Be Careful About Penny Stock Scams

I had Tom Anderson, Associate Editor of Kiplinger Personal Finance Magazine, on the show to talk about penny stock scams. I am sure that you have seen the e-mails about the next great stock and how you need to invest today. These stock promoters are taking it to a different venue. They are advertising in the New York Times, USA Today, etc. By doing so, they get a certain level of credibility.

The objective of these promoters is to promote the hype about these stocks. By doing so, this drives the price of the stock up. Then, they turn around and sell their shares at these high prices. As a result, the stock falls. I had Tom on in June to talk about Guangzhou Global Telecom. Irresponsible advertising drove this stock up. The hype was that this was the next great telecom story out of China. Since June, the stock is down -74%.

Taking a closer look, you will find that these stocks are nothing as marketed. So here is the bottom line. First, just live by a modified old saying – “If it is too good to be true, do your homework.” Thoroughly research anything before acting. Go to http://www.sec.gov/ and research the stock. Second, if I knew the secret to making millions or I knew the next big thing, I wouldn’t tell anyone. Once you tell everyone, the secret is out and ceases to work.

Here is a link to the article.