Penny Stock Newsletters Secure Huge Gains, But Only For Promoters
28 Jul 2010

Admittedly, one of the most convenient ways for stock traders to get in touch with the “hugest gainers on the stock market, having the best business model” are penny stock newsletters. Though, the most popular investment is not always the best one.

Penny stock newsletters are not a noble cause

One of the most prominent aims of a penny stock newsletter is the so called “pump-and-dump” strategy. It is namely the one, when a stock promoting website sends numerous e-mail alerts in the form of newsletters to its subscribers, marketing a stock as an excellent opportunity for quick gains. As there seem to be enough of inexperienced traders out there ready to buy the stock without getting reliable information about the business laying behind it, nothing prevents the high trading volumes and the actual price jump.

Promoters make money through bragging about having the best penny stock list

The actual price jump does not remain unmentioned in the following alerts and the pump-and-dump strategy actually works. And traders should be cautious, but not too lazy to read the small letters if they want to know how promoters make money out of sending a penny stock list. The SEC cannot prohibit touting particular stocks, though it should be clear why they are being touted. And as one can suppose, apart from cash, promoters’ favorite compensation is some promoted and possibly free trading shares. Then, as already mentioned, there will be no problem to dump them on the market.

As after the promoting ceases the price plummets, penny stock trading may hurt

Usually, after the promotion is over and the shares have been dumped, the stock price drops down and the naïve investors remain holding shares worth much less then they were paid for. And this is the best case, considering that in some cases the shares are worth nothing, because there is no real business behind them.

Because, the most vastly promoted penny stock picks are speculative companies, whose only business is selling stocks

Promoters cannot conduct their pump-and-dump strategy with every single stock. This why their usual victims are small and rarely traded companies, whose stock price is around or below $1. Such a price can easily jump by a high percentage when a large number of shares are traded, promising thus lucrative gains. Such companies only blur the mind of hopeful investors with non-sense press releases, in order to help the promoters pump the price. On they other hand, the companies themselves can thus issue more and more shares, with which they can then speculate. For those, who want to avoid becoming a victim of stock promoters, the SEC filings remain the only reliable source of information.

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