Why Are Free Penny Stock Newsletters For Free?
29 Jul 2010

Promoters make their money from dumping promoted shares on the market at hype prices and if you are the one who bought that shares, the latest free penny stock newsletter you received was not really for free.

Because if investor newsletters advertising a “Multi 10 bagger opportunity” and saying “Be sure X stock is on your radar” sound trusty to you, you are the next victim

The only radar that should switch on in such a case is the one alerting for possible fraud attempts. The only reason for someone to share a “gold” opportunity with other traders for free is the intention to pump a stock price. Nobody will provide viable and worthy information about the financial results and prospects of any company for free. Because serious financial analysis is not done on the latest press release, but it takes skills, knowledge and time.

To ensure broader coverage, the promoting continues in the most active penny stock forum: the online investor community, which as supposed, is also for free

There, it can often be read how someone has just had a phone call with the CEO of a company and wants to share some precious insider information about the next promising project the company is up to. Apart from the fact that the CEOs of reliable companies have enough of things to do other than making calls or sending e-mails to traders, all the incredible things said in online forums and chat rooms should be considered false, unless confirmed in a SEC filing.

Websites sending penny stock alerts are not registered investment advisers or brokers and are often paid by the promoted company itself

Promoting is not illegal, but there are rules here as well. The SEC requires stock promoters to disclose their compensation, whereby statements like “From time to time, XYZ Newsletter may receive compensation from companies we write about” or “From time to time, XYZ Newsletter or its officers, directors, or staff may hold stock in some of the companies we write about” will not do, and are the strongest signal for traders that they might have come across a fraud. A list of such frauds, against which the SEC has taken legal actions can be found here and here.

Penny stock investing is usually short lived, but the stocks you just bought could be also sold short

After the alerts and the under cover promoting has secured enough of buyers for a stock, shorters come into play and penny stocks appear to be their favorites. When a stock is shorted, the seller has to borrow it and sell it on the market at the current market price, but for future delivery. Why should someone do this? Because they believe the stock price will tank and the stock will be cheaper to buy on the market when it has to be delivered. The shorted stock might not be delivered at all, for example if its price jumps up instead, but also even if it is delivered, it could be worth much less than the purchase price. There are SEC regulations to prohibit abuses, but one should not rely too much on that. Information about the number of shorted shares can be found here.

3 Comments
3 Comments
  1. i would like to comment on the previous comments made about penny stock promoters stock newsletters that recommend stocks under five dollars. many investors have a total lack of under standing when it comes to so called penny stocks. first and foremost stocks that trade under one dollar are extremely speculative. they should generally be avoided all together. from my experience when the price of a companies stock falls below a dollar this is an indication that the company has some serious problems. second although their are cases rare cases when a stock below a dollar can be a bargin. novice investors would have no way of telling the wheat from the chaft as it were. when it comes to these stocks .the second point i would like to make is that the real values lie in stocks trading between one dollar and ten dollars a share their are numinous cases of companies whoses share prices have fallen below ten dollars a share over the last decade. some examples petsmarts’ labrotory corporation of america’ tractor supply’ joan ann stores’ the sports authority’ litha motors’ pricesmart’ goodyear tire rubber’ shuff steel’ recently ford motor’ i could go on and on the real difference between making mony in these stocks and losing it is not a matter of luck but knowing how to determine if the stock of a company under ten dollars is in a long term decline for example or if the fact that its shares are trading under ten dollars a share is an aberration. the only way one can make a determination is to have a thorough knowlege about these stocks. most investment advisors stock brokers ect will not recommend stocks under five dollars. i can not beleive that the reason for this is completely because they just have a natural dislike of these stocks rather their firm has a policy against recommending these stocks. also one would not want to tarnish ones reputation by recommending a stock under five dollars and having that company file bankruptcy for example. even if their is a high probability that a stock under five dollars for example could be enormously profitable some day . even though these stock are risker than other stocks the potential profits make them well worth the extra risk sports authority was once a two dollar stock ‘ tractor supply was once a five dollar stock’ joan ann stores was once a one or two dollar stock’ shuff steel was once a two dollar stock . labrotory corporation a america was once a two dollar stock petsmart was once a two dollar stock. all these stocks have seen increases in their share prices of more than ten fold their are also numinous other examples bottom line is opportunity abounds in these stocks for those astute and knowable enough to take the time to thoughly research these stocks.

  2. Your blog is simple but more interesting one. Thanks for the sharing.

  3. BEAC has been bought by MDT Labor, how do u feel this will effect the stock price? FNMA Fanny Mae, Judge ruled the tha FNMA does not have to pay Transfer tas. How do u feel this will effect the stock prive?

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