International Investment scams should be avoided.
Yesterday’s message looked at wisdom provided by readers on why one should avoid shorting scams on international investments.
Last week an alert reader gave me pause for thought when he sent me this message. Is this a way to make money off this spam?
“Hi Gary, I know a while back you talked about Penny Stocks and the spam that one often receives about them. Well I get a lot of these spam e-mails, all promoting that I should buy them. For about a year or more I have been filing these (for amusement purposes) and didn’t pay much attention to them until today. Well today I checked every single one and more than 95% of them have collapsed to being almost worthless. One stayed more-or-less steady since the recommendation, and just one stock actually increased (it doubled). Certainly good evidence to never BUY these stocks.
“But the collapse of 95% or more of these stocks has me wondering if I should ‘short’ these stocks every time I receive a ‘buy’ recommendation. If an $.80 stock collapses to, say, $.02 or less, the profit is obviously awesome. The only thing I don’t know about ‘shorting’ is if the underlying stock collapses and stops trading (or falls to just a fraction of a penny), do I need to buy it back to square away my position? I’d be interested in your thoughts on this, although I expect you are going to tell me to stay away from all of it! But the odds look amazingly good, and I’m intrigued by it all. I’ll certainly continue to watch these things. With the U.S. market looking top-heavy, I’m inclined to think that shorting these collapsing stocks might get even better. Thanks,”
I asked readers to comment on why or why not and we look at numerous replies in yesterday’s message. Here are more of your thoughts about this.
International Investments Thought #1:
“Gary, Regarding your message on shorting, a March 9, 2007 New York Times article entitled ‘S.E.C. Moves Against Spam That Pushes Hot Stocks’
By BRAD STONE says: The S.E.C. suspended trading in 35 stocks promoted in recent spam campaigns and said further investigation could lead to arrests.”
This alone is a good reason to stay away from spammers. Anyone who makes money from people who lose through fraud are at risk. Even innocent investors in Ponzi schemes often find themselves and their asset being pursued by losing investors or authorities.
Another reader shared this thought.
International Investments Thought #2:
“Gary, Dear Gary: This is difficult, because you are presenting a moral dilemma. I am well aware of these penny stock spasm. My understanding is that these folks load up on extremely cheap stock, create a market for the stock, and sell into that market. For those with historical interests, Lefevre wrote a book (he was likely Jesse Livermore, the great Wall Street bear at the turn of the century) concerning this. Livermore made several fortunes, but destroyed his family, and ended up committing suicide in a famous New York hotel. His gorgeous Long Island estate, complete with yacht, sold for ten cents on the dollar at a tax deed sale. This entire process is of course extremely dishonest. If I read my old testament correctly, we should be shorting these stocks in order to financially punish the people pushing them, but my inclination is much as yours: you play with snakes, you better be immune, because you might get bit. Cordially, Karl”
Here is another idea shared:
International Investments Thought #3:
“Hi Gary. I found your reader’s thoughts on “shorting internet scam stocks” interesting. You touched on a very important issue. I agree entirely with your thoughts that too many people focus ONLY on making money instead of working at something they enjoy that ALSO makes them money. I believe if your passion is for doing something that is NOT your profession, then you are in the wrong line of work. I think that is a cause of much unhappiness and frustration among many people. Best regards to you Gary.”
Here is what a penny stock trader thinks:
International Investments Thought #4:
“Dear Gary, I have had a lot of experience with penny stocks and I would like to give some tips. I make my living from this trading.
“#1: individual investors can’t short stocks under $1. Broker dealers, and esp. Canadian broker-dealers can short these stocks. So the bias is that they probably will collapse in price, as experience has shown, given some time, because the “big boys” behind the scenes will short the stocks because they know the companies involved can’t get enough buyers to fight the dealers’ campaign to drive down the share price.
“#2: It is a corrupt industry. Companies get taken over in “reverse mergers” by shell companies and are then publicly traded. The principals are out to make money and then get out, the ‘great idea’ behind the company usually doesn’t prove enough to keep the stock price high.
