Understanding Stock Promoters: How They Influence Investment

Stock promoters are individuals or institutions that help companies to raise capitalCapital Raising ProcessThis article is intended to provide readers with a deeper understanding of how the capital raising process works and happens in the industry today. For more information on capital raising and different types of commitments made by the underwriter, please see our underwriting overview.. They raise funds for companies by capturing the attention of potential investors.

Stock Promoting Activities

Stock promoters are notorious for their operations with penny stocksPenny StockA penny stock is a common share of a small public company that is traded at a low price. The specific definitions of penny stocks may vary among countries. For example, in the United States, the stocks that are traded at a price less than $5 are considered. The promotion of penny stocks frequently involves illegal and fraudulent activities, such as pump and dump schemes. In addition, they may use misleading statements and misrepresentations of the companies. In such activities, their role is to quickly inflate stock prices to earn high profits for current shareholders. However, in reality, the stocks are worth practically nothing.

Still, it is not true that all stock promoters are involved in fraudulent activities. On the contrary, they play quite an important role in financial marketsStock ExchangeA stock exchange is a marketplace where securities, such as stocks and bonds, are bought and sold. Stock exchanges allow companies to raise capital and investors to make informed decisions using real-time price information. Exchanges can be a physical location or an electronic trading platform.. The individuals or firms are important for small, young companies with limited access to new funds. Using their network, they can quickly attract the attention of investors to such companies, which require capital for their operations and growth.

Historically, junior mining companies frequently used stock promoters. Mining is a capital-intensive industry wherein the company’s growth takes many years. They can advertise the companies among investors to ensure capital inflows necessary to support the continued growth of the businesses.

Tools of Stock Promoters

Stock promoters generally use various tools to attract the attention of potential investors. The most common tools include the following:

1. Cold calling

Cold calling involves calling prospective investors with the offer to purchase the stock of a company. This has always been a main tool of stock promoters. Nowadays, it’s losing its importance with the development of other means of communication.

2. Emails

Stock promoters may send numerous emails to potential investors with their offer.

3. Social media

Nowadays, stock promoters actively leverage social media to look for potential investors. They may directly contact prospective investors in social media platforms or create advertisements on the platforms (commonly click-and-bait advertisements).

4. Reports

Some stock promotion firms prepare investment reports with a detailed description of the company’s operations and financial statementsThree Financial StatementsThe three financial statements are the income statement, the balance sheet, and the statement of cash flows. These three core statements are. The reports are distributed to prospective investors using certain distribution channels (e.g., email).

More Resources

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• Blue ChipBlue ChipA blue chip is a stock of a well-established corporation with a reputation for reliability, quality, and financial stability. Blue chip stocks are usually the market leaders in their sectors and have a market capitalization running into billions of dollars.
• Primary MarketPrimary MarketThe primary market is the financial market where new securities are issued and become available for trading by individuals and institutions. The trading activities of the capital markets are separated into the primary market and secondary market.
• SpeculatorSpeculatorA speculator is an individual or firm that, as the name suggests, speculates – or guesses – that the price of securities will go up or down and trades the securities based on their speculation. Speculators are also people who create fortunes and start, fund, or help to grow businesses.
• Investing: A Beginner’s GuideInvesting: A Beginner's GuideCFI's Investing for Beginners guide will teach you the basics of investing and how to get started. Learn about different strategies and techniques for trading