How to Avoid Common Penny Stock Scams

Penny stocks are a great way to make money in our current uncertain economic situation. To be successful, it does take quite a bit of research, knowledge and …

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Penny stocks are a great way to make money in our current uncertain economic situation. To be successful, it does take quite a bit of research, knowledge and investment experience though. Most importantly, penny stock traders need to know how to avoid the scams. Listed below are a few great ways to avoid common penny stock scams.

  • Get Real Investment Experience
  • Hang up the Phone
  • Send That Email to the Spam Folder
  • Do Your Own Research

Get Real Investment Experience

Most successful penny stock traders recommend getting plenty of experience first. Traders should be able to scan balance sheets and income statements easily and quickly. It shouldn’t be a laborious process either. If new traders find the prospect of reading cash flow statements rather tedious, it’s too soon to start trading penny stocks. Penny stock traders need to be incredibly well versed to avoid the scams. Getting started with mid-level and large-cap stocks is a great place to start. There are just so many scams floating around the penny stock market. Experience pays.

Hang up the Phone

If somebody is calling with an amazing too-good-to-be-true offer, hang up the phone. It’s a scam. It’s absolutely imperative to do one’s own research. Why would a person call out of the blue to help another person financially? They wouldn’t. This is a classic tactic for “pump and dump” scammers.

Send That Email to the Spam Folder

Equally important, don’t purchase any penny stocks from email advertisements. These marketing letters can often be incredibly enticing. The scammers have probably spent big bucks on copywriters to sell bad penny stocks to each and every person who has the misfortune of opening his or her emails. Never take penny stock tips from unknown emails. Don’t pay for advice or subscribe to special information letters either. It’s never a good idea. Do the necessary legwork and research. “Pump and dump” scammers frequently use email marketing as a tactic to solicit unsuspecting traders.

Do Your Own Research

This is the most important part of protecting one’s self form common penny stock scams. Research everything. Don’t take advice from anybody. The best traders become incredibly successful by the hard work and hours of research they put in. They don’t rely on anybody else. They study balance sheets obsessively. They are incredibly adept at reading income statements. They begin to recognize and predict trends.

Additional Consideration

It’s so important to know what to avoid. If a penny stock isn’t traded on a major U.S. stock exchange, don’t buy it. If a company has less than $10 million in annual revenue, avoid those stocks like the plague. Additionally, if it’s impossible to figure out what a company actually does, don’t trade the stocks. Finally, if it sounds too go to be true, it probably is. With a little bit of research, experience and skill, it is possible to do very well with penny stocks.

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