OTC-Stock.com

Most companies trading as penny stocks and most analysts promoting penny stocks are honest. They’re in it to make an honest buck. But like in any area of life, there are charlatans and fraudsters out there looking to take advantage of honest investors.

Because of the relatively low share prices of penny stocks (often less than $1), they are ripe for frauds. One of the most common is the notorious pump and dump scheme.

Pump and dump schemes involve the dissemination of false information about a penny stock in order to “pump” or inflate its price. The fraudsters purchase the stock at a low price and send out misleading  information about the stock price’s huge growth prospects causing new investors to rush in and buy. This, in turn, increases the price. The fraudsters then sell or dump the stock on the public at the higher price for a nice profit. Once the fraudsters dump all their now-overvalued shares, the price will eventually fall and the new investors will lose their money.

Because of the low share price of penny stocks, they are very sensitive to huge price swings caused by a sudden huge demand.  The advent of the Internet has enabled this pump and dump scheme to work very well. For low-to-no cost, fraudsters can email thousands, even millions, of people at once claiming that a specific penny stock is about to explode and they need to jump in now. Some even use telemarketing where they leave so-called “stock tips” (by pumping a stock) on the answering machines of their victims.

Bottom line, stocks represent businesses. Good businesses grow slowly over time. No business grows overnight. Penny stocks are stocks of young businesses that haven’t established themselves yet. They need time to grow and mature. They don’t mature overnight.

So OTC stock investing at its best should be long-term investing. Anyone who claims they can guarantee you that a stock would double or triple overnight is being less than honest. Don’t throw your hard-earned money away.

There are future great businesses to be found in OTC stocks today. But it takes in-depth research to dig them up and it takes disciplined patience to stick with them over time. If the businesses grow over time, so will their stock prices. 

Don’t get greedy and look for the quick buck from an alleged guaranteed overnight profit. Greed is what pump and dump fraudsters target in their victims.  Don’t be one their many victims.