Do not buy stocks based on dubious recommendations

Despite SEBI’s strong restrictions, there are instances in the market where conspirators control stock prices. Trading large amounts of shares in very small companies can create artificial ups and downs. Such conspirators prey on small investors who do not have a great understanding of the credibility of the news. Many investors who trade in shares of small companies that are not known to be looking for big profits based on hearsay will be rewarded with huge losses.

False propaganda is being spread through websites, SMSes and social media such as Facebook and WhatsApp. Investors need to take some precautions to avoid losing money as victims of such scams.

The first is to invest only in companies that are consistently trading at a high volume and have sufficient market value. Analysts and broking companies do not conduct research and studies on very small companies. Therefore, accurate and transparent information about such companies may not be available.

Investors should be aware that if anyone predicts that a stock will make a big leap in the coming days based on credible news, it is a ploy to artificially inflate the share price. Only after doing some research on your own should you decide to buy shares of unknown companies. Such stocks should be excluded if there are no reports from reliable and authoritative sources about the basic quality of the company. Brokerages and research houses often recommend non-standard stocks that are not even within the scope of their study, via SMS and the like.

Such fraudsters take advantage of the fact that ordinary small investors are ignorant of the analytical methods to be adopted when buying shares. The stocks they recommend are often lower priced. Many investors have the misconception that low-cost stocks will pay dividends. Most investors are confused about the difference between the price and value of a stock.

Inexpensive stocks do not have to be cheap, and expensive stocks do not have to be overvalued. Small investors often buy stocks under the misconception that the value of cheap stocks is low.

The value of a share should be determined based on various valuation methods such as the ratio between share price and earnings per share, the ratio between share price and book value. Many factors such as the financial position of the companies, the governance of the company, the quality of management and transparency in operations need to be considered before making an investment decision. Investors should avoid buying shares of companies for short-term gain when there is ambiguity about such matters.