If Someone Cold Calls You To Sell You A Stock – Hang Up The Phone!

Leonardo DiCaprio in the movie The Wolf of Wall Street

There you are, sitting on your couch checking Facebook or watching Netflix and your phone rings. On the other end of the line a very enthusiastic voice, which you don’t recognise, starts talking to you about an amazing stock tip and asks you whether you are currently invested in the stock market. Congratulations, you have just been cold called by a stockbroker. 🙂

While it is not illegal in the United States to cold call individuals to sell them stocks, it’s not a practice welcomed by regulators nor consumers. However, if your number is not listed on the U.S. government’s ‘Do Not Call’ registry, then you can legally receive calls from stockbrokers whether you like it or not.

What should you do when a stockbroker cold calls you?

The answer is simple. Hang up the phone!

Large, reputably and regulated financial advisors and brokerage firms generally don’t engage in cold calling clients on their home number to solicit stock purchases. So, if you do receive a cold call from a broker, chances are that he or she is working at a small firm that preys on unknowing small investors, by selling them penny stocks or other high risk investments, for which they receive a high commission while the investor most likely makes a loss on the investment. And that wouldn’t even be the worst case scenario!

In many cases, cold calling stockbrokers are from so-called ‘boiler room’ operations. ‘Boiler rooms’ are criminal operations, where a small number of salespeople apply high-pressure sales techniques to sell high risk stocks or other financial investments, in which they hold a share in. And once they have pushed the stock price up enough, they sell their holdings for a profit, while their customers take the losses. This is referred to as a ‘pump and dump’ scheme and is an illegal business practice that was highlighted in the movie Boiler Room [2000] (featuring Vin Diesel and Ben Affleck).

Vin_Diesel_Boiler_Room_2000
Vin Diesel in the movie Boiler Room

As I mentioned before, the best thing to do when receiving a cold call from a broker is to simply hang up the phone. If you want to start investing, you should do your own investment research and make your own trading decisions or use an online robo-advisor service, if you prefer a more hands-off approach to investing. Alternatively, you can always find a reputable stockbroker or financial advisor that you are happy with and trust, if you feel you need financial advice from a licensed professional (although I generally promote the idea of managing your money yourself).

If you want to find out more about your rights regarding cold calls and want to learn more about how to handle them check the SEC’s Cold Calling info on their website. Also, if you want to be put on the ‘Do Not Call’ registry, then sign up at www.donotcall.gov.

SHARE
Alex is a former bond trader who is passionate about bitcoin and entrepreneurship.