Tuesday, October 24, 2006

Internet Scams: Stock fraud Internet Scams: Stock fraud

I must get a dozen chances a day to invest in sure thing penny stocks supposedly on the way up. My spam filter picks up almost all of them, but still, it is getting out of hand. I probably get more of these any more than for Viagra. Here is one I got today:

Note that they don't bother to explain why the three and four week targets are even remote plausible. Besides, what are they the targets of? How high the stock manipulators think they can drive the stock up in the next couple of weeks before it crashes?

I commented on a Freakonomics article on this subject a couple of months ago. The problem is that these are intentionally very thinly traded penny stocks. I have no doubt that there is far more money right now invested on both sides of this stock, than the stock is worth on its own. It is a big game, with stock promoters trying to drive up the value of the stock and then cash out before it crashes back where it belongs (actually, they often appear to crash below that). But, of course, everyone is trying to do the same thing. It is very similar to a pyramid scheme, where everyone knows that the last ones in lose, but hope that they are in early enough to profit on the misery of those coming later. But, of course, most are in the losing category.

I think that the only realistic way to play these is short. Invariably, they will crash back to where they started, or even lower. The problem is determining the optimal place to short the stock, and that take sresearch, comparing the runs of a number of these very thinly traded penny stocks being promoted over the Internet.

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