In the late 1990s, the micro and small cap markets were heating up and stock promotion as well as traditional and aggressive investor relations were having a lot of success with their client companies. Stock promotion in particular, began to enter its golden age. The numbers of traders and investors were increasing rapidly; stocks were increasing in price dramatically were commonplace.
By the late 90’s, more people than not had Internet access and an email account.
Email became the most effective tool for promoting stocks from the late 90s until a few years ago. Email promotional impact has gradually tailed off and is now impotent.
Two things happened to email:
- SPAM filters have become very effective
- Investors don’t believe the contents of any stock promotional or aggressive IR entity’s email anymore; they have been burned too many times
Investors have come to realize over the last few years that paid (disclosed compensation or not) promotion is a trap. Many email promotions that go out each day are originated on behalf of debt sellers or another individual or entity wanting to exit a position.
When it comes to the debt liquidation positions, the email campaign is transmitted in conjunction with a group of stock manipulators (or a buying group) who “stack” the level two market maker screen as soon as the email is sent. They will then buy and sell to each other and take the stock up a tick or two in the attempt to suck retail buyers in. This frequently ends in failure because retail traders and investors do not take the bait anymore. The debt seller dumps the stock, the manipulators run for the hills and the stock crashes.
The debt seller liquidates their position but can likely convert more debt to equity and do it repeatedly because as long as the stock is not totally worthless, they can continue to convert. The Company and their investors are the ones that are screwed.
In other cases, companies desperate for liquidity hire a stock promotional entity to do an email blast. These usually fail because again, retail investors are far more wary and avoid any companies engaged with stock promoters. Investors have become well informed and savvy with regard to stock promotion. A free email service from stockpromoters.com is available, which identifies what company is being promoted, what entity is promoting them and how much they are being compensated (IF they disclose).
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I was working as a consultant a few months back to help a company with their liquidity problem. We had a meeting and it was clear that this CEO felt he knew everything about how to get liquidity. If so, why was he hiring me? Nevertheless, this was a good opportunity for me as this Company had cash in the bank and some exciting products in the biotech field. It was definitely what I refer to as an upper level micro-cap company.
My tenure lasted only one month because the CEO felt that if he spent enough money on stock promoter’s email blasts, one of them would eventually work. I practically begged him not to waste his money on email blasts. I showed him my research but to no avail.
The first email blast cost $5,000 and resulted in just over $400 in volume. The second email blast, which cost the same $5,000, resulted in $1,100 in volume. Quite a poor return on the investment; the CEO could have just taken the $10K and bought stock in the open market and obtained much better results.
At the end of the first month, I parted ways with this CEO because he was not interested in trying anything new. The email blasts were pissing off his current investors that resulted in having to do damage control on a daily basis. It seemed like my job, as far as he was concerned was to go out and find more stock promoters that were actually effective.
What amazes me is that dozens of companies, every day, continue to pay stock promoters in an effort to get eyeballs on their stock. They keep getting the same poor results repeatedly.
Why is this?
The answer is simple: They know of no other way… Micro and small cap company management teams and their affiliates are, by in large, completely unaware of the changes that have taken place in the marketplace. Specifically, the biggest changes have been in communications, website and social media platforms and more than anything, the mentality of the investors. There are very few sheep anymore.
But there is a huge opportunity right now for companies to use new methodology to broaden their shareholder base and substantially increase their liquidity.