How To Protect Yourself Against Penny Stock Scams

Jason Brook

Many people have been susceptible to penny stocks scams. They hear about the next great hot penny stock in message boards, emails, faxes, and from other people who claim that such and such penny stock will go through the roof. So they listen and put some money in that penny stock. Then, lo and behold, they see their investment crash and they wonder what went wrong. Then they go on to blame other people, when in fact, they have nobody to blame but themselves. Here are three ways to protect yourself against penny stock scams.

1. Take information you see on message boards with a grain of salt.

Message boards are a double edged sword. On the one hand, they can be a great source of information. On the other hand, message boards are fertile ground for wolves to prey upon the beginners. These wolves are known as "pumpers". They will throw important sounding terminology at you and come across as if to know for sure that this is the next penny stock to invest in. Sometimes these "pumpers" are none other then people paid by the hyped penny stock company to artificially inflate the price of stock via word of mouth. Use extreme discretion when deciding which information to utilize when making your final decision.

2. Disregard any mail, email, or fax that hypes a penny stock.

A penny stock promoted through unsolicited mail, email, fax might as well as label itself with big red letters spelling SCAM. Do you know any people that are all talk and no action? Penny stocks that promote themselves via spam are all talk and no action. The sole purpose of spending is to create artificial height to inflate the price of the penny stock. Then the people who promote the stock will sell their shares at a profit, thus driving the price of the stock downward leaving those who have invested recently with a negative loss. What makes the situation worse is that those same people who recently bought will hold in hopes of having the stock price rise up again, but 9.9 times out of 10, the stock price will continue to decline and they will incur a greater loss.

3. Do your own research and take personal responsibility.

If you happen to stumble across a penny stock that shows promise, don't take it at face value. Do your own research on this penny stock. What kind of services or products to the offer? How's their cash flow been over this past several years? Have they filed for bankruptcy recently? Take a look at their quarterly statements. In other words you and you alone must take full responsibility for any action that you take when it comes to putting money in penny stocks.

Follow these three guidelines and you will do well in protecting yourself against penny stock scams. 

Jason Brook is the author of The Ultimate Step-by-Step Guide to Day Trading Penny Stocks. His website can be found at http://www.daytradepennystocks.com

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