The Dangers of Heeding Penny Stock Alerts

Penny stock alerts are a useful way for any investor to keep up-to-date on the events of the penny stock market.

They allow an investor to know which penny stocks are currently on the rise and occasionally, spread information about their positive or negative qualities. But not all alerts can be trusted a hundred percent. Before investors even get into the penny stock trade, they must be equipped with a full understanding of the risks involved.

Penny Stock Risks

Penny stocks look very tempting because it is easy to invest in them- one does not even need a large capital. For people who have dreamed of starting their own business but cannot afford it- this looks like a dream come true. Also, there are many miracle stories about people who have struck it rich just because of the penny stock trade.

But there is another side to the story. This is the fact that penny stocks are generally volatile. This makes it possible for them to start out well, have a few good days, and suddenly plunge or lose their value. They are, if truth be told, a high risk investment.

Despite the fact that there are penny stock alerts, not all of them are true. Many are based on speculation. This is because a lot of penny stocks do not report regularly. If they are on markets such as the Pink Sheets, they don’t have to. That makes it difficult for anybody, even the most experienced or diligent investors, to know the whole score.

Fraudulent Alerts

Knowing this, an investor may find it surprising that there is suddenly so much information about a particular stock. Everywhere one looks, whether it is on newsletters, online news updates, various websites, web forums, message boards, or the email inbox, there it is- a trove of information on a stock. Should that be enough to inspire an investor to step up and buy as many shares of that stock as he can?

If the reviews are positive- This could be indicative of the Pump and Dump scam. A group of scammers are at work here- trying to pull in as many investors to invest in a stock. Methods they use are positive reviews in newsletters, favorable comments on message boards, flooding people with email alerts, or passing around an amazing story about a certain company’s products that makes people believe it will be the next big thing.

If the reviews are negative- This could be the opposite of the Pump and Dump, which is still a scam. This may, in fact, be a very lucrative stock that the scammers don’t want people to invest in, so that they can reap all the rewards. In this case, all the negative comments they circulate about it may be false, and they may be privy to some important insider information about it.

In any case, an investor must not believe all the penny stock alerts that are going around about a certain share. If he does his own research and finds that information about this supposedly good or bad stock is vague, or that the company’s financial status is questionable, then he knows what to do.