- OUR VIEW
- LEARNING CENTER
"What to buy" has always been the hardest decision in investing. There have always been investment newsletters offering ideas. And public companies have always hired public relations firms to promote themselves. But the Internet era has produced an entirely new breed of promotional creature: the compensated e-mail newsletter.
What is a compensated newsletter?
It is a publication, electronically distributed as e-mail, that is paid by the company it "covers" to "tell the company story." (There is also a recent proliferation of printed "magazines" that highlight stocks.)
The e-mail looks like a research report, or an e-mailed article copied from some other source or, often, appears to be an e-mail that is sent only to "subscribers." But, somehow, it shows up in your mailbox.
What to think of these PR pitches?
All companies, reputable and otherwise, want to get their story out. The best public relations (PR) campaign a company can have is an extremely positive write-up in a well-known and respectable publication. But when they can't get that kind of coverage a compensated newsletter looks appealing.
Compensated e-mail newsletters are not illegal.
However, the law does require that the compensated newsletters fully disclose both the amount and the nature of the compensation, for each promotional occurrence. This means that the compensated promoter must disclose either the dollar amount of a cash payment, or the actual number of shares granted, including any restrictions upon them, or any combination of compensation.
Many compensated newsletters include the information, but it is sometimes hard to find.
How can you tell if an e-mail you receive is from a compensated newsletter?
The first thing to do is look for the disclosure. Often it is at the bottom of a very long e-mail message. Whether or not this is intended to make it harder for you to find the disclosure is anyone's guess.
Some of the newer print compensated newsletters put the disclosure on the masthead page of the magazine. This makes it harder to find, but you should look there if you can't find any disclosure in the article itself.
Some e-mail newsletters put a line stating *Advertisement* at the top of the newsletter. This declaration does not meet the disclosure requirements.
Occasionally, the newsletters include the full disclosure as a link to their Web site. Briefing.com is not in a legal position to determine whether this actually complies with the full disclosure rules.
Just because a public company has hired an e-mail newsletter service to tell its story does not mean that the stock is a bad investment.
But you should realize that what you are hearing is only what the company wants to tell. Compensated newsletters write what the client wants. They don't do original research and they don't offer independent opinions. They write what they have been told to write.
But that doesn't mean there isn't something there to invest in, or that the story is a scam. It does, however, scream at you to do additional research.
You need to find an additional, outside way to verify the story in the compensated newsletter. This can be very difficult, because most companies hire compensated newsletters because they can't get any additional write-ups. But start with the Edgar filings at the SEC (http://www.sec.gov/cgi-bin/srch-edgar).
So what should you do if you receive an e-mail promoting a company and it sounds good?
The first thing you should do is assume that you are not the first to hear about the "great breakthrough." Even though it may be news to you, and the story may be real, and you can't find anything about the company in chat rooms, it doesn't mean that you have uncovered a secret.
It may feel like it, however, because that's the way the stories are usually written.
In the past several months, Briefing.com has collected a list of compensated newsletters we have received. Here is a brief, and certainly not inclusive, list:
|Newsletter or Entity Name||E-mail "From Address"|
|Microcap Group||Microcap Group|
|E-mail contains a link to the web site disclaimer, which reads "the Editor and associates of Microcap Group may be compensated and/or have stock positions on profiled companies of which the details will be fully disclosed."|
|The StreetInsider.com||Rumor News|
|Calls coverage "paid advertisement" with compensation usually attributed to an unidentified "third party."|
|Ahead of the Street.com||Next Step Capital|
|Disclaimer states "Ahead of The Street has not been nor will be compensated by companies featured in this newsletter. Compensation was in exchange for services including, but not limited to, research and electronic dissemination of this profile and other updates on the company." |
If you figure that out, let us know.
|Clear disclosure, including number of shares.|
|Capital Research Group |
(TheSubway.com Daily Update)
|Clear disclosure including "CRG may sell its shares for less than the target price given in its opinion."|
|Clear disclosure about covered companies paying, including "Prior to issuing this report, the Company reviewed and approved the contents in writing hereof. analystgroup.com has not independently verified the Company's representations."|
|Alert Investor||Alert Investor|
|Fuzzy disclosure including "The writer of A.I. may, from time to time, hold positions in stocks featured in A.I. or receive compensation for research or consulting services. The reader should assume that A.I. or its affiliates hold positions in the stocks mentioned in this newsletter, bought in the open market or in private transactions." Very unclear who "affiliates" are.|
|Direct language in disclosure including "StockWatcher2000 may sell such shares in spite of any historical, current or future report or information conveyed about such securities. " |
(In "spite" of whom?)
|Corporate Identities (CII)||OTC Digest|
|Calls the newsletter content "advertising" and says: CII's customers have paid for the preparation of this advertising; and the publications are not endorsements, recommendations, analysis or advisories of any nature by the Publisher. |
Discloses actual share amounts.
|Does not disclose in e-mail itself, but states: "We disclose any and all compensations received from companies profiled or mentioned on the site in accordance with The 1933 Securities Act Section 17. "|
|Full disclose of shares, but at the end of incredibly long e-mails.|
|Full disclosure including direct quotes from the SEC such as: "Never, ever, make an investment based solely on what you read in an online newsletter or Internet bulletin board, especially if the investment involves a small, thinly-traded company that isn't well known,"|
|TheInsiderReview.com||The Insider Review|
|Certainly not full disclosure, as the e-mails state: "From time to time some of the companies featured in the newsletter and on the Web site may compensate The Insider, Inc. You may obtain this information by sending e-mail to firstname.lastname@example.org" |
Wins award for most humorous disclaimer: "We are not associated with the Securities and Exchange Commission (SEC)"
|States "PennyPicks.com... did not receive compensation for the dissemination of this profile on ETPI. However the company may receive compensation at a later date"|
|DDStocksPicks.com||DD Stock Picks|
|Full disclosure, including "These positions may be liquidated from time to time even after we have made positive comments regarding the company."|
|Wall Street Gems||info|
|Very confusing disclaimer: "Wall Street Gems may derive compensation through research services and subscriptions and/or investor relations consulting from the companies featured or mentioned in its Newsletter. Wall Street Gems has received no compensation for the dissemination of this newsletter."|
No amounts given.
|Web site discloses that they are paid, but does not disclose amounts. |
Stocks include: XYBR and ENPT
Don't forget that the information in a compensated e-mail newsletter is just an advertisement to buy stock.
Briefing.com does not accept payment from any company for coverage. Furthermore, we do not manage money or have any vested interest in any stock we cover. We do allow our analysts to continue their many years of experience in the stock market by buying and selling stocks and options. However, no Briefing.com analyst may write about any stock in which they have a personal position.
Robert V. Green