A Tale Of Penny Stock Insanity…

| February 28, 2012 | 0 Comments

If you’ve been following our Pump And Dump Friday Alerts, you know all about North Springs Resources (NSRS).   This gold exploration company has been hyped up since early December of last year.  Of course, they don’t have any revenue or profit, and are millions of dollars in debt.

But somehow, in that short timeframe, shares of NSRS soared from just $0.10 to over $1.60!  That is, until shares recently collapsed down to $0.17.  I’ll get back to NSRS’ share price later…

Interestingly, the pumping scheme going on has turned NSRS into one of the more actively searched penny stocks on Google.  And in the process, it’s ensnared many average investors’ hard-earned cash.

You see, I’ve been doing my best to write up compelling articles… exposing the truth about NSRS.  But it’s difficult to counter the massive, multi-headed hydra that is the pump and dump hype machine.  And while it’s a thankless job, I hope to save everyone from making a huge financial mistake.

This is where my story comes in, which I don’t think you’ll believe.  In fact, I still can’t believe it either.  Here it goes…

Two weeks ago, I was driving back to my office after running an errand, when I received a call.  And seeing it was a relative, I decided to take the call (on my built-in, hands-free Bluetooth of course). 

It was my nephew calling, and he was actually looking for advice on a penny stock.  That was a new one, as I’ve never discussed specific penny stocks with him before.

My nephew starts off, “I’m calling you up to see if you know anything about this stock my buddy told me about.”

I asked, “What’s the ticker symbol?”

“It’s NSRS.”

I honestly couldn’t believe it.  This tiny penny stock, which would normally be on no one’s radar, was now the company in question, by my own nephew.

I’m going to interrupt the story for a second here…

It just goes to show you how powerful these penny stock promoters are.  They’ve reached a member of my family, who I know is an intelligent and well-educated business professional.  As a regional software sales manager, he makes a six-figure income.  He has a great wife and family… and by no means would you qualify him as “desperate” to “strike it rich”.

Back to my story.

In my excitement to share my wealth of knowledge on NSRS (as I’ve been researching and exposing them for months now), I spouted off as much compelling information as I could in as little time as I had.

“They have $16 in cash as of their last financial statement, they have no revenue, and they borrowed $1million at 10% to finance their latest mining project…”  On and on I went.  I felt like a beacon of white light, cutting through the fog of the pump and dump machine.  I was sure my nephew would be amazed at my depth of knowledge about NSRS.

Then it struck me…

Did my nephew actually own shares of NSRS?  I went completely silent.

“Interesting”, is all he replied.

After continuing to bash NSRS up and down for 10 minutes, I sheepishly asked, “Did you buy some of these shares, or are you asking for a buddy?”, as to give him an opportunity to save face.

He replied, “My friend owns thousands of NSRS shares, and I just bought a couple hundred dollars worth.” He continued on, “Don’t you think they’ll rebound, since they’ve sold off so much?”

My mind was racing fast as I was putting the pieces of the puzzle together real-time.  “He bought shares because one of his buddies recommended them.  He didn’t do any research and relied on the pumper’s emails he was probably forwarded.  He figures he’d make a fortune if they kept running like they had.”

Early on, I said I’d get to NSRS’ share price.  And here’s where it comes into my story.

When the pump and dump first started, shares had risen steadily for weeks.  And as they always do in a pump and dump scheme, they went hyperbolic short-term.  They shot up from $0.60 to $1.60 in just a week’s time. 

If you’re not thinking it by now, I’d be surprised.

“Well how much did your nephew pay for his shares?”… right?

The absolute truth remains a mystery. 

After enough harassment, and from what I could get him to admit, he paid roughly $1.00 a share.

Now, his phone call came to me after NSRS shares plummeted two days in a row, down from $1.62 to nearly $0.50.  The day we were on the phone, shares were already down near $0.45… so time was running out here.

