4 Signs Of An ASX Facebook Group Stock Pump

As many readers have noted, there has recently been a huge influx of predators pumping rubbish stocks to naive new investors. In large part, this has been taking place in “ASX Stock Tips” and similar facebook groups, much to the fascinated horror of experienced investors.

(Note: this article is about the language and arguments used, not about the stocks. That is why I removed the tickers.)

Today, I’d like to put a few examples up to show readers how to spot pumps. This is not so much for regular readers as to provide a resource they can share with any friends who might not have the necessary experience to spot a predatory pump.

The poster who made the post below is a habitual poster about speculative stocks. The post below was made on a day where another stock PRL, had flown. As you can see, the poster explicitly tries to link his stock with PRL, and thus leverage ‘fear of missing out’ around PRL to his own advantage.

Further, he explicitly speculates that the stock could have a “massive run.”

Pump Sign 1: Likening It To A Past Winner

This is a common technique used to create hype. You can see it in the example above, but it is also widespread in advertising. If two companies are very similar, it might make sense, but usually the decision to pick a massive winner for comparison purposes is about hype, pure and simple.

Pump Sign 2: Ridiculously Optimistic Share Price Projections

Motley Fool does not hesitate to suggest a stock could be “the next Afterpay”, playing on the regret some readers may have that they did not buy Afterpay a few years ago. The advertisement above clearly implies they’re expecting massive returns from their monster potential stock (Pointsbet).

That may create a lot of excitement, but Motley Fool doesn’t go around telling people that they have a stock that could increase 457% in a single day. The facebook pump above did just that. Such a ridiculous prognostication about a potential one day gain is an obvious sign of a pump.

Having said that, not all pumps are so obvious, as some pumpers are intelligent enough to try to hide their intent. In the example below, we see someone who is explicitly claiming “no pump and dump rockets just a quality company…”

However, this post is full of warning signs that it is a pump.

Pump Sign 3 Claiming A Company Is “The Only Pureplay” Exposure To A Hot Sector On The ASX

For newby investors, buying “the only stock for a hot sector” sounds easy and fun. But in actual fact, if a hot sector is hot, there will always be other new IPOs coming to the market. Furthermore, saying a company is a “pureplay” on a theme is a marketing device, not an analytical tool.

Pump Sign 4 Name Dropping Big Name Partners

One of the main techniques rubbish companies use to try to attract credibility is to say that they “partner with” big brand name companies like IBM or Amazon. Just a few years ago a rubbish company called Getswift drove its share price up to $4 off the back off announcing deals with Amazon; which never eventuated in reality.

Name dropping big companies as customers, or worse “partners”, is a massive warning sign of a pump, unless the company actually does have provable revenue coming from those big name brands.

Spotting A Pump Can Save You Pain

As a stock market investor, it’s really important to consider the incentives of the people you take your information from. Just because a facebook post has one or more of the warning signs mentioned above does not mean the company is terrible. And it doesn’t prove the poster has bad intentions, either.

However, if a post displays these warning signs, the odds are that it is a pump designed to encourage naïve investors to bid on a stock that the poster owns shares in. For all you know they are hoping to sell their shares to you, by impulsing you into buying them.

While that might work out once in a while (if the pump continues, and you subsequently sell to a ‘greater fool’) it is ultimately a zero sum game that will concentrate your money in low quality rubbish stock that will destroy value and, lose money for long term investors.

As a final note, never ever send people money solicited through facebook or social media. Scammers do set up fake accounts and get rich quick schemes with guaranteed returns per month are always scams.

If you’ve been playing poker for half an hour and you still don’t know who the patsy is, you’re the patsy.’ — Warren Buffett paraphrasing an old axiom.

When you’re starting out, it can be hard to know how to approach investing. I firmly believe that the best investment you can make is in your own knowledge. If investing were as easy as buying random tickers from random facebook posts, we’d all be millionaires.

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