If you're like me, you get a lot more investment spam email than you used to. I get 20 or 30 of the things a day -- and that's just the select bunch that slips past my ISP's filters. It's awful.
Have you ever thought about investing in one of the touted companies, thinking the hot tip might be for real and that it would be an easy way to double your money? Sure you have. It's natural. But before you actually do invest, ask yourself this: Would you trust advice found in a message that includes the following disclaimer?
[W]e disclose the holding of independently purchased shares of the company mentioned prior to the publication of this report. Be aware of an inherent conflict of interest resulting from such holdings due to our intent to profit from the liquidation of these shares. ... Keep in mind that when trading small stocks like the company above there is a chance you will lose every penny you invest. Furthermore, there have been times in the past when the Company itself tells lies, gives false information, and puts out false news. This email is for entertainment purposes only.
Sadly, this isn't a satirical disclaimer. It actually comes straight from a spam email describing the wonders awaiting those who invest in China World Trade.
Responding hurts you
According to a recent study of more than 1.8 million investment spam messages by Laura Frieder of Purdue University and Jonathon Zittrain of the University of Oxford, the purpose of investing spam is to provide enough liquidity for those touting the stock to sell their shares at a profit. For the hypesters, average returns from the day before the spam was sent to the day of heaviest touting was as much as 6%. What if you were one of the ones who received the spam and decided to "take a flyer" when you got the email? Your average loss would be as much as 8%.
That's money going straight from your pocket to theirs.
Investing to get rich
Unfortunately, for those looking to get rich quick, the way to riches via the stock market is not as simple as buying shares in a company mentioned in a piece of spam.
Rather, it takes patience to let long-term outperformers such as Harrah's Entertainment (NYSE:HET) and Limited Brands (NYSE:LTD) make you money for years, despite some bumpy rides. It also takes time. Patient shareholders who held on to McDonald's (NYSE:MCD) or Adobe Systems (NASDAQ:ADBE) for the past 15 years have realized 12% and 18% annualized returns, respectively. And finally, it takes research to determine if a company such as bebestores (NASDAQ:BEBE) or Circuit City (NYSE:CC) -- both of which can provide inconsistent financials -- has the potential to double, triple, or more in five years.
Yes, patience, time, and research -- exactly what you need to make serious money in the stock market.
Say no to spam
The next time your inbox is flooded with a hot (penny) stock tip, ignore it. Delete it. Mock and deride it. Just don't go thinking this is your big chance to hit paydirt. The history of the stock market has shown that the best and most trusted way to build wealth is to invest in high-quality businesses with excellent growth opportunites.
Rather than accept the fake meat of email spam, check out David and Tom Gardner at their Motley Fool Stock Advisor investing service. Together, they serve up two mouth-watering stock recommendations every month that you can really sink your teeth into. Active and civil discussion boards help subscribers tear into the offerings and learn more about investing in general.
And unlike spam email picks, David and Tom's stock recommendations actually reward investors. Their picks are beating the S&P 500 average by more than 41 percentage points since the newsletter's inception. Give it a free 30-day trial and, if you find that this meat doesn't meet your tastes, then move elsewhere with no obligation.
Fool contributor Jim Mueller likes fried spam, but he shuns spam email. He does not own shares in any company mentioned. bebe stores is a Stock Advisor recommendation. The Fool displays what is on its plate at all times.
