Penny Stocks - Beyond the Pump and Dump |
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Penny Stocks can be a great investment, but you have to know what to look for, or sometimes more accurately, what to look out for. Buying Penny Stocks based on a recent email you received, or what you heard from someone you barely know, is not usually a good idea. Penny Stocks have historically been a source of wealth for many investors, but conversely have been the source of countless lost small fortunes. |
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Determining what is good advice, mixed with all the hype, can
sometimes be a very difficult process. You don't have to be a stock market
guru or brilliant investor to make a killing with Penny Stocks, but you do
have to be willing to do your homework, and use a great deal of common
sense to stay alive when you are swimming with the sharks in what can be
dangerous waters. There are many great small companies in existence today,
struggling to stay afloat, that are tomorrow's rising stars. Without the
capital to grow and expand very few of our current generation of
conglomerates would be more than a forgotten flash in the pan. Selling
shares of a company can inject the needed capital into a niche business
that may take it into the next level. However not all, if not most, of
these tiny corporations will be around for very long. This creates an
interesting situation for us, the investor or speculator. While the
company in question may not be worth much today, what might that company
be worth tomorrow? Hence the term speculation, which is the lifeblood of
any Penny Stock trader. Unfortunately, within this world there are a few unseemly
characters, who seek to part you from your hard earned dollars. And, they
will go to nearly whatever means is necessary to achieve their goal. PR
firms, or Investor Awareness firms, are sometime hired to promote a small
corporation's stock in hopes of raising the share price. This in itself is
not necessarily a sign of ill intent. Many times a small company may be
very good at what it does, but for whatever reason finds itself unable to
generate enough press interest in their successes to generate buying
activity of their stock shares. However, this is occasionally done with
the sole purpose of raising prices rapidly in an attempt to make quick
profits on a very hollow company, one that has no real market or solid
foundation. Hence the phrase, pump and dump. Pump and dump in a nutshell
means, exaggeratedly "pumping" up the company in question with
the primary intent of "dumping" their shares once the share
prices begin to rise. What can you do to protect yourself from being caught up in a
pump and dump scenario? Most importantly you must use your own due
diligence to wade through the hype. Ask yourself a few basic questions
about the company in question. Are they making money? Are they creating
new products? Are these new products going to be valuable in the future?
The rules for trading Penny Stocks aren't much different from those of
trading large cap stocks. However, the risks can be much larger, but the
rewards can be as well. If you aren't willing to do at least a bit of homework, investing in any stock is not a good idea. Never rely entirely on anyone's advice, especially when dealing with Penny Stocks. But, if you take the time to research your investments, investing in Penny Stocks can be a very financially rewarding experienc By: Mike Eggert
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