Trader’s Business Daily?

After doing my research on GrowthStockGuru’s most recent hot stock tip, I contacted the business press and asked for comments on why they would run an ad for a microcap company, whose former Director is married to a convicted stock promoter? I emailed Business Week twice and Smart Money once, but neither of them seemed to feel it was important enough to reply to. Forbes and Investor’s Business Daily did reply though and unfortunately Forbes said that the print ads had gone out, but that future ads were being discontinued.

“Thanks for your note- we obviously take this very seriously given our
reputation in the industry. Just so you know Forbes.com and Forbes
magazine are separate organizations with separate sales teams. I had
some people here at Forbes.com run a check and it appears that we’ve
never shown those ads online. I can confirm that there had been ads run
in the print mag in the past but from what I’m told those are going to
be discontinued.”

While, it’s unfortunate that Forbes ran the ad to begin with, I can understand how they could miss some of the details behind GrowthStockGuru’s tip. Digging through the SEC files was like peeling an onion, the more I read, the more I wanted to cry. Forbes willingness to re-evaluate the history of the company and their decision to discontinue future ads, demonstrates that, while careless, they do care enough about their readers trust, to understand that the easy money, isn’t worth the hit to their credibility.

Investors Business Daily on the other hand, did not seem to think that there was anything wrong with advertising a penny stock, in order to increase “awareness” of the company.

“Thank you for your email regarding the advertising from GrowthStockGuru. Investor’s Business Daily does have a policy in of rejecting display advertising that promotes penny stocks. Display advertising refers to the ads that are placed throughout the newspaper.

The ad you referred to ran in our Corporate News section. This is classified advertising section designed as a forum for public companies to increase awareness of their stock. Most of the ads that run in Corporate News are penny stocks. Many of our readers regularly read this advertising feature searching for new and interesting investment opportunities. The section is labeled as advertising and in no way is an endorsement by Investor’s Business Daily. We also run a small disclaimer in the section stating that we can not guarantee the accuracy of the information in the ads.

Thank you for taking the time to share your concerns with us. We value your input and take all suggestions and comments very seriously.”

After reading IBD’s email, I was really surprised to learn that advertising “classifieds” of penny stocks is part of their business model. I’ve always thought of them, as being one of the top five business publications for Wall St. investors. Unfortunately, I didn’t get to see the print ad personally, so I don’t know about the disclaimers there, but on their website, they are still running the growthstockguru ads and I don’t see any disclaimers. In order to get to this ad, you click “corporate news” from their home page and then you see a summary of the stocks being advertised. If you click through to the third page, you finally see an “advertising” logo, identifying the piece as pay for post content.

Since IBD seemed to feel that the stocks being advertised were “new and interesting investment opportunities”, I decided to take a closer look at some of the opportunities, that they were showing their readers. In order to find out how good these picks have turned out, I picked a semi-random sample of companies and took a look at the performance of their stock price, after the ads. Thanks to the magic of Archive.org, it was pretty easy to find the past advertisements, but tracking down the prices was a different story.

The methodology I used for my study was to take any stock under $100 million that was advertised in IBD’s “announcements” section of their “corporate news” service. I then found seven stocks that actually had historical prices and figured out what long term “INVESTORS” would have made, had they bought and held the stocks, at the time they were being advertised. For the stocks that I couldn’t find pricing on, I think it’s fair to call them a failure, but I’ll leave it up to my readers to decide, what they think those returns would have been, if investors had access to historical information.

You Can Get Better Odds In Vegas

On March 1st, 2005, Investor’s Business Daily ran “classifieds” for BSDM, IGTN (now IGTG), AHCKF, GMED and TNSX.

BSDM was a bio-tech play, the company’s seems to think that they have microwaves that can cure diseases. When IBD readers were being tempted to buy in, the stock was at .14 a share, today it closed at .055. A loss of 60%. I couldn’t get pricing on IGTN, but typically when a company changes their symbol, that’s not a good sign. Since being listed as IGTG, the company has gone from 0.15 to .0525, a loss of 65%. AHCKF was another stock that did not have historical information. Currently, the company is priced at .01 per share. After the ads ran in IBD, their auditor started raising questions about insider compensation and the company was issued a cease trade order by the British Columbia Securities Commission.

GMED, I was able to find pricing on. They trade on the pink sheets and on the day the ad ran, they opened at $0.083 per share, today they are at .01, a loss of 88%. TNSX is also a healthcare play, but they use software instead of microwaves. They closed at .14 on the day the ad ran and finished at .055 today, a loss of 60%.

