If you are someone who is thinking about investing or trading in Penny stocks, you must definitely learn about the story of Goff Corp. This is a classic story of the hyping of Penny stocks by promoters.
The company started trading in March 2013 at $0.37. Then, the price surged ahead to reach $0.58 within just 2 weeks – that’s a whopping 57% returns! But within the next month, the price of the stock cratered to $0.02 – an unbelievable -96% decline. Currently, the stock price is at a lifetime low of $0.00090.
So, what exactly prompted the massive surge in the price of Goff Corp soon after its launch? The company did not have a record of even a cent in revenue – yet it moved by more than 50% in a short span. The answer is – it was cleverly managed scam. And the investors fell for it, line, hook, and sinker.
So, how do scammers inflate stock prices? They do not have a single way of doing it – they take a multi-pronged approach. Here’s the basic blueprint of such scams.
- First, there would be a massive amount of paid promotion for the company. You will see blogs, news articles, TV hosts, and new and self-proclaimed ‘expert analysts’ saying that the penny stock is ‘poised for a surge’.
- Then comes the second wave of promotions – other websites quote the previously published stories and say that the stock will have a high price target in a short while. For instance, Goff Corp was rumored to reach $4 ‘in a short time’ by stock hypesters and bloggers.
- Quite soon, many unwitting, greedy, or naïve investors start to believe that the story of the ‘next big surge’ of the stock is true and invest in the stock.
- Once the stock price starts to zoom ahead, original promotors and hypesters quickly exit their stake, leading to a free fall in the stock price.
The bottom-line? Watch out for the talking heads, as they MAY NOT have your well-being in mind.
When a stock is getting aggressively promoted, it is always best to take a step back and research more about the company. You must check the financial status, important financial ratios, annual reports, as well as many more things before finally investing in the company. A detailed explanation of this checklist for shortlisting genuine penny stock winners is covered in our popular course – How to Become a Professional Penny Stock Trader.
Even if the disclaimers say that the funding for the reports regarding the penny stock company was done by a third party, you must assume that the company is indirectly involved in the funding. Here is the general rule of thumb – If the TV or news reporter speaks too much about the future price surge of the penny stock and very little about the company financials, numbers, and roadmap for accomplishing that price, it is 99% guaranteed to be a scam!
Another important point to note is that well-known websites and credible news and TV channels do not usually talk about ‘possible upcoming surge’ of penny stocks unless it is backed by strong reasons and company financials.