Stock promoters are individuals or institutions that help companies to raise capital. They raise funds for companies by capturing the attention of potential investors.
Stock Promoting Activities
Stock promoters are notorious for their operations with penny stocks. 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 markets. 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.
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).
Some stock promotion firms prepare investment reports with a detailed description of the company’s operations and financial statements. The reports are distributed to prospective investors using certain distribution channels (e.g., email).