Rational Investing: Tipsters clog fax with dangerous advice

Clark Davis is a 34-year investment veteran and CEO of Saint Louis Investment Advisors, a specialized money-management company.

Our language can produce some amusing collective nouns; a gaggle of geese, a clutch of eggs (but a brood of hens), a herd of cows, a bank of circuits, a bed of clams, even a murder of crows (who came up with that one?), so I nominate a trickery of tipsters.

It may take a bit of time before my nominated collective noun becomes accepted these things don't happen overnight, you know but I think it fits perfectly when describing the inundation (hmmm, maybe that's an even better one) of investing "sure things" that pour from my fax machine.

Today's batch includes recommendations from sources I have only heard of via their faxes. The names sound good: New Issues on Wall Street, The Tech Report, The Financial Freedom Investment Report, and last but not least (I put them all in the least category), The Technology Investment Report.

Seldom will one of these "sure thing" recommendations have a price greater than a dollar. Most will be recommended for purchase at around 50 cents with a selling target of $2 to $2.50, implying that the reader could quadruple his money.

There are probably some recipients of this faxed wisdom who actually buy the "next great thing." After all, the presentations are greed-motivating, with quotes many out of context or by less-than-expert sources designed to get one's juices flowing.

Now, I have made more than a fair number of investing mistakes in my 36-plus years in the business, but at least I have not, even in my fearless, know-it-all youth, bought into any of these stories.

You might be thinking, "Of course you didn't in your early years. There weren't any fax machines then."

Right you are, but the Pink Sheets have been around longer than I have since 1904 in fact and that's where the touted stocks reside.

Before jumping on any of these "hot deals," check out this information about the Pink Sheets found on the Securities and Exchange Commission Web site:

"'The Pink Sheets' is an electronic quotation system that displays quotes from broker dealers for many over-the-counter securities. Market makers' and other brokers who buy and sell OTC securities can use the Pink Sheets to publish their bid and ask quotation prices. The name Pink Sheets comes from the color of paper they were historically printed on. They are published today by Pink Sheets LLC, a privately owned company. Pink Sheets LLC is not registered with the SEC in any way and it is not an NASD broker-dealer.

"The Pink Sheets does not require companies whose securities are quoted upon its systems to meet any listing requirements. With the exception of a few foreign issuers, the companies quoted in the Pink Sheets tend to be closely held, extremely small and/or thinly traded. Most do not meet the minimum listing requirements for trading on a national securities exchange, such as the New York Stock Exchange or the NASDAQ Stock Market. Many of these companies do not file periodic reports or audited financial statements with the SEC, making it very difficult for investors to find reliable, unbiased information about those companies. For all of these reasons, companies quoted in the Pink Sheets can be among the most risky investments. That's why you should take extra care to thoroughly research any company quoted exclusively in the Pink Sheets."

If that doesn't get your attention, try this: Read the disclaimer at the bottom of the faxed page. That is, read it if you can. You may need some magnification help; I know I do, even with my Walgreens special buy-one-get-one-free reading glasses. This stuff is tougher to see than a glass splinter, but once you are able to make out the words wow! These guys (I assume they are guys women are too nice to do this kind of thing) are not qualified. Let me give you an example, and I quote from the fine print from one of them the language that is typical of all I have received, " is not an investment bank, stockbroker, broker dealer, financial analyst, or a professional financial advisor of any kind."

Not caution enough? Check this out they are all getting paid to tout the issues, with most receiving cash (usually in the area of $20,000 plus) or stock or a combination of the two.

This is not a warning to be careful it's advice to trash the faxes immediately.