Monday, December 31, 2007

Con Men's Stock Tips--A Quick Way to Spot Them

--Pump and dump stock scams are vintage, which, oddly, though long ago exposed, still thrive, courtesy of active con men

Pump and Dump stock scams are still around. Here's how to spot the stock tips that emerge from these, and how to protect yourself:

Worthless stock. Tight float. Thinly traded. These are the basic prerequisites of the "Pump and Dump" stock scam. And, con men, who realize that the most powerful force in the universe is gossip, respond accordingly, to spread the word of these "opportunities."

First, a microcap company--one with capitalization so small that it is not required to comply with the normally rigid requirements of a stock exchange--is sought by the con men. Those found among the OTC "Pink Sheets" are some examples.

Next, tight float is sought. It's a must. This surfaces in stocks being held by the insiders and promoters of it, in general, rather than the buying public. This, then, spells out into the third leg of the three fundamental requirements, thin trading, which, in turn, creates the best setting for manipulation. This results in the Pump and Dump artist's being better able to control the price.

Say you've gotten into email exchanges with such a charlatan resulting from an internet chat room conversation. You are now set up for the Pump. Let's borrow from the old comic strip, Dick Tracy, and call the scam artist involved, Tess Trueheart. Tess plugs the meteoric rise of Moonbeam Techtronics--from ten cents a share to eighty cents in just two weeks. Wow! you think. You tell yourself the "big kill" is here. "Now. Right in front of my nose." You buy 5,000 shares, and feel like you are cornering the market, because the stock is thinly traded (as wild as this sounds, this reason is often, cynically, passed off to you as an "advantage").

You hold. Not for long. Just one month later you find the bottom has fallen out of the stock. It's now down to two cents a share. Now, when you find that Tess has suddenly disappeared, like a cockroach under a harsh light, the shock is like getting stood up at the alter.

You study. You learn. You now find that a simple procedure was followed, at your expense. The Pumpers were buying heavily--twenty cents, thirty cents, forty cents, on up the price ladder. Since the stock, sans public participation, was so thinly traded it didn't take long to drive the price up to the eighty cents level where you bought in. Then came the Dump: the unloading of the Pump and Dumpsters' entire holdings. Outcome? You, the innocent investor (sucker), get yet another empty bag to hold.

Yes, penny stocks are alive and well. And, suckerhood seems to be--forever--an embedded "way of life" in a corner of our investment community. Does the world's foundation of ignorance ever fade to one of studied, rational thought? one might ask. Seemingly, no.

The best defense appears to remain, as always: study up, learn all the tricks, fortify your resistance against con men. Then use all the weapons available to you. Many. Seek. Then:

Fire back. When in doubt, follow the instructions actually printed on a U.S. Rocket Launcher: "Aim toward the enemy." This, so as to best withstand the never-ending onslaught of the con men who, even through these old-fashioned means--the old Pump and Dump "beat" which goes ever on--would rob you of your innate instincts for value judgments. And, even more rudimentary, your "base" common sense.

If you lose $100 on a horse race, don't lose another $100 on the instant replay. Why is it so many investors ignore this basic lesson?

10 comments:

Gene Kranik said...

I know a man who always repeats his foolish investments, he seems to fall for just about every stock scam known, and has been losing money this way for the past twenty years. He always manages to double his losses.

mcAlee said...

A lot of people do not realize how easy it is to explode the price of a stock upward when it is traded thinly. I saw a penny stock go from 20 cents to 90 cents in six hours on only six trades. And another one go from 30 cents to over a dollar in 2 hours on not more than five trades.

Jack Payne said...

Hey, guys, that's the whole essence of thin trading, it enables driving the price of a stock up like a yo-yo on a string. I have several stock scam articles in the archives. Would recommend, in particular, that you read, "Stock Tips That Do Not Add Up." This particular scam is so sensational, so totally convincing, that you would have a hard time resisting falling into this trap if you are ever hit up with it.

Warmer said...

I know an investor who prided herself in being able to spot when the dump would be, and would always sell ahead of it, and make substantial profits on penny stocks. Then, one day she out-smarted herself and stayed too long, and lost a small fortune.

Earl T. Clydson said...

I checked out Stock Tips That Don't Add Up. Thanks. I took pride in myself on being able to spot scams, not being vulnerable. But this one is so clever I might have fallen for it. Good report.

The Uneasy Supplicant said...

Oh....this is really good to know. I'll be showing it to my brother-in-law. He's heavy in the stock market. Thanks Jack!

sharyn said...

With todays (Jan22) announcement what kind of advice can you give us? The stocks are falling as fast as the snow here

omaha said...

There are definately a lot of pump and dump scams out there. However, I believe that if you realize that penny stocks are not investments, just worthless companies... you can trade them very well. If you don't marry them and get emotional, you can by far surpass any return you'd get than any other market.

I watch a couple blogs to find good picks, this year thus far I am up 220% while the DOW is crumbling. One of the places I visit is www.surefirepennystocks.com.

In order to do well, you must do your research and not let emotions take you. There are days you can be up by 40%, and you must take it, because it will go down.

Penny Stocks said...

Nice tips that you have mention here.
Every investor ought to benefited here. thanks.......

https://www.blogger.com/comment.g?blogID=30371971&postID=1912869104345456224 said...

Hey, guys, that's the whole essence of thin trading, it enables driving the price of a stock up like a yo-yo on a string. II know a man who always repeats his foolish investments, he seems to fall for just about every stock scam known, and has been losing money this way for the past twenty years. He always manages to double his losses.