a stock investor guide to steering clear of small-capitalization fraud

Anything involving with your money should be scrutinized well. Like any astute banker or creditor, you must check the credibility of those asking you to invest your hard earned money to their investment proposal. With so much scam online, it’s quite hard to trust easily. In fact, it can be downright suicide if you lose your sense of skepticism. You have to always do due diligences in everything that involves your money. Don’t be a guinea pig for mistakes that others will learn from.

One common investment proposal that you will find littering your inbox is penny stock offers. They are very persuasive and if you don’t think with your mind, you will easily fall to their trap of absurd return claims and ultra convincing testimonials. It gets worse if you don’t have basic financial literacy or if you do not know anything about the stock market. You will easily fall into the trap and lose your money.

Well then, how can you tell if it’s a scam? Easier said than done, really. But there are some common signs you can look out for:

Improbably high returns or “100% guaranteed” success rates are definitely terms to avoid. How else can you be convinced, unless they use such aggressive, confident-sounding words? If an email or website claims that a particular penny stock is the hottest deal around, beware. If you read a line or argument that absolutely, positively states their method is a tested, proven technique or strategy, beware. Because, in the end, that’s all it is a strategy. Seemingly foolproof guarantees like these can get you into hot water fast.

Scams are usually “for a limited time,” and are very cheaply priced. Fraudsters lure you in by declaring that the stock’s prices have gone down temporarily, to a level you can now afford this is your lucky day. Then they’ll tell you to invest as soon as possible, in fact now. Listen to their message closely, and hear between the lines. Hot penny stock picks might indeed be great but only if you trust the person or persons offering them.

Next, the testimonials and claims are often very persuasive and impressive. This should send another bell ringing in your head. Check out their claims and see if they are true. More often than not, they are lies, blatant lies at that.

So how can you tell which penny stock offers are scams? It’s not easy; but it’s not that hard either. Don’t be gullible; don’t be easily fooled. Verify the stock’s authenticity, and the credibility of the broker or promoter touting it. Check their company records, which ought to be available online; if they’re not forthcoming with their information, then there’s something wrong. Make sure the company offering the shares has legitimate state and federal licenses to do business. Always double-check to see if such companies are registered with the SEC.

Never be pressured to make an investment decision. Always give time to study the offer before making a sound decision. Success is not instant, especially with stock investments. You have to learn about stocks, and about trading. Long term is often the best strategy in stock investment. Just look at Warren Buffet.

The contributor of this column has came across a capital structure expert by the name of Josh Yudell. I believe Josh Yudell to be widely considered an expert in the fields of investor relations, SEC compliance, corporate finance and capital structure.

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