Whether or not you’ve been following me for a while you will notice that not only am I passionate about investing and sharing what I know (and what I continue to learn) with the world. I am also very passionate about educating others on how to avoid falling into traps when It comes to their money.
During my investing workshops I often bring up a show I encourage people to watch – American Greed – this show is very good and very scary. It provides real life stories on money scams by unscrupulous individuals that offer innocent and well-intended people impossible returns on investments only to subsequently leave people empty handed.
The good news is that most of these scammers end up in jail. The bad news is that by the time the crime is discovered some people have lost their entire life savings.
If you’ve been following the blog for some time you know I previously wrote a post about IPOs and how I feel about them. If you missed it, you can check it out here.
In that particular post I focused on the type of IPOs that come from legitimate, regulated, companies that MIGHT even have potential to be good investments in the LONG term.
I explain that, regardless of the company, avoiding IPOs is one of my personal investing rules and is something that has saved me a whole lot of money and headaches over the years.
Whenever I see an email in my inbox about “IPO is launching soon, you can buy it now” – my skin crawls. I get nervous for the people that might buy into these advertisements.
In this particular post I’d like to shed some light on something called “Pump and Dump” fraud. I want to make sure the GOTM community is well aware of the dangers they can face due to lack of information and falling into the traps of unscrupulous individuals.
I have noticed that social media (and email) are tools that can be used by pretty much anyone to create hype about so called IPOs that aren’t even from legitimate corporations – just a group of people claiming to have discovered or created the “next best thing” and looking to RUSH people into buying by instilling the fear of missing out. This is the reason why I felt the need to write a follow up article.
First – I’d like to share the definition of Pump and Dump as outlined in the SEC’s website – the government entity responsible for regulating investments and protecting the average investor, people like you and I, from fraud.
Read this carefully:
Pump-and-dump” schemes involve the touting of a company’s stock (typically small, so-called “microcap” companies) through false and misleading statements to the marketplace.
These false claims could be made on social media, as well as on bulletin boards and chat rooms. Pump-and-dump schemes often occur on the Internet where it is common to see messages posted that urge readers to buy a stock quickly or to sell before the price goes down, or a telemarketer will call using the same sort of pitch.
Often the promoters will claim to have “inside” information about an impending development or to use an “infallible” combination of economic and stock market data to pick stocks. In reality, they may be company insiders or paid promoters who stand to gain by selling their shares after the stock price is “pumped” up by the buying frenzy they create. Once these fraudsters “dump” their shares and stop hyping the stock, the price typically falls, and investors lose their money.
When receiving these “Buy Now” announcements right in your inbox you might see it as a “God-sent” opportunity to make some money when the reality is quite the opposite.
At the end of the day I cannot tell you what to do. You always have the ultimate say in ALL of your money decisions but please be aware of the dangers, especially when it comes to these types of investments.
PLEASE know that by not investing in IPOs you are not missing out on anything other than probably losing your money very quickly in the short term.
If the business launching the IPO is from a company or service you are legitimately interested in, or that seems “promising” there is nothing wrong with waiting things out and seeing what happens as oppose to rushing into things.
I FIRMLY believe that if the product or service is as amazing as they claim it is – it will be around for a long time.
I rather you focus on real businesses with a real track record than putting your hard earned money into things that have not really proven themselves other than to “insiders” that most likely just want to make money off of you.
Please be cautious.
Cheers to profits!
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