Pump and Dump: Don't Fall for the Trap

The year 2008 was definitely not the best for most stocks and Penny Stocks are one of the worst hit. This post is to specifically warn my readers about a certain threat in 2009. Several large brokerages in India have lost millions in Penny stock holdings and I have come to know from my friends in the market that the year 2009 will witness widespread use of the Pump and Dump strategy to trap investors.

"Pump and Dump is a form of microcap fraud that involves artificially inflating the price of a stock through false and misleading positive statements, in order to sell the cheaply purchased stock at a higher price". (Source: Wikipedia)

So don't fall for a call or an e-mail by your broker this year if he claims to have some inside information on a stock or assures you very high short term returns. You just might fall victim to an oversold stock while your brokerage house mints money in the process.

Be Informed. Be Safe. Be Smart