“#3: A lot of forces are behind the collapse of these stocks: hedge funds ‘naked short sell'(shares they don’t own, esp. through Canadian broker-dealers and other offshore accounts). The SEC doesn’t investigate or prosecute. It is a highly unfortunate scenario, because big, powerful interests behind the scenes are bankrupting even good, socially beneficial companies (a minority for sure of penny stock companies!) by selling vast amounts of shares, driving down the price of the shares so they benefit from their shorting, or they end up with a shell company for free.
“However, if a person knows how corrupt this field is, he can also benefit. I know my secret has been to buy correctly, very low. And then sell half when the stock doubles, and let the other shares ride higher and slowly sell them off. I never sell properly, but if I buy well, I will make money.
I have had many stocks gain 5 to 8 times the amount I paid, and I didn’t sell!! I have learned that if you are lucky enough to get gains like this, sell at 5 to 8 times. But do sell half the shares when it doubles, first.
Stop losses will not work. If you are buying correctly, the stock should have formed a base, or been dormant for awhile.
“Money management is everything. Don’t risk more than you can lose. I have more losers than winners, but I only put in $400 on each stock. I can lose a few and then have one of those $400 investments go to $15,400.
“Know your Vedic Astrology. If you don’t have it in your chart to make money through speculation and it causes fear or anxiety, don’t do it! Timing is everything. See Blaine!
“Your reader is right, I do follow the history of low cost stocks: in a year, they ALL will be way, way down or delisted. So follow the volume and get out when the volume starts declining.
“Pay attention to the promotions through the pump-and-dump emails only to learn what might be hot right now. Don’t believe them, for God’s sake! Go to www.pinksheets.com and look at Research for Shares under $1, and volume leaders. Look at the chart of the stock, and if it has already gone up, don’t chase it, forget it, you are too late.
“The email promotions are invariably pump and dump schemes….. someone is selling into the demand created by the email marketing. I have never bought into any of these, assume they are all losers, don’t touch them.
“And forget shorting. Even if you could, it is so hard to get it at the top.”
“Hope this is helpful. I love your emails, want to visit Ecuador sometime.
Hope you continue to thrive and be happy. Keep up the good work! All the best to you and Merri, Greg”
Another reader points out that even if it could work it would just be wrong.
International Investments Thought #5:
“Gary, If one could short a stock after seeing the price go up (after the email has gone out and people begin to purchase it), he is selling to the victims who still get roped by this scheme, and selling around the same time as the spammer. That kind of rubs me the wrong way, because it feels like one would be complacent with the scam.
“Now, what happens if people short the stock instead precisely when they get that email? In a perfect world, the price goes down, and the spammer loses money. His scheme backfires on him. If this happens enough, he will stop sending out those spam emails. Of course, we do not live in a perfect world, and this greatly oversimplifies things – after all, the ones who short the stock eventually have to exit their positions by buying it back, thus driving the price up. Some people will profit, some will have a loss, and some may be lucky enough to get out even. If the spammer realizes what is going on, then he will simply wait out his loss, knowing that the price will come back up when the shorters exit their trades.
“In the end, it is probably best to delete these emails and pay them no further mind. You could make money, you could lose it, or you could break even. Even though you are not actively playing part in the scam, you are still profiting from it (if you or lucky), and something just feels wrong about that. Playing with fire will likely get you burned. Ryan”
I could not agree with Ryan more. Let’s make money from products and services we love and enjoy providing so that everybody wins form the process.
To this end you can see how readers are making money with Ecuador Import-Export Opportunities.
Until next message may you enjoy never ending wealth!
You can also get these low fares to Join Steve, our man in Ecuador, April 20 – 25, Friday to Wednesday for the Spring Ecuador Import-Export Course
Can’t make Ecuador? Our International investments and Business Course will be updated May 25 – 27, 2007 in North Carolina. Thomas Fischer joins me to update global economics there. We’ll also look at Ecuador Import Export Opportunities.