It becomes quite difficult to differentiate between the intentions behind recommending the stocks. It is a harsh fact that no one can estimate the intentions of promoters, key managerial personnel, and influencers. But, the risk of losing capital can be reduced by making prudent decisions.
However, the risk cannot be nullified, as pump-and-dump schemes have established themselves within individuals only. Companies use the psychological phenomenon of "earning quick money" on investors by spreading rumours through influential personalities.
Arshad Warsi case
A similar case happened with the investors of Sadhna broadcast. As YouTube channels like MoneyWise and TheAdvisor created hype about the company's increasing share prices and artificially inflated it through volume creators (Arshad Warsi and his wife)
A few days later, when YouTube videos got released in which the operator and owner of YouTube channels ``The Advisor '' and “Moneywise,” Manish Mishra, showed how they are gaining profits from Sadhna broadcast, share prices started skyrocketing. There was a drastic increase in the number of small shareholders (from 2,167 to 55,343) who bought shares from the noticer net sellers and volume creators at an inflated price.
During the aforementioned time, a few promoters and key managerial personnel offloaded their holdings and booked massive profits. Due to heavy selling in the market suddenly, prices started to fall, which came into the radar of SEBI, and action was taken against those who were exclusively involved.
Here are five ways in which you can reduce the risk of losing capital by making decisions influenced by volume-creation activities:
Do your own research
Rather than relying solely on the recommendations of influencers, do your own research into the company's financials, industry trends, and other relevant factors. This can help you make more informed decisions about whether to invest in a particular stock.
Diversify your portfolio
By diversifying your portfolio across a range of different stocks and industries, you can reduce your overall exposure to any one company or influencer's recommendations.
Be sceptical of hype
If a particular stock is being heavily promoted by influencers or on social media, it's important to approach it with a healthy degree of scepticism. Often, these stocks are hyped up beyond their true value, leading to inflated prices and potential losses for investors.
Consider the long-term
Instead of focusing solely on short-term gains or hype-driven stocks, consider the long-term prospects of a company and its industry. This can help you identify stocks that have solid fundamentals and are less likely to be influenced by short-term market fluctuations or influencer recommendations.
Create a watchlist
When you create a watchlist of stocks, you subconsciously research the company and keep long-term track of the same. You buy those shares only when the target price is reached. It will help you with any kind of influential decision to buy stocks.
Investing in the stock market comes with an inherent risk of volatility which includes scams as well. All you can do is be informed and make decisions only based on a professional financial advisor which you trust.
Anushka Trivedi is a freelance financial content writer. She can be reached at anushkatrivedi.com