KillerPennyStocks.com

Yesterday, I wrote a post about KillerPennyStocks.com and wondered what it was all about. It was the first time I had seen the site so I went over to check it out. When I got there it was a page that talked briefly about getting killer returns in penny stock and lists four or five of what look like the best penny stocks to buy now. It says it was free and their was a place to put in my email address. In an effort to find out more for my readers to see what this is about -- I put in my email address. I expected to get an email confirming my name to the list. I did get an email informing me that I had been added to the list. I've yet to receive another email so I can't really say what these penny stock tips will be.

But in speaking about penny stocks in general, I know that there are many people who dabble in them who want to get started investing in them because they are so cheap and you can easily buy a round lot of 100 shares of them. I think this is OK if you know that the money you put into speculative investments, which is what these are, is less than ten percent of your portfolio. You should spend most of your stock market investing time in higher quality that are priced over $15 even if you can't buy a 100 shares. The reason is that stocks priced above this range are probably going to be more liquid and have more potential buyers should you need to exit.

Any time that you get a hot penny stocks email or fax, you are potentially a candidate to get scammed and I wanted to walk you through how I think it works. I also want to say that I don't have any evidence of this first hand, it's all theory on my part but I'm pretty sure that it works this way.

Let's say that I am the owner of a closely held company private company and I want to sell the stock I own it. I hear that you are interested in my stock and let's further say that you found out by willingness to sell my stock on some sort of list called "penny stocks to watch" along with some news blurb that talks about how great the company is, that it has some sort of new product in development, a new patent or something else that caught your interest.

You give me a call and tell me that you are interested in buying my "penny stock" (since it isn't traded on an exchange, you've got to do it directly with me) and I tell you that next week we are going to have a stock sale and everyone interested will need to be there to make their offers at auction and bid for the stock. You agree and say you'll attend.

The big day arrives and you take a seat. You notice that there is a lot of interest in the stock and that particular day you even saw a story in the local paper about how great the company is. Your mouth is watering because you know that you are going to make a killing in the stock. First, though you have got to buy the stock.

So, the auction starts, and you notice alot of bidding and before you know it you are bidding too and you decide that you are going to jump in and make your bid and low and behold you win the auction. You are so excited that you won and the stock's price was really a great deal still. It was extremely cheap to get those 100 shares and you know that it is going to be really easy to double your money because it doesn't take much for a stock to go from a $1.00 to $2.00. Afterall that is a 100% gain. Everybody's happy.

A few weeks go buy and all of the sudden you run into a jam where you need to have money. You need it right away and decide that well, you know what, you should be able to sell that killer penny stock you got a while back. That will take care of it and it must be worth alot more now. So, you decide that you'll decide to sell it, but discover that there are no buyers for the stock. All of the glowing reviews and not even your friends are interested. Eventually, you go back to the guy who sold it to you and he says that if you need cash, he'll make you a deal and give you half of what you paid for it. He didn't really want in the first place, remember, that's why he sold it! But, he'll make an exception and do you a favor and help you in your situation. You take it because you have to unload the stock.

Now, as the seller of the stock, I know something you don't and that is this. All of those people that were at my phony "stock exchange" bidding on the stock were my friends. They were there to provide the illusion that there was a lot of demand for the stock. And we fooled you into thinking that it was a great deal. All the while, we know we are setting you up.

It's the same with these low priced penny stocks. They take a bunch of money and start buying the stock which in turn bids the price up. Then, they start advertising the stock to find people like us to buy it. Once they've gotten out, the demand for the stock falls and when you are ready to sell because the price has been falling, you have to take a loss.

Now, I am not saying that killerpennystocks.com is like this. It could be a legit opportunity for all I know. I am just saying be careful. If you can spot the activity as the price is being bid up and get out when they do, you'll probably be ok. But, if you are the last to know, which is usually the case, I'd caution you to not risk a significant portion of your investment portfolio on these types of stocks.