How much do spam emails affect penny stocks?

Question

I am a beginner experimenting on the virtual stock exchange, and I read somewhere about a guy who tested out how well the penny stocks mentioned in spam emails do in the long run. He tested about 37 and in about two months his portfolio had already dropped 52%. So, the point of the article was to tell people to stay away from such scams. I was curious, however, as to whether it is a good idea to short sell these stocks after the build up. Please share your opinions, and also, if you happen to know how to get such spam mail (as funny as this sounds), would you mind sharing it with me?

Answer 1

This type of scam is also referred to "Pump And Dump". It's very difficult to short sell because they aren't traded on any major stock exchanges and are very thinly traded.

As simple investing knowledge, the practice of short selling is the practice of borrowing stocks from your broker and a SEC requirement to be on margin. Since these stocks are "dumped" and sold off it's most likely your broker won't have shares for you to borrow. Since it's on margin on the broker's dollar, they probably won't let you.

Personally, I wouldn't attempt to short sell penny stocks if I could. You run the risk of these stocks being canceled as the company is paying these e-mail scam companies to create a hype. They attempt to inflate the stock then the issuing company "dumps" and sells off the shares. The company typically dissolve themselves shortly after and the stock being canceled and you're the total loser in the end. Why else would a company do this? The answer is because they're going under!

Do what you will but it's a bad idea and not to mention these practices are illegal by SEC regulations.

Answer 2

Sounds like a good thing to short, if you can.

First, the spammers are employed by someone who has bought enough to make an obvious run-up. Then you get the emails. Well, if you are placing buy orders, who do you think is going to sell the stuff? The guy who is unloading what he bought which ran up the stock.

Second, for the semi-serious "tips" from stock pickers that want to sell you newsletters and books, THIS IS IMPORTANT, the run up of price after the emails is a similar effect but anticipated for SHORT TERM gains. Whether news or new discovery reports as the basis, in a day or two, or week maybe, the run is over, now we all run for the exits and the last ones out are left holding the bag.

That is where the real investors come in. If you are a short term trader, you've got to work quick. If an investor, then you pick up the crumbs for cheap.

Either way, if you can't find information on the company, leave it alone. If you can, decide: for the very short term, or simply wait for it to fall and get it cheap for when things materialize and actually bring in money.

Answer 3

I have done the same thing just for laughs. The day after the spam hits there will probably be a small bump in the price, after that it crashes. I did come across one, only one, that made decent gains, but it wasn't the barn burner the spammer promised. There is another service that alerts subscribers to spam campaigns to advise them to sell the stock short in anticipation of the coming crash. You can check these stocks out on the pink sheets. It classifies most of the spam alert stocks as buyer beware. If you know how to read a financial statement, you will find most truly frightening.

Answer 4

You cant short penny stocks because their float is so small they can easily be manipulated (thus the emails).