Saturday, September 22, 2012

Why Penny Stocks are all Scams

Please do not fall victim to the penny stock scams, which they all are. I have no vested interest in any of them, which is why I'm able to say every single penny stock site is garbage.

You will lose everything you invest in penny stocks for two reasons, and two reasons only:

1. The penny stock "companies" are either bankrupt, or non-existent shell companies.
2. There's ZERO liquidity.

The only people who make money in penny stocks are the ones who are pumping them up, and that's it. You are truly better off playing "Black or Red" at the roulette wheel, because at least your chances are 49% there. Your chance of a total loss in a penny stock is about 99%.

Here's the secret to pumping a penny stock, and why you see charlatans advertising "huge" returns (which are all fake):

I buy 100,000 shares of XYZ Crap company for $0.001 cents, which costs me $100. Since there's no liquidity (other people who want to buy those shares), I have my buddy send in an "offer" to buy 1,000 of those shares at $0.02. This appears to be a 20-fold profit, turning $1 into $20, thanks to my buddy. Now I go around and tell everyone how I just made 2000x my money off XYZ Crap company and they should all invest in it. So while I still have 99,000 shares because my buddy only bought 1,000 of them, everyone rushes in to catch the fake 20-fold return I got, which in actuality is a falling knife. Then I unload the rest of the 99,000 shares on the poor, unsuspecting masses. Everyone else is left holding the hot potato, unable to sell their shares due to the complete and utter lack of liquidity. There's probably more of a market out there for me to sell the dust bunnies off my floor than there is for the shares of a penny stock.

If for some reason you find yourself contemplating purchasing a penny stock, maybe after smoking bath salts, take the current share price of the penny stock and divide it (you have to multiply if the stock price is a fraction, a fraction is any number less than one as in 1.0!!!) by the total volume to figure out how much money has actually transacted throughout the day. It's probably only $100 bucks or so, if it's even that high. Better yet, take the "3 month average" volume and divide it by the stock price to give you a rough idea of how much money is transacted in the stock everyday.

And that's why you will never be able to liquidate your "HUGE" gain in penny stocks.

As the old adage states "If it's too good to be true, it probably is". Otherwise everyone on Wall Street would be trading penny stocks.

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