s trading, a third message arrived: The stock was up 41%, and again urged me to get in before big news came this week. About 48 hours later, there was another text, suggesting that it was not too late to act on Toron.
The truth, however, is that anyone buying stock on the basis of a text message from a service about which they know virtually nothing is making a mistake, which is why Toron is the Stupid Investment of the Week.
Stupid Investment of the Week highlights the concerns and conditions that make a security less than ideal for the average investor and is written in the hope that spotlighting danger in one case will make it easier to avoid trouble elsewhere.
Pump and dump
In fact, Toron’s pick is less about the company than the way investors found out about it; it’s hard to believe any stock being pumped via text message would be a good idea for average investors.
The interesting thing, of course, is that somebody would actually trade on advice from an anonymous text, from an anonymous website, where the information amounts to “Buy now!’ without any real knowledge of the company.
Michael Whitehead, Toron’s president, said the company was unaware it was the subject of the text messages and has no idea who is behind the push. It’s not the first time in the company’s short history, however, that it was used this way; Whitehead’s wife once received a spam email touting the stock.
“We want to attract investors, but not this way,” Whitehead said in a telephone interview late last week. “I believe we can attract investors by moving the company forward and having some success, which would attract investors who want to be part of this for the long-term, and not somebody who is going to buy today and sell tomorrow.”
Anyone who followed up on the text by going to the VIPStockPicks website didn’t exactly get any real information. The reason to invest in Toron was summed up by the site: “We all know it’s the big announcements that make these small gems move.”
But it would be news to Toron’s president if the company had a big announcement to make.
“Whoever is behind [the texts] is making that up,” Whitehead said. “There is no big announcement coming right now.”
Toron was organized in 2008 and according to its own filings with the Securities and Exchange Commission was “engaged in the, marketing, sales and re-sales via the Internet of web domain names.”
Last summer, however, the company made the completely logical decision to move from that business into “identifying and pursuing options regarding the acquisition of mineral exploration properties.” At that point, it effectively went from a shell company to an operating company, although you can’t tell it by the company’s revenues because there have never been any, through its latest quarterly report, dated Oct. 31, 2011.
When it made the change, the company acquired “an undivided 100% interest” in 62 mineral claims in Canada. The company then underwent a 32-for-one stock split, increasing its float to 185 million shares.
That’s a common penny stock strategy, as is the basic pump-and-dump of “here’s a tip, go buy it” from the text messages. It’s just that the text messages reach a different audience than, say, spam emails, touts left on message boards and most of the traditional tools.
What’s worse is that in those classic stock promotions, the investor can find a disclosure as to who is behind the tip, what they have been paid to make it, what their ownership position is and more.
There are no disclosures from VipStockPicks that identify who is behind it. Its website is registered to someone in New Zealand. If the disclaimers and fine print typically show you the worst about a stock tout, consider the volumes spoken by silence when a recommendation comes without the slightest easy-to-find clue about who is responsible for it.
Whitehead made it clear that Toron itself is not behind the reports. “If I could find who is doing this and make them stop using our company this way, I would,” he said.
Dig in to the company and there’s nothing to bank on for an investor, even one who likes junior mining stocks. While there are the property rights, the company is so new that there is nothing for an investor to go on, unless they understand the area of Quebec where the company’s mineral claims are and have insight into how that property might pay off compared to start-up mining companies around the globe.
With no profits and revenues to look at -— but expenses that could run from $250,000 to more than $800,000 in the next year — there’s nothing beyond the texts and other touts that would ever put Toron on the average investor’s radar screen.
Even the promises of the text haven’t really materialized. While the texts accurately described the action in the stock, the truth is that after the initial move, Toron basically stabilized. Someone who ignored the first texts but bought in later didn’t really get another pop; moreover, the push just put the stock back into the middle of a range it has been in for weeks now. Trading volume is up; the penny-stock sharpies probably are making money on the volatility, but they’ll quickly tire of Toron and move to something else.
The average investor, however, should treat free stock-picking texts the same way they treat spam emails, cold calls and other unwanted advances that claim special insight: Ignore them completely. The people making money on these touts aren’t the ones receiving the texts.
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