The old-fashioned penny stock boiler room operations consisted of a row of phones manned by brokers with the job of calling investors and convincing them to buy a worthless stock. The stock would appreciate in price and the boiler room broker would dump his shares to the unsuspecting investors. Boiler room victims were usually the elderly who are unfamiliar to investing and are by nature more trusting.
Today the boiler room operators and brokers have substituted the use of the phones for the internet. The internet provides the tools to reach millions of investors with the push of a button. In the time that I used to take to call one investor, the internet boiler room operator can now send an email touting a stock to thousands of investors.
Other ways stocks are sold to unsuspecting investors often under false premises is through the use of newsletters, emails, message boards and chat rooms. A thinly traded penny stock is first bought up by a group of investors. Once they control the supply they start promoting it using every available means. The stock price increases sharply due to the lack of supply since the group controls the supply. Investors continue to place orders for the stock that is being marked up by the market makers due to the high demand and limited supply. When the stock reaches a certain high point, the group dumps their shares on the investors who soon discover that the information on the stock was fabricated and that the stock was manipulated.
The best penny stocks not only have the best fundamentals, but they conduct proper promotion with their company and stock. It's ok to use the internet and related tools to research stocks, but make sure the information is not for the purpose of planned hype and manipulation like the old days of boiler rooms.
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