Chad:
My first reaction after seeing your post was disappointment and anger => that someone would post the secret to making "easy money" on this thread.
However, upon further reflection, I think your post could be very educational for the people here. Therefore, perhaps many of us can educate the newbies of the thread with the details of how "Pump and dump" works on the internet. I'm not an expert, but I'll give it the first try.
Buying Pump and Dump Stocks - A Certain Path to Ruin
1) Pump and dump stocks are typically low volume stocks with low floats. Therefore, a moderate amount of buying will cause the stocks to rise substantially.
2) The promoter of the scheme (for example sake, let's just pretend Chad was doing this) would buy all of this stock he could afford.
3) Then, the promoter "pumps" the stock up by posting how great it is in all of the chat sites of SI, Yahoo, etc. As an example, Chad posted 23 posts on SI within three hours this morning, all discussing this marvelous website. Note that these have been his only posts since joining SI => Therefore, in addition to the obvious smell of a "pump and dump", your immediate 'fishy' sense is reinforced by his lack of credibility on SI.
4) Finally, after pumping the stock, the promoter and his buddies sell ("dump") their stock to the naive newbies, who are still buying, in their quest for 'easy money'. Hours, or even days later, the stock settles back to about where it was before the "Pump and dump" occurred.
In short, it is 'easy' money only for those that perpetrate this sort of scheme. It can be a certain path to losses for a naive investor looking for easy money. Don't fall into this trap. => Thanks go to Chad for bringing up this important topic and giving us an excellent example to discuss.
Perhaps others could discuss their knowledge of the good 'ol "pump and dump"?
-Happy Trading
-Eric |
