Investing today is not like it used to be. The game is oozing with crooks and cheats. But the average investor has no clue. Most investors end up losing... and losing big. The reason is simple... they don't know what they're getting into. No matter what, you need to understand the risks you take.
Don’t be a victim of an investment scam. It is easier than you think for crooks to con you out of your hard earned money if you let your guard down. Internet has just made it easier and faster for these vultures to feed on investors tempted by the possibility of an “inside deal. The people who run these scams range from the very crude and clumsy to the highly polished and sophisticated who wrap their con games in such an air of legitimacy it may be hard to see the truth. Schemes come in many forms to separate you from your money. They all have one thing in common: very high returns. The sad truth is that many people fall for these schemes because their greed overcomes their reason. Don’t let this happen to you.
One of the most popular stock schemes is called “pump and dump.” Here’s how it works.
In this sophisticated day and age, con men have also become more sophisticated. One very recent con technique is to dishonestly "pump up" the value of a new stock by using massive email to generate interest. Amateur investors see this email, and get suckered into buying bulk shares. Once the stock value rises enough, the con men then "dump their shares" in a big sellout in order to reap the dishonest rewards. ‘Pump and dump’ has also been blamed on the recent events surrounding the market which rose sharply, and similarly has fallen sharply.
A group of crooks buys up a block of stock in a little know company. The reason for this is that it is much easier to manipulate the price of the stock when there are fewer stocks held by the general public since fewer buying of stock are needed to increase the price. Sometimes it works and sometimes it doesn't. You now buy an otherwise worthless stock at low prices. This sets the stage for to make money when the stock price elevates. In most cases the company itself is clueless that it is part of a scam. It’s chosen because its stock is selling for pennies a share, making it easy for the scammer to acquire a huge number of shares with a minimal investment. If the crooks are successful, the stock’s price will jump as they convince people they are getting in on the ground floor of some big deal. Once the stock value rises enough, the con men then "dump their shares" in a big sellout in order to reap the dishonest rewards. The stock then crashes, and the investors will often lose thousands of dollars.
Short and distort.
The "short and distort" works in the opposite manner. Instead of first buying the stock, and then artificially raising its price before selling, in a "short and distort" the scammer first short sells the stock, and then artificially lowers the price, using the same techniques as the pump and dump but using criticism or negative predictions regarding the stock. The scammer then buys back the stock at the lower price
The pump and dump scam (and all the others) are aimed right at your greedy spot. When you start listening to that "get rich quick" voice, you are hooked. Greed, along with fear of losses, is one of the most destructive emotions for any investor. Slow down and think before acting. Sadly, today for most people performance is merely about completing the task fast and not achieving the best results.
What can you do to protect your self from being caught up in a pump and dump scenario? Most importantly you should use your own due diligence to wade through the hype. Ask yourself a few basic questions about the company in query. Are they making money? Are they creating new products? Are these new products going to become valuable within the future?
You can avoid a “pump and dump” scam by:
• Never buy on the recommendation of someone you don’t know
• Promises of quick gains are rarely true
• Big announcements, new products, and so on are a give away that you are being hyped
In the event you are not prepared to do at least a bit of homework, investing in any inventory isn't a great concept. Never rely entirely on anyone's advice, especially when dealing with Penny Stocks. But, in the event you take the time to research your investments, investing in Penny Shares can be a very financially rewarding experience.
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