Blog : Penny Stocks and Social Media

by Ed Zwirn on April 3rd, 2013

Penny stock investors looking to find out the latest information about their company would do well to go beyond monitoring press releases and other traditional forms of information dissemination.

As the Securities and Exchange Commission made clear in guidance issued yesterday, companies may not be in compliance with Regulation FD (Fair Disclosure) if they release material information to select groups via such outlets as Facebook and Twitter without informing shareholders and the investing public about where they can get at such information.

At issue was a July 2012 post by Netflix CEO Reed Hastings on his personal Facebook page in which he congratulated members of his staff for driving Netflix monthly viewing past 1 billion hours in June. The announcement, issued at 11 a.m. on July 3, represented a nearly 50% increase in streaming hours since its most recent public announcement and coincided with a rise that began that day and saw the company's shares rise from $70.45 at the time of the post to $81.72 at the close of the following trading day.

While the company in question is most definitely not a penny stock, the need for the SEC to rule on this matter illustrates the brave new world investors have to consider, one in which information can get disseminated through all sorts of channels, with investors belonging to the right Facebook pages or subscribing to the right feeds being able to get the jump on others.

There is nothing new about social disclosures: Investors looking for stocks to buy have sometimes been privy to information disclosed at cocktail parties and other such venues. What makes the proliferation of social media relevant to penny stock investors is the extent to which disclosures like these have changed in nature.

For penny stocks, which are subject to broad swings in price and volume, this change can have a profound impact. SEC guidance notwithstanding, penny stock investors would do well for themselves to become "friends" with the CEOs, CFOs and other top executives of the companies on which they place bets.

You should already be a frequent, compulsive viewer of your penny stock company's website, and you should continue this habit if you want to know the latest information which may impact your investment. But, as the SEC has made clear, the sources of such information can go well beyond traditional venues like press releases, and, if you want to stay on top of things, it is crucial to keep this in mind, especially if your company is just catching up on compliance with the latest changes made to the rules of the disclosure game.