There’s starting to be some chatter around penny stocks, and every time folks start talking up penny stocks, a bunch of people loose a lot of money. In fact, collectively they lose 50-75% of the total market cap in the process. How is that possible? I’ll use an example that has been on this website the last couple of days, MVIS “Microvision”.
On Sunday, there was a post on this board To “Put your life savings in $Mvis (microvision) Monday pre market or asap and dump Thursday before 5pm. You will make a lot of money. Thank me later”
On Sunday night, the stock was at $.44, and but the time you could actually buy the stock in a limit order at pre-market, it was $.92( there was one small order accepted at $.89, but it immediately went to $.92) So, the cheapest price at which someone could take the “hot tip” was at close to twice the price that the “tipster” had the stock at. I imagine this same tip was being spread on message boards all over the country simultaneously. Here’s why:
Average trading volume between April 1-April 28- Roughly 4 million shares per day
Average trading volume Mon and Tues- Roughly 245 Million shares per day
As the pumpers got the word got out, and everyone jumped in, the stock rose to a high of $1.74 early Tuesday. Yesterday at 3:20, the same tipster told everyone, “I hope you didn’t get weak hands and sell, it’s going to boom again tomorrow”. Still pumping.
I asked the tipster what his exit price was, and he said that he didn’t know, $2 or $3, whatever it is near close on Thursday.....again hinting a new run. At that point, the stock had dropped all the way back to $1.13, and it opened today at just under $.87, $.05 less than the lowest price you could have purchased the stock at once the tip was made.
So, more than 500,000,000 shares of this company were bought between $1.00-$1.74, cumulatively over $700,000,000 for a stock with a market cap of $26,000,000 on April 1. A bunch of folks, in the “accumulation phase” made a ton of cash. How much? One April 1, the alpha purchased approximately 50,000,000 shares at an average price of $.20. On April 2, the second batch, around 18,000,000 shares were purchased at Over the next 26 days, the accumulation phase, a relatively small number of buyers accumulated an additional 18,000,000 shares at an average price of $.26, then, during the accumulation phase, another 50,000,000 shares were purchased in dries and drabs at an average price of $.25. It appears that the group in total controlled roughly 118,000,000 shares of the 130,000,000 total shares outstanding and the 126,000,000 float. This weekend, the marketing phase started. On TIF, blogs, and websites all over the place, there were people pumping the stock while allowing a very limited supply to enter the market. It creates a feeding frenzy. They tell you when to sell ahead of time so that they seem to have the great inside knowledge. Then, somehow, when that time comes, the stock has already fallen below where you purchased it. As we speak, the stock is at $.84, and the pumpers appears to have made somewhere in the neighborhood of $63,000,000. The market cap right now is $109,000,000.
So, why doesn’t the SEC go after these folks? Well, they do, but they have limited resources like everyone else. These stocks are not widely held. They aren’t significant holdings in mutual funds, pension plans, or 401k’s. So, they get triaged. The SEC focuses enforcement efforts on widely held companies where they can protect the most people. It’s kind of like the DEA letting the punk on the corner sell a few joints because they are focused on the cartels.
Bottom line: Buy penny stocks at your own risk. Extraordinarily risky, and very few true investment professional investors do anything in this space. When they do, and they recognize what is going on, they by puts during the accumulation phase and collect when it crashes. Good luck and be smarter than the tipsters. You earned that cash!
On Sunday, there was a post on this board To “Put your life savings in $Mvis (microvision) Monday pre market or asap and dump Thursday before 5pm. You will make a lot of money. Thank me later”
On Sunday night, the stock was at $.44, and but the time you could actually buy the stock in a limit order at pre-market, it was $.92( there was one small order accepted at $.89, but it immediately went to $.92) So, the cheapest price at which someone could take the “hot tip” was at close to twice the price that the “tipster” had the stock at. I imagine this same tip was being spread on message boards all over the country simultaneously. Here’s why:
Average trading volume between April 1-April 28- Roughly 4 million shares per day
Average trading volume Mon and Tues- Roughly 245 Million shares per day
As the pumpers got the word got out, and everyone jumped in, the stock rose to a high of $1.74 early Tuesday. Yesterday at 3:20, the same tipster told everyone, “I hope you didn’t get weak hands and sell, it’s going to boom again tomorrow”. Still pumping.
I asked the tipster what his exit price was, and he said that he didn’t know, $2 or $3, whatever it is near close on Thursday.....again hinting a new run. At that point, the stock had dropped all the way back to $1.13, and it opened today at just under $.87, $.05 less than the lowest price you could have purchased the stock at once the tip was made.
So, more than 500,000,000 shares of this company were bought between $1.00-$1.74, cumulatively over $700,000,000 for a stock with a market cap of $26,000,000 on April 1. A bunch of folks, in the “accumulation phase” made a ton of cash. How much? One April 1, the alpha purchased approximately 50,000,000 shares at an average price of $.20. On April 2, the second batch, around 18,000,000 shares were purchased at Over the next 26 days, the accumulation phase, a relatively small number of buyers accumulated an additional 18,000,000 shares at an average price of $.26, then, during the accumulation phase, another 50,000,000 shares were purchased in dries and drabs at an average price of $.25. It appears that the group in total controlled roughly 118,000,000 shares of the 130,000,000 total shares outstanding and the 126,000,000 float. This weekend, the marketing phase started. On TIF, blogs, and websites all over the place, there were people pumping the stock while allowing a very limited supply to enter the market. It creates a feeding frenzy. They tell you when to sell ahead of time so that they seem to have the great inside knowledge. Then, somehow, when that time comes, the stock has already fallen below where you purchased it. As we speak, the stock is at $.84, and the pumpers appears to have made somewhere in the neighborhood of $63,000,000. The market cap right now is $109,000,000.
So, why doesn’t the SEC go after these folks? Well, they do, but they have limited resources like everyone else. These stocks are not widely held. They aren’t significant holdings in mutual funds, pension plans, or 401k’s. So, they get triaged. The SEC focuses enforcement efforts on widely held companies where they can protect the most people. It’s kind of like the DEA letting the punk on the corner sell a few joints because they are focused on the cartels.
Bottom line: Buy penny stocks at your own risk. Extraordinarily risky, and very few true investment professional investors do anything in this space. When they do, and they recognize what is going on, they by puts during the accumulation phase and collect when it crashes. Good luck and be smarter than the tipsters. You earned that cash!
