My stock picks will make you rich and want for nothing. Our newsletter delivers the hottest penny stocks on the market. I have a trading strategy that will make you millions. I want to sell you that strategy or access to the watch list and I’m going to buy tons of shares before I tell you what my picks are!
Does anybody still fall for these manipulative tactics used by stock promoters, pump and dump scam artists or “stock pickers?”
Judging by this article, posted just three days ago on October 14th, and my own personal experience, I would say that the pump and dump is still pretty common and maybe you have even been a victim of this type of fraud.
New Stock Manipulation Methods Are In Play
In the old days of the stock market, mobsters or deep pocketed “investors” could inflate the price of a stock using various methods such as cold calling. In the new age of the financial markets, securities fraud comes in a similar, but more under the radar way.
It’s Those “Hot Stock Picks” Or “Watch Lists”
I’m sure you have stumbled on one of these Stock Picking Services, Watch Lists or Newsletters before. They use bright colors and claims of huge gains on the (usually) penny stocks they promote in order to draw in unsuspecting investors and artificially inflate the price of a stock.
Here’s how the process works…
- Unnamed “trader” buys thousands of shares in a security over the course of several weeks and months.
- Fraudster releases latest “watch list” or stock pick to the public, usually via the internet and social media.
- Hundreds or thousands of traders buy up the stock, sending the price through the roof.
- Watch list owner sells his shares while everyone else is buying, pocketing serious amounts of money.
It’s sad really. These services usually claim to be professional traders and tout their knowledge in technical analysis to convince us we should follow their lead. What these scammers do is prey on the vulnerabilities of starry eyed and uneducated traders looking to make the big bucks.
While the promoters bank massive gains, hundreds or thousands of investors and traders are left scrambling to sell their stock before it falls below the level it began at. Most of the time these stocks are so thinly traded that you’re lucky to get out at all.
I got an email once from an investing website that I will leave unnamed in this post, but I’ll tell you it is one of the more popular websites covering stocks on the internet. In this email was a long, well thought out stock promotion for a company called Polar Petroleum Corporation.
At the time of this email I hadn’t started investing, so it’s fair to say I was pretty uneducated on the stock market, especially penny stocks. When I started to read the email, my heart started ticking away and I started to visualize the money that this stock could make me if I could just come up with a couple thousand dollars to invest in its growth.
Whichever marketing group sent out this email had some serious talent. They pitched POLR as a 100% win (I now realize there’s no such thing) and threw around so many large numbers it made me feel like I had to go and buy the stock that very moment or take a chance of missing out on thousands.
Being new to the game, I decided it probably wasn’t a good idea to invest that kind of money without some guidance. So instead I just started to research the stock market and eventually I opened a brokerage account to start investing. I never did buy any shares in Polar, and to this day I can still feel the wind blowing by my face from that dodged bullet.
It Was a Lesson Learned Though
At the time I received the email regarding POLR, it’s stock was around $4 and some change. As of this post, the “gas exploration” company sits at a sad four pennies. Yes, the stock is worth a whopping four cents after an SEC investigation and halt on trading.
Although I never lost or invested a dime in POLR, I did learn a valuable lesson watching the pump and dump slowly unravel and eventually fall flat on its face. I learned that in the stock market, we can trust no one other than ourselves. It’s shark infested water and individual investors don’t have the sharpest teeth.
It All Comes Back To The Herd Mentality
I’m sure you’re familiar with the herd mentality, right? If not its basically the same as following your friend off the edge of a cliff just because he’s doing it. Our instincts sometimes tell us to follow the crowd and do what everyone else is doing. It’s this instinct that stock promoters prey on.
Stock pumpers know that if they can get the ball rolling, investors will gladly follow each other straight off the bridge. This is the reason why I feel compelled to tell you about my experience with POLR and hopefully keep you from making one of these metaphorical leaps off the Grand Canyon.
Here’s How To Protect Yourself From Stock Pump And Dumps.
1). Don’t Invest In Low Priced Stocks
Generally, people say that stocks under five dollars should be avoided, but I would take it even further and suggest you extensively research any stock under ten dollars.
One reason for this is a recent pump and dump involving a small medical company called Galena Biopharma that was trading around eight dollars. The company was paying for a promotion while it’s CEO was making millions selling his shares and left it’s investors holding the bag.
It’s now always the case, but I like to think of it like this- “If a stocks price is low, there’s probably a reason.”
2). Always Do Your Due Diligence
Would you buy a car that you know absolutely nothing about? It wouldn’t be smart to buy a house without seeing it, looking it over and having it appraised. An Investment in the stock market should be treated the same way.
I usually won’t buy any stock the same day I hear about it or discover it. Instead I spend some time researching the company, what it does to make money and what it’s financial situation looks like. It might also be wise to Google the company and look for any articles that praise the good aspects and leave out the bad.
If you come across an unnatural amount of articles from less than reputable sources praising the company, there’s a fair chance the stock is being promoted.
3). Don’t Invest Based On Advice From Seeking Alpha!
This should be a no brainer, but unfortunately Seeking Alpha still has enough influence (even after multiple exposed scams) to move some penny stocks and thinly traded issues.
The thing with Seeking Alpha is you really never know the true identity of the “analyst” whose post you are reading. This was evidenced when the website had to take down hundreds of articles that were written by the same authors using different screen names.
If you read about a new miracle drug or technology on SA, take it with a grain of salt. There’s a fair chance it’s coming from a stock pumper.
4). Buy Mutual And Index Funds
If you want to avoid the risk of individual stocks altogether, mutual and index funds are a good option. It’s pretty easy to open a brokerage account and start buying mutual funds even with a small amount of money.
Funds are appealing because they aren’t dependant on the success of one individual stock, they are spread out between many different assets to mitigate risk.
5). Use Your Head. Don’t Let Big Numbers Cloud Your Judgement.
The best way to protect yourself from being the victim of a pump and dump or other security fraud is to use your head. If it sounds too good to be true, it probably is.
It’s not realistic to think that 1,000% gains are the norm in the stock market. If it were the case, investing would be a lot easier. It’s just not the way the stock market works. Most investors won’t get returns better than 8-10% a year, and that’s just fine.
With compound interest in play, those returns add up to significant amounts of money over the years. Besides, we can either settle for decent returns or chase those ridiculous numbers and risk everything we have worked so hard to build.
6). Don’t Get Caught Up In The Next Big Thing
FINRA recently issued a warning to investors regarding Ebola stock scams, but the deadly virus isn’t the first event to trigger stock scams. Marijuana stocks, other diseases and political unrest can all cause worthless stocks to rocket. The thing is, most of the stocks are only soaring due to hype and media attention.
Investing in stocks that relate to Ebola or other trends cab be dangerous, because once the hype dies down, the stock almost always returns to its deflated levels. Think about this before trading companies with Ebola drugs in the pipeline or other highly publicized sectors.
Take Necessary Precautions And Don’t Let Scams Target Your Emotions
All I’m saying is be careful. It’s a greed driven world out there and the stock market is the playground on which these guys prey.