Many of my readers know the drill by now. Criminals buy a bunch of some random penny stock. They send out spam email to hundred of millions of people, touting the stock. Almost all those people are just annoyed, but there are always a few suckers. They buy the stock. Stock goes up. Within a day or two, the criminals sell out, taking their profit with them, leaving the suckers to hold the bag. Recent research (Frieder, Laura and Zittrain, Jonathan, “Spam Works: Evidence from Stock Touts and Corresponding Market Activity”) has shown this is suprisingly effect, netting over 5% on average. Not bad for a few days work.
I always wonder whether you can’t make money even as a sucker. As long as you’re one of the first suckers in, and one of the first suckers out, maybe you’re not a sucker.
Let’s say you respond to the email, and you’re one of the first people who does. Then the stock price will not have risen much. Shortly after you bought, there will be a flood of new suckers who will push the price up. Now you sell, one of the first people to do so. You get out with profit.
In essence, you let someone else do the manipulation and the spamming, you just ride their coattails. You won’t make quite as much as they did, but you ought to be able to get some profit.
The trick in this is – how do you ensure that you are one of the first people to get in on it? You don’t know when it was sent out, you don’t know when other people received the email, all you know is when you got it. But what you can reasonably assume is that most people would think about it for a while. Your advantage is to act instantly. The sooner you act, the better your odds are of being one of the first buyers. You won’t always be right, but overall you should beat the system.
I haven’t done this. I never would, not my thing. But I don’t see why it wouldn’t work. My wife (per usual) thinks it’s one my stupider ideas, but I don’t see any real objection to it.
Update: On further review there is a simulator based on the data the authors used. Fun to use, but the time detail isn’t fine enough. Everything is at a daily level in their research, whereas I would suggest a strategy that lasts at most one day.
They also add an interesting corrolary (on page 24): “Overall, our results imply that, in theory, a spammee could profit by forming a zero-cost portfolio that entails buying non-tout stocks and shorting tout stocks each time he or she recieves a spam touting stock. This strategy would have a high expected return (7.92%)…â€