How to make a lot of money in penny stocks

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But it is possible if not legal. And in a moment, I'll show you how it's done. The new Jordan Belfort But first, let me give you a sense for how rich you can get.

Here's a glimpse at the life of John Babikian, an alleged penny stock "entrepreneur" ahem: As my cheeky headline suggests, you really can make money in penny stocks -- not by trading in and out of low-quality stocks, but by illegally pumping and dumping them!

John Babikian is on the lam. He may be in Monaco -- he left Canada amid tax-evasion allegations there -- but the SEC says his whereabouts are not known. The opt-in newsletter site that made him rich, AwesomePennyStocks. Awesome Penny Stocks may have been an unusually successful pump-and-dump operation, but it's hardly alone. GOFFthe touted stock I wrote about last yearwas pumped by PreferredPennyStocks.

These sites buy digital advertising to lure people onto their email lists. According to a Motley Fool analysis using WhatsRunWhere, a competitive intelligence service for online ad buying, from AwesomePennyStocks ran display ads on nearly every major investing website around -- Barrons. Finance, CNN Money, et al.

AwesomePennyStocks didn't do individual ad deals with these properties; it bought the placements from an ad exchange that was used by these sites. Investors in the U. Here's a typical example of one such display ad:.

It's important that these stock touts are done through email newsletters -- because users are giving permission to these firms to send them stock tips. As OTC Markets Group CEO Cromwell Coulson told Bloomberg News, "The traditional Stratton Oakmont has been replaced by the opt-in newsletter. The case of GOFF Last year, I explored other deceptive measures penny stock scammers use to dupe retail investors in pump-and-dump schemes -- including paying analysts for research reports, placing articles on investor websites, using fake celebrity Twitter feeds, and more.

In spite of my warnings, trading volume in penny stocks last year hit its highest level sinceaccording to Leuthold Weeden's Doug Ramsey. Part of that, to be sure, has to do with investor overconfidence from the multi-year bull market. But a major culprit is the opportunism of penny stock scammers like Babikian.

And these scams are getting more sophisticated. In a study of investor reaction to stock spam messages, Professors Karen Nelson, Richard Price, and Brian Rountree found that "investors appear to ignore spam messages that are nothing more than vague puffery. Professors Nelson, Price, and Rountree's study, "Are Individual Investors Influenced max forex profits the Optimism and Credibility of Stock Spam Recommendations?

Moreover, investors do not simply consider a single attribute of the message, but rather are most effectively swayed by the combination of these attention-grabbing devices, even in the presence of a disclaimer by the spammer.

Including a 1 target price alongside 2 a press release appears to be the magic formula. Investors anchor on the optimistic implied return without giving much credence to the fact that the press release could be days, weeks, or even months old. The professors found that these techniques work even if there is an honest disclosure section at the bottom detailing real or potential conflicts of interest. Let's return to GOFF for a moment to see this in stock trading veterans day. I received the following spam message from Preferred Penny Stocks on Sunday, April 7, On Friday GOFF announced that it has reached an agreement to acquire additional gold projects in Marmato that could hold as much as 20 Million ounces in potential gold!

Here's an excerpt from the press release: Historical data indicates the Gavia Property has gold potential of over 20 million ounces, based on mapping, soil samples and existing tunnels. There foreign currency rates iraqi dinar a huge amount of potential gold waiting to be discovered by GOFF on its new leases.

Even if correlation between super bowl winner stock market a fraction is recovered from GOFF, shares could stand to soar from these levels!

Short sellers that were shorting GOFF all of last week could get squeezed to death from the potential for new buyers that many expect to come hot stocks under $10 Monday.

Why be how to make a lot of money in penny stocks guy on the sidelines when you can be the guy that took home the prom queen? A similar message was sent out to subscribers of Awesome Penny Stocks, PennyStocks. I was unable to find the press release quoted in the above email purportedly released on April 5,but a verbatim version was issued on April 22,and now lives on PRWeb.

You'll quickly notice a few things about this GOFF message -- besides the ridiculousness of that last line. First, it beautifully illustrates what Professors Nelson, Price, and Rountree found -- investors are susceptible to spam that packages a target price with quotations from a press release because only trustworthy companies issue press releases, I guess? The professors found that "as target prices become excessively optimistic, trading in the targeted stock is dampened.

The stock touters try to create an illusion of believability, without dampening the beyond-the-shadow-of-a-doubt bullishness conveyed within the email message. That's why the judge who issued Babikian's asset freeze said there is a high risk "that, unless enjoined, Babikian may commit the alleged fraudulent acts again, given his control of penny stock websites and his aptitude at using anonymous email accounts, alter-ego front companies, and mass email distribution systems.

If you want to commit your investing dollars to trading in and out of penny stocks There's a poker saying that if you can't spot the sucker in your first half hour at the table, then you are the sucker.

If you're thinking of speculating in penny stocks you've seen hyped on the Internet, remember this: Brian Richards brianlrichards does not own shares of any companies mentioned.

The Motley Fool has a disclosure policy. I work on global strategy for The Motley Fool with a focus on Canada, Europe, and South America.

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