It is accurate to say there’s no chance of getting rich off blue chips, not on one roll of the dice. The stocks are too pricey and seldom move much. Penny stocks have therefore always been a heaven for folks wanting to hit it rich on a small investment and pls remember : con men is there as well, to take advantage of people’s greed.
It’s true that for a comparatively small amount of cash, you can conceivably hit the big time and make several thousand ringgit off a penny stock. There is that chance but it’s so infinitesimal, it’s about the same as hitting a lottery. Little investors like us in the penny market are minnows swimming with sharks. The game is rigged against us, in favor of the big boys.
The stock market, not just the pennies, has always benefited the privileged. There are always con men and hustlers in the penny markets. Many are running companies. An investor buying into a con or scam has almost no chance of making any money if he’s holding for long-term appreciation. In fact the odds are extremely high he will lose a large part or all of his investment. Very few penny companies ever become successful and make any money, even the legitimate ones. It’s a tough world out there with stiff competition. holding long-term on straight companies then is also almost always a losing proposition.
You have no friends in the penny markets. The companies were started by individuals to make money for themselves, not those folks buying the company’s stock. When it comes down to a company owner making a decision to put cash either in his pocket or his stockholders’ pockets, you can guess which way he will decide. Don’t ever expect a company to sacrifice its own best interests in favor of its stockholders. It doesn’t happen.
Company owners, officials, PR and IR guys, other organizations such as PR firms and consultant agencies working for the company, investment newsletters and people on the penny chat sites,forums including some of those running chat sites will lie to you, again and again if you buy their hype. Company PR~s are often full of hype and grandiose language, predicting magnificent developments, just around the corner for the firm. I call it weasel talk from Scott Adam’s book Dilbert and the Way of the Weasel and the book by Paul Wasserman and Don Hausrath, Weasel Words: The Dictionary of American Doublespeak.
Weasel talk allows companies and their cohorts to distort the truth in an effort to pump the stock’s price. The language is sufficiently vague that the company can’t be legally held to what they appear to say. Remember too that every PR has the safe heaven statement at the bottom, plainly stating that everything above it may not happen. It’s a caveat emptor warning.
Some penny companies, often times more than you would suspect, are nothing more than pump and dump schemes. The problem with pump and dump schemes is that often no one can tell for sure until the scam has run its course. It’s too late then for investors holding the stock when it collapses. The typical tactic of pump and dumps is to hype the stock for as long as they can. Then when the grandiose PR~s, ads and appearances by the CEO~s fail to further generate any interest, the stock price is allowed to drop very low. The company then pulls a reverse split, always with a symbol change and sometimes with a change in company name and business plan. Then the pump and dump starts again.
Penny stocks can and are manipulated by the corporate buaya and other people of influence, with the big bucks and power to do so. The buaya-s have some leeway and have all the information in front of them about what a stock is doing, which way it’s moving, the number of buy and sell orders at what prices, etc. They got it all, so they can within limits manipulate a penny stock’s price.
If you had all the information they have in front of you, making money in the pennies would be easy. Ironically, if you play the penny market smart, you’ll probably never get rich, since when you got a nice profit, you’ll sell. Big rewards require big risks, as they say, like holding onto a penny stock for long term, hoping the company is honest, competent and competitive. Few penny companies however will ever deliver the pot of gold at the end of the rainbow.
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