How To Identify and Avoid Pump and Dump Schemes

Aug 9 • Finance • 495 Views • Comments Off on How To Identify and Avoid Pump and Dump Schemes

Hype is a dangerous thing, especially when it comes to investing. It’s not uncommon for people to build hype around a stock so that many new investors rush out and purchase several shares. Unfortunately, this is not what investing is all about. Investing is about putting your money behind companies you believe in and sticking with them for the long haul. If you’re interested in getting rich quick, you need to look for another method. Pump and dump schemes are not about making you rich, they are about making current shareholders rich. Learn the facts before you invest.

How To Identify and Avoid Pump and Dump Schemes

What Is a Pump and Dump Scheme?

Have you ever heard bloggers, TV analysts, and a number of other go crazy over penny stocks? They claim it’s the must-buy stock of the week and one that will definitely make you money. Soon, the stocks are selling like crazy. These same people warn you not to wait too long. The price goes higher and higher, but all at once the bottom falls out. What happens is that owners of the stock build the hype and then sell their own stock when prices are high. In other words, they pump lots of hype into the company and then dump the stock on unsuspecting investors.

How Can They Be Identified

First consider the source the information is coming from. Is this is a reputable source? Another thing to consider is whether or not you seem pressured to buy the stock. Is everyone making you feel like this is a once in a lifetime chance and that you’re going to get rich quick? According to experts like Timothy Sykes, you should also consider the company you’re buying stock in. Small companies are usually used in these schemes because their stock is easy to manipulate because there’s no information for investors to look into.

How Can I Avoid Them?

The first thing you need to do is avoid the hype. Invest in companies that you believe in and have researched. You should also carefully consider the source you get your investing information from. Getting information from bloggers and even TV analysts can cause you to buy into the hype. This information may very well be crafted by shareholders that want you to buy the stock to increase the price.

Investing in stocks is a great way to build a strong retirement fund. It is not meant to be a get rich quick option. If you want to invest in stocks, be careful in the choices you make. You need to carefully research companies and only take advice from legitimate sources.

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