Friday, July 30, 2010

Suckers Buy Penny Stocks

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It's bad enough that the media almost always steers us wrong, the internet is just as bad with their constant push to get people to buy penny stocks. My view is that they are looking for suckers. Here's how I think it works. Some "investors" or Wall Street types get together in a room and decide they want to work the penny stock market. They know that the small investor likes these stocks because he can afford to buy them in round lots of 100. They also know that it's easy to believe that a stock can go from 50 cents to a dollar than to believe that one can go from $50 to $100. This is a myth that just isn't true.

Next, they get people to sign up for email alerts or buy lists of people looking for penny stocks to buy. While that's going on, they start looking at all of under performing lowest priced stocks that they believe can be manipulated. I don't know how they know which ones they can, and this is all theory anyway.

After they do that, they send out press releases about the company that appear to be "news" from independent journalist when in fact, they were probably written by the same people in on the deal and then submit these press releases through services anybody with a few hundred dollars can do.

Once that's in place, they then notify their students into buying penny stocks that they've got a hot one and it's time to invest. They pump the stock up in price with their own money and let the advertising (the press releases) sell you on the fact that this is true. You get in when you see the stock is going to go up. By then, they are on the way out and are the ones selling the best penny stocks to buy (at inflated prices).

Wait too long and you will see the demand crash and the stock is a low as ever, and you have lost money. This is a reminder that you shouldn't buy penny stock again. Only buy stock in quality companies that have demonstrated earnings and sales, not pipe dreams.

Don't be a sucker with your stock market investing program.

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