Nearly every investor receives them in the mail: slick and usually colorful PR pieces, disguised as investment research, which are really nothing more than promoters out to convince you to buy their stock “on the ground floor.”

Many promotions offer unrealistic gains in very short amounts of time to entice the reader to continue reading. Some suggest “if the idea of turning $1,000 into $11,200 appeals to you, read this report.” Others claim “we believe this $10,000 investment in (for example, XYZ oil) will be worth $30,000 this year alone, and could grow to over $100,000 within the next 2 to 3 years.”

Clearly these suggestions of great riches are not made by legitimate investment advisors. Unfortunately, this sneaky and misleading gimmick causes many eager investors to invest in nearly worthless securities.

If you are bitten by the bug of quick profits, here are a few tips that could save you from a bad investment.

• First, understand the motive of the mailing piece. Many mailing pieces are motivated by the need to pump up the stock price so that someone could sell their shares at a better price.

• Secondly, do your homework. Don’t take the mailing pieces claims as true. This is exactly what they want you to do. Don’t trust investment research from an unknown source. Do your own research. There are many online sources of information that you should check. If you use an online broker, you may be able to type in the stock symbol and pull up financial information, recent news, press releases, and government filings of the company (called 10q or 10k). Read the government filings first. These have the best chance of being truthful about the company’s activities. You may find that the vast oil resources the mailer claims do not exist. Sometimes the company in question has no proven reserves and no cash to find reserves. No matter the industry, companies need cash to develop product and to operate.

• Next, check out a price chart of the stock. If the price plunged, there is most likely a good reason for that to have happened. If the price is increasing at a rapid rate, it could be a result of the hype generated by the mail piece. You may want to give the stock a few weeks or months to calm down from the recent promotion before you buy.

If you find that you still want to own the stock, go slowly. Everyone knows that investing takes time. Protect yourself. Never plunk down an amount of money that you cannot afford to lose entirely. Your initial purchase should be a small percentage

Finally, analyze your actions. Are your taking a businesslike approach to your investment or are you letting your emotions, particularly greed, determine your actions?

Those who invest too quickly or by greed are prone to making blind decisions and tend to panic when the market turns against them. When it comes to investing, leave your emotions somewhere else. Stay calm, be analytical, and don’t believe all the nonsense and rumors that come your way.

In the end, promoters are paid to create what seems to be a great investment opportunity that falls directly into your lap. Just keep in mind that there are many good investment opportunities out there, but they don’t usually come knocking on your door, especially not with vibrant colors and outrageous claims. Think about it: If these companies were this good, they wouldn’t need to create wild and misleading claims to get your attention. The best advice may be some of the oldest – If it sounds too good to be true, it probably is. Protect yourself by researching claims. We work hard to earn our money. There are many legitimate, solid growing companies with proven track records of success for you to invest in. You really don’t need the risks associated with dubious penny stocks to make money.

About The Author

Mark Meyerowitz

Formerly a financial consultant for Smith Barney and Edward Jones, Mark currently sits as president and founder of Meyerowitz Investment Management (MIM), carrying with him over 30 years of investment experience. He is a Registered Investment Advisor in West Orange, NJ. In addition to providing financial, education, retirement and tax planning services, MIM provides advice in investment and tax strategies while maintaining a close, discretionary relationship with each client. Investment management services include securities, mutual funds and exchange traded funds as well as project services, small business and 401k counseling. MIM, located in West Orange, NJ, is not a brokerage firm and does not have custody over clients’ money. Instead, it actively manages accounts through Ameritrade and is fee-based. Visit Mark’s website at www.investwithmark.com or email him at mark@investwithmark.com.