Recently, a movie starring Leonardo DiCaprio came out called "The Wolf of Wall Street." It covered the life of Jordan Belfort, who owned a penny stock firm that got involved in "pump and dump" schemes, etc.
As you know, I've steered you clear of discussing things of this sort. For instance, back in late September, I wrote on this very topic
You see, the same stupid things that people have done throughout the years rarely changes — only the faces of those who do such dumb things change. Belfort didn't invent penny stock "pump and dump" schemes. He just took it to a very high level.
Ok, so what's a "pump and dump" scheme anyway? It's where an individual or a brokerage firm takes a position in a cheaply priced and thinly traded stock. They ease into a sizable position over time so they don't move the market too much.
Then they get brokers on the phones hyping up the stock or in more recent times, sending out email blasts about a stock like this with a really catchy story to it.
I've heard of some of them even doing "direct mailers" to certain zip codes that they feel may have the money to invest in their stocks.
But no matter how they do it, they want to be in a super-cheap, thinly traded stock . . . and they want to be in FIRST.
Then they want to encourage a ton of people in behind them, which will "pump up" the stock price and then they'll "dump" their shares once it's seen a steep rise.
They seek out a cheap stock because it's very enticing. They'll give you the story about how the stock is going from 25 cents to $10 over the next year because of some big invention or because some huge company is going to take them over.
They sucker you in and they're the ones who reap the profit while you end up with losses typically.
You see, it pulls at the greed side of man. Who wouldn't want to take $1,000 and buy 4,000 shares of a stock they believe is going from 25 cents to $10 over the next few months to a year. They'll take $1,000 and turn it into $40,000 within weeks or months.
Now, I've talked about being able to do this over the next 20 years of your investing, but never anything near term.
Quick riches tend to be fleeting. They also tend to not manifest. Why?
Well, why do stocks head up and sustain the gain in the first place? When you buy a stock, you're really buying a piece of a company. That company earns money. The higher their earnings, the more the company is worth and the more each share, over time, is worth.
However, it takes TIME for companies to increase their earnings significantly. They have to market themselves. They have to make a superior product or service. They have to spread all over the United States and globe with that product or service. This all takes TIME. And time is what these "pump and dump" schemers don't allow for.
Additionally, most large institutions are not allowed to invest in penny stocks. And they wouldn't want to even if they were allowed. It would be like a whale trying to swim in a kiddie pool.
Many of these institutions are interested in owning millions of shares. That's not appealing when a stock trades 10,000 shares a day.
Now, you see why I steer my 117,000 Ultimate Wealth Report
subscribers into some of the largest companies out there with millions of shares traded daily and that have some of the best balance sheets on the planet.
You see, everyone isn't like the Wolf of Wall Street. Some of us have a heart and a conscious.
Don't ever be confused. Every Wall Streeter isn't like 'the Wolf." Oh sure, there are self-absorbed jerks on Wall Street, just like there are in every profession.
So, don't believe the stereotypes about any group. Every plumber doesn't have their crack showing. Every Arkansan (of which I'm one) wears shoes and uses an indoor toilet. And many, many Wall Street professionals are out to help people.
Therefore, if you watch The Wolf of Wall Street, it should be a reminder for you to steer clear of shady firms and shady people. It should remind you to keep your greed in check and not try to get rich overnight.
Remember, wealth is gained OVER TIME. Just read the book of Proverbs in the Bible. It will remind you that riches are gained "here a little, there a little." In other words, it comes over time. It will also remind you that quick riches usually have a lot of sorrows attached to them. Read Proverbs. It will keep your head screwed on straight and you'll dodge "the Wolf's" of the world.
About the Author: Sean Hyman
Sean Hyman is a member of the Moneynews Financial Brain Trust. Click Here to read more of his articles. He is also the editor of Ultimate Wealth Report. Discover more by Clicking Here Now.
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