I chose my next words wisely and spoke them as plainly as possible…

“NSRS is a pump and dump scheme.  If it rebounds at all, sell your shares and take a $0.50 loss per share if possible.”  I continued on, “If anything, you have a few days to a week to see a rebound.  NSRS is in the midst of making a classic pump and dump formation, so you will get a small rebound.  And when it happens… sell all you have, and tell your buddy to do the same.  Trust me on this one, I see this all the time!”

“Interesting”, is all I hear back.

When I said you wouldn’t believe my story, this is the part you really won’t believe…

This time, my nephew’s response was a bit more involved.  “Well, I think I’m going to hang on to the shares.  You never know what could happen.  And besides, it’s only a couple hundred bucks we’re talking about.  So what’s the point of selling for such a big loss now?”

Correct me if I’m out of line here… but considering I research and write about penny stock pump and dumps all the time, you’d think I might have a bit more pull than the average Joe down the street, right?

If you owned shares of NSRS and had the chance to talk to a guy whose job it was to research every move NSRS makes… wouldn’t you even consider his opinion?

It was like my nephew was in a trance.   I’m not making this up in the least…

The power and allure of riches penny stocks impart on the average Joe is unbelievable.  A market professional looks at this stock and wouldn’t think twice to walk on by.  Never mind if they heard the level of research I have on NSRS…  they’d never touch it.

It’s clear now, I was witnessing two classic investment mistakes play out before my very eyes.

Number one, falling in love with a stock.

Investors can exhibit pointless hope in the face of confirmed negative news about a stock.  You hear about it all the time.  They fall in love with a company’s business or concept.  And even in the face of horrid financials, scandals, and news… they won’t sell their shares.  They’re thinking, “It will come back.”  Just like my nephew in this case.

Number two, becoming too proud to admit a mistake and sell for a loss.

Apparently this one happens at any cost.  Investors will routinely fail to take a loss and admit defeat.  They have the strange notion that every trade has to be profitable.  They somehow think, “Pro traders don’t take losses.”   But nothing could be further from the truth.

This kind of thinking is the fastest way to turn a losing trade into a losing investment.

And sometimes, like with NSRS, which is trading at just $0.17 right now… you can lose it all (well, 90% qualifies as all in my book).

It happened to my nephew, who refused to sell his shares.

Now remember, my nephew is a well-educated business professional.  He puts multi-million dollar deals together.  And he couldn’t even hear a word I said.  On top of which, he experienced both of these classic mistakes in real-time.

It’s like putting a pill in front of someone and saying, “Now this pill will kill you slowly over the next 10 days.”  The response you get is “Ok.”… and they eat it anyway.

The human condition never ceases to amaze me.

I covered a lot of material in this article, so let me recap…

  • Avoid hyped up penny stock pump and dumps like the plague.
  • Don’t fall in love with stocks.  There are thousands of great companies to buy.
  • Learn how to take a loss and move on.  You can profit with a new trade.
  • Don’t ignore the advice of your uncle who just happens to be a penny stock pump and dump expert!

And above all else… never fall victim to penny stock insanity!

Editor’s Note:  Instead of pump and dump schemes, my colleague Gordon Lewis researches real, high-performance penny stocks.  And he’s put together a penny stock portfolio that’s turning in winner after winner!  To learn more, check out his astonishing service, Penny Stock All-Stars.

Until next time,

Brian Walker

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Category: Penny Stocks, Pump & Dump Alerts, Pump & Dump Daily

About the Author ()

Brian joins the Penny Stock Research team as a seasoned independent trader and financial analyst. Brian graduated with a B.S. from the University of North Florida and now resides in Scottsdale, Arizona. With a background in economics and statistics, he has a keen ability to uncover profitable and growth-focused companies. He has years of real life know-how in analyzing fundamental and technical data that gives him an edge drilling down on companies and financial results. With over 15 years trading experience, Brian has become an expert in the ever-changing equities markets. Today, he scours the markets hunting for penny stocks that offer low risk and high reward.