A lot people have been warned against investing on penny stocks because it is common used by scammers to deceive people into making a poor investment. Penny stocks are sold at the lowest price which enables the investor to purchase bulk shares at minimum amounts. This makes the people think that they can make a lot of profit out of the quantity of shares they own. But this is not possible because just like what market specialists say, low priced stocks can not out perform high priced stocks.
Companies who want to sell their penny stocks normally hire marketing specialists to tout their stocks. These advertising specialists use various schemes to ensure the sales of these stocks. These schemes can be information rallies or even public deception.
Companies who sell penny stocks apply various strategies to ensure sales. Oftentimes they hire promoters to do all the stocks advertisements for them. This is done so that the marketing of the stocks will not seem to be a promotion strategy by the firm. The promoters put up an image that they are not being paid or involved with the company in any way, and they pose as a source of valuable information for business investments.
One strategy that advertisers use is setting up a hoax website for their stocks. Again, the promoter will make it seem that there is no relation between the site and the company. They will post false information about the stocks to generate more sales. They also send spam emails which convinces people to buy stocks. Companies are able to use this way of deceiving people because boards can not track all the fake websites.
There are different scams applied to penny stocks. The most popular is the pump and dump. The pump and dump starts of with a company or an insider which conspires with a promoter to tout penny stocks. This promoter will do every method possible to sell these stocks. What happens is that new investors are usually lured into buying them.
Initially, the pumping stage takes place first. This is the part where the insider gathers investors to raise the value of the penny stock in the market. This will be followed by the dumping in which the insider sells his shares when the stocks reach the best market value. After dumping the stocks, the prices of these stocks will start to drop and the losses are charged to the new investors.
Another common scam is the wrong information scam. This involves sending scripted messages to various people. The messages include astonishing news about how great the penny stocks are selling in the market. The promoters will make it seem that the receiver of the message have gotten access to insider information. When the receiver takes the bait and makes his investment, the process of pumping and dumping begins.
The only way for a person to secure his investments with penny stocks is to do personal background checks on the companies that sell them. This will be difficult, but if you value your money and you want a sound investment, you need to be diligent in acquiring company information. Use common sense to judge transactions and be careful in making your decision.
The critic who wrote this piece has discovered a well respected investment relations vet named Wade Entezar.