Different ways to avoid stock scams while investing

Investment frauds come in various forms, especially in this age when everyone is looking out to make money quickly using shortcuts. No doubt stock investments beats inflation, but you have to be aware of stock scams.

With the advent of digitalization, financial swindling has become easier and the vultures are always waiting for their next prey. Always question the tip before buying a stock, whether you get your tip from a friend, a cousin, or your colleague at the office. How genuine is their tip about that stock?

Here are some tips and tricks to avoid stock scams.

Unsought emails and call on stocks

Nobody will call you and give a hot tip about a stock. Beware of emails about stock tips to buy and sell stocks. The fraud companies mask their identity while sending you that mail. Do not answer the emails in your spam folder. If you know that an email is a spam, then do not open the mail, mark it as a spam and delete the mail from the folder. Be careful while using your email on any public forum as they can be fraudulent.

Be careful about the phrases “once in a lifetime offer, do not miss,” “golden chance for investment”. These are the keywords that inform you about stock scams. Always verify the source of the tip.

Work closely with a financial advisor

Beware of the pump and dump stock as it is a form of stock scams. The investor or investors spread false news about a particular stock’s worth. Nowadays, it is easy to spread the false news around via social platform, emails, false news, etc. When the investment starts pouring in and there is a rise in the price of the stock, the investors quickly sell their stocks, which causes the price of the stock to fall. Pump and dump stock is mostly related to penny stocks. Penny stocks or microcap stocks are the stocks that are traded at a low price, listed in small exchange, and have very low market capitalization.

To trust your financial advisor or not? Check the credibility of your advisor. He should have an in-depth knowledge about stocks. Lookout for references, reviews on the advisor and then choose the financial advisor. Even if your advisor advises you on a particular stock, you should do some research on your own about the company advised and then invest on the stock to avoid stock scams.

Another way of avoiding falling into the trap of scams is to follow the news about all the scams. When you come across a scam, read about related scams too. There is no tool that can predict which stocks can give you higher returns. If you do not understand a particular stock dynamics, avoid investing in it.

Supposedly, you have read an article online about a stock recently and it has a bull run, you are tempted to invest in that stock. In that case, do not get excited, and check the credibility of the author. Ask yourself some questions. Is the author authoritative on finance and stocks? If you are satisfied with all the research on the author, then go ahead and invest in the stocks suggested by the author.

What should you do before hitting the “buy” button

Have some set parameters for the stocks that you buy to avoid stock scams:

• Do a detailed research about the company’s stocks you want to buy.
• Study the company very well.
• Gauge their overall growth since inception.
• Check their profits and turnover.
• Check the credibility of the company

If you are looking for long-term investment, take time and do all the detailed research before buying the stock. Set a stop loss when you buy a stock. Example: When a particular stock crosses a particular amount, you sell the stock and register profit by selling it before the prices of stock fall.

Diversify stocks in your portfolio. Do invest in the same type of stocks though. Invest in bank stocks, computer chip stocks, soaps, petroleum products, etc. “Buy-in thirds” – divide the amount you want to invest in three parts. Invest them in installments, invest the first part now, study and evaluate the stocks for sometime and then invest the other two parts in intervals.

Avoid the urge to check on your stock daily if your investment is long term. A quarterly check of your stocks is enough. Have some extra cash to buy the stocks when the prices are low. If there is a sudden price movement in the stock, check out the factors that caused the movement. This might be a negative or positive price movement. Take action based on the outcome of your research.

Stock schemes come in many forms, but the common and vital point in all stock scams is high return. Beware of such promises of high return and control your greed.