In 2005, this section wasn’t called “corporate news” yet, it was called “investor newswire” and to be fair to IBD, it was listed under the advertising section on the main page. Sometime later, they changed the site and made it so that you have to click to the third page, before you know that you are reading an ad.

On 01/01/06, they ran ads for three companies that I could locate. TLPE, LNXGF and ANSW. TLPE is a “wireless telecommunications provider”. On the day the ad ran, the stock was at .27, today it’s worth .028, a loss of 89%. LNXGF was a mining play, but I’m not sure why they picked their name. Less tech savvy investors may have thought that there was a connection, but Linux Gold Corp. had nothing to do with Richard Stallman. They just look for mines. Things weren’t so golden though, after IBD’s ad. The stock has gone from .35 to .18, a loss of 48%.

Of all the microcap stocks that I found, ANSW has been the only one to actually finish in the black. Had you gotten in on their ad, you would have paid $11 and today it’s at $14.50, a positive return of 31%, albeit for a considerable amount of risk. Even though, ANSW has finished positive, it’s also been a very volatile ride. Earlier this month, Eric Savitz’s at Tech Trader Daily, wanted answers on why ANSW was seeing such wild trading, it wasn’t their fundamentals, it was advertisements. A few days after ANSW hit $12.50, WallSt.net announced a partnership with them and the stock took off. WallSt.net specializes in providing “promotional” help to small stocks in exchange for cash or shares. There were no details about any advertising relationship mentioned by Answer.com or WallSt.net, but over the next few weeks, Answer.com mysteriously saw it’s stock price run to $17.15, before crashing on heavy volume. Today it’s back at $12.54. Three days after the sell off, WallSt.net ran a second press release announcing the integration of their bookmarking tools into ANSW’s site.

On March 1st, 2006, IBD advertised “classifieds” for BGES, PTGC and a company named Plasticon International. BGES is another bio-tech play. On the day it was advertised, the price was $1.80 and today it’s at $1.00, a loss of 45%. PTGC was tougher to track down. I knew it’s starting price, but like many stocks that take severe nose dives, they changed their ticker symbol to reflect “a different direction” for their business. In this case they used PEYG. When companies do this, Yahoo! finance and other sites drop the past pricing and hit reset on the historical pricing. It puts the regular investor at a huge disadvantage because they don’t know the trading history on the stock. One way that the SEC could help to prevent these things, is to require that historical pricing be available, if a company wants to change symbols.

I did a little digging and luckily, I was able to track down the SEC document where they report a 5 for 1 reverse split. From there, I was able to figure out that on a split adjusted basis PEYG was at $1.95 on the day the ad ran and today it’s at $0.43, a loss of 78%.

Unfortunately, I could not get historical pricing on Plasticon, but of all the companies, it was by far my favorite. Their CEO should be writing a blog, instead of trying to replace steel with plastic. I would subscribe just for the entertainment value. One of ads featured the CEO wearing a superman suit, it was a hysterical read, even though I would never have invested in his company. It’s hard to believe that even cheesy copy ads seem to work. Unfortunately, for Plasticon though, they weren’t able to leap over creditors in a single bound and filed bankruptcy on May 25th of this year. Their stock is currently worth $0.0001 per share.

Had you gone out and invested $1,000, into just the seven companies that I could find pricing for, your $7,000 investment would now be worth $3,630. You would have taken a 49% loss from buying these stocks, that you saw advertised as a “corporate news” on IBD’s website.

Now I realize that my sample size is too small for this to be a scientific study, but I feel fairly confident, that if you take a closer at the other ads that have run, you will find a similar failure rate, among the businesses being advertised. Maybe I was naive for not knowing that the business press was selling out their readers for penny stock ad money, but I find it outrageous that these “respected” business tabloids run ads, that are very likely, hurting their readers financially.

To make matters worse, this problem appears to be more widespread than just Business Week, Forbes, IBD, & Smart Money. It also appears that Reuters runs ads for microcap companies too. Right now they are featuring an ad from a company, named “lil stock investors”. I took a closer look at the companies that they are advertising and sure enough, GrowthStockGuru’s hot stock pick is one of them.

The business press is very quick to get lathered up about the latest stock scam convictions, but they refuse to acknowledge the role that they are playing in some of these very promotions. When your ads can influence the price of a security, the media owes it to their readers to do their due diligence. When someone knows that a stock will fall, after an ad ends, it might just be insider trading. Why won’t Business Week and “Smart” money return my emails about their relationship with GrowthStockGuru? What is it that they are afraid of? There is clearly a conflict of interest here and if people don’t speak up, the press will bury this, because they have a financial stake in making sure that people don’t know about the cesspool advertisements.