The value of ‘free’ advice

If your experience is anything like mine, your morning e-mail contains at least half-a-dozen free investment “newsletters” or “stock alerts”, telling you that this or that security is about to take off in price. Recently I received a query from a reader who asked how much credence he should put in these hot tips.

“Do you have any opinion or advice relating to ‘free’ advice that ends up floating around on the Internet?” he asked. “This week, I got teasers in my inbox telling me how uranium will be the next major commodity, how the commodities run is only getting started (from a historical perspective, of course), etc. How do you sort through all this stuff?”

The short answer is that I don’t try to sort through it. Neither should you. This is spam, pure and simple. I routinely delete it, without even looking at it. However, the question caught my attention so I read a few of the free advisories that were sitting in my box. What I found was disturbing.

The first one I looked at was headed “New Micro-Cap Stock Opportunity”. It touted “our next winner” as Premium Petroleum Ltd., a junior Canadian oil and gaexploration company that operates in the Western Canadian Sedimentary Basin. It went public in August 2005.

The spamletter said the stock was trading at 3c and put a one-week target price of 10c on the shares. The advice was to get in, triple your money, and get out. The letter stated in part: “A Massive PR Campaign is Underway for Wednesday and all this week!! At only 3 cents the Gains will be tremendous!! We advise our readers to get in early for the most profit! WE ARE EXPECTING SOME BIG NEWS for Premium Petroleum. Did they strike oil? This one will be going up fast!”

The trading symbol was given as PPTL. I did a search and found that Premium is not listed on any exchange. I then went to the U.S. over-the-counter (OTC) Pink Sheets, where just about any security can be traded. Sure enough, Premium Petroleum was there, with the following note: “Pink Sheets believes adequate current information must be publicly available during any period that the issuer or affiliates of the issuer are directly or indirectly engaged in promotional activities having the effect of encouraging trading of the issuer’s securities in the OTC market. Pink Sheets has observed that such promotional activities are occurring for this security, but that adequate current information may not be available. Consequently, Pink Sheets has removed the quotes from this website until such information is made available by the issuer to the investing community. Investors are encouraged to use care and due diligence in their investment decisions.”

In short, Pink Sheets had suspended trading in the stock until it was satisfied that investors have enough information on which to base a decision. Obviously, junk e-mail promotions don’t qualify! If you own shares, too bad! There is no public market for them, at least not on the day I checked the site.

The next hot tip I looked at had a more professional appearance, complete with tables, colour, and a title: The KonLin Letter (abbreviated as KLL). The e-mail subject line was “The Bird Flu Opportunity”, which is sure to grab most people’s attention these days. It touted a stock called eFoodSafety in these terms: “The official trials and approvals are complete. eFoodSafety’s Big Six Plus germicidal formula is now ready to attack the global spread of Avian Flu virus.”

The report that followed, signed by published Konrad Kuhn, said the company has developed a product that kills the bird flu virus in the laboratory and has received the approval of the Environmental Protection Agency (EPA). He advised readers to “load up” on the shares. “Once news of the EPA approval becomes widely known, the stock could go ballistic,” Kuhn predicted. “Investors could see fortunes made as the rush gets underway to contain and stop bird flu.”

Wow! Sounds like the opportunity of a lifetime, doesn’t it? In fairness, the letter warned that this is a “high risk investment suitable only for aggressive investors”, but with that kind of hype many people may ignore the disclaimer.

So what are the facts? Like Premium Petroleum, eFoodSafety is not traded on any stock exchange but does have a Pink Sheets listing under the symbol ESLF. On the day I checked, it was actively being traded and the price was up 12.5% on the day on heavy volume – perhaps due to the impact of the KonLin Letter? The company shows an address in North Palm Springs CA and has a website url, which was not functioning when I tried it. According to the latest financial filing with the Securities and Exchange Commission (SEC), eFoodSafety had assets of $130,872 as of Oct. 31/05. Liabilities were shown as being almost $1.8 million with an accumulated deficit of almost $10 million. Revenue for the first six months of the 2005 fiscal year was shown as zero.

Now it could be that eFoodSafety has truly developed a breakthrough product and that the money is about to start pouring in. But do you really want to risk your own cash now that you know more about the financial background?

And just how unbiased is the advice in the KonLin Letter? If you scroll way down to the bottom, you will find the words “Legal Disclosure”. Click on that and you’ll go to a page with very faint, very small grey type. If your eyes are strong enough, you may be able to read these words buried somewhere in the middle: “KLL is not a registered investment advisor or broker – dealer and accepts no liability for any losses arising from an investors reliance on or use of this newsletter. KLL has been compensated three thousand dollars by a third party for the publication of this report.”

Aha! Someone – we aren’t told who – paid Konrad Kuhn $3,000 to write and distribute this report. Now I know why it showed up in my e-mail box.

So, to return to the original question which asked if I had any advice about these tips and so-called newsletters, the answer is sure I do. Treat them for exactly what they are: pure junk.

This article originally appeared in the Internet Wealth Builder, a weekly e-mail newsletter that provides timely financial advice from some of Canada’s top money experts. For more information about becoming an Internet Wealth Builder member, go to