Not quite black and white | Value Research Outright scams are caught, but the ones in the grey areas do more damage
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Not quite black and white

Outright scams are caught, but the ones in the grey areas do more damage

Not quite black and white

It's an old story with a new twist. A few days ago, SEBI passed an order against a group of people manipulating stock prices to make profits for themselves. The SEBI order shows in great detail that this was done for the scrip of a company named Sadhna Broadcast, in collusion with the promoters of the company. This is the oldest game on the stock markets. Spread the word that certain stocks were great buys, having already bought large amounts and colluded with the promoters. Jack up the price, sell and exit. Nothing new.

However, what is new is the intense and methodical use of digital media. In this case, the gang ran two YouTube channels and spent at least Rs 4.72 crore to advertise and promote the channel through Google's advertising service. According to news reports, the people and entities involved will be forced to disgorge around Rs 40 crore of their profit.

Even though this is a standard promoter-sponsored pump and dump that has been going on in all markets ever since markets began, the digital reach is frightening. Once upon a time, such schemes could only be carried out by a handful of well-known powerful manipulators. The reach was relatively small, and many who bought into the stories did so with their eyes open if you know what I mean. What the internet has done is massively increase the reach of the scamsters. Of course, as the investigation of this case shows, it has also made the digital trail unerasable. This is a new-age scam. The scam and the detection and investigation were only possible with digital tools.

While the regulatory action will continue, the question, as always, is what individuals can do to save themselves from such schemes, that's a surprisingly hard question to answer. On the face of it, I could say that you must not pick up investment advice from just anyone on the internet; you must only get information and advice from a reputable source. That sounds like sensible advice you would get from official sources. It will undoubtedly save you from outright criminality of the kind we see in this case.

However - and this is a big one - institutional advisors who are regulated entities, like banks and big brokers, are not exactly averse to giving you advice that prioritises their profits over your financial well-being. Numerically, the number of people who suffer from bad, self-serving advice from such entities may be more - far more - than the ones who fall prey to outright scams like the YouTube story above. The big guys know how to walk at the edge of legality and fleece you - the YouTube scamsters did not have that know-how.

So what's the solution? I'm afraid the solution is to build up your knowledge and understanding. At the very least, understand that no one else is out to make money for you. Whenever someone offers investment advice, think through what that person or entity's interest could be. If someone on YouTube is telling you 'secrets' about why this or that stock will shoot up, then at least ask yourself why that person is doing so. The same goes for anyone else, whether a kindly neighbour or a 'relationship manager' from your bank or, indeed, about me writing this page. In general, lean towards advice that asks you to educate and empower yourself rather than give you specific investment guidance.

One weird thing I've observed over the years is that some people manage to sell you bad financial products because they sincerely believe in it themselves. Insurance agents fall in this category, at least sometimes. Try explaining to a LIC agent why the policy he's selling is rubbish. He'll be genuinely scandalised. "But it's a government company". "The whole country buys it". What can one say in reply?

The road to financial literacy is long and hard.

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