How the dump is exciting, isn't it? Most of the time you're looking for some sort of penny stocks, you have a very low volume and suddenly you have a surge of people just going in buying that stock and the stock price goes crazy. And you try to enter, you're trying not to miss the boat and jump in so that you can ride the roller coaster just for a little bit. Suddenly you're losing money and you got caught buying at almost the highest high. And you just realize that you have been pumped up and you are the victim of the situation. So how can you understand pump and dump and how does that work and how come it is such an unethical practice when it comes to it?

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So pump and dump is actually a tactic or a strategy to increase stock price many, many years ago. And the way it works is that you focus on some low volume, low cap stocks. That is not exactly very popular. They might not even be making money or they might not even have a product, just an idea. And then before you even release any news about that stock, you start buying a lot of that stuff. And because this is a penny stock or a low volume stock, it is very easy to accumulate a lot of stocks or majority of the stock in the market. And then you start releasing good news about it. So whether that is through sending out a newsletter that is telling you that this is a great company and you start recommending it and other people are making money, or you can make a blog post about it on social media, or even go on news article.

So on and so forth. Basically you want to get attention on this stock and people who follow that guru will basically buy that stock and basically boost up the stock price because there's barely any supply in the market. So as a result, the stock price was skyrockets. And as the stock is skyrocketing, the guru who previously bought a ton of stocks will start offloading his positions one by one. So what is going to happen? So that means the guru actually made a profit as these subscribers are coming in and buying that stock. And by the time it has gone up, there's actually no real support to the stock price. And the group has already offloaded all of the stocks and now to stock price, it's going back down. And because of that sudden jump and that sudden decrease in stock price, other smaller investors start to panic and guess what?

The stock price just goes back down to where it was originally. And that is really the cycle of pump and dump. And whenever you're riding onto these momentum stocks, they are usually very short-lived. And when you're looking at the price increase, they look very delicious, exponential, very exciting. They usually attract people who wants to go from zero to a million within a couple of months or even a couple of weeks. So when you are thinking about investing with your retirement money, you really need to take a step back and think, do I want to invest in these kinds of companies? So you want to entrust your retirement fund and these companies, because personally, I made a rule for myself. That's out only invest in companies that I'm 95% sure I'll win. And I'll always do my research to make sure that this company is a good company, is not a penny stock is not a small cap.

I only focus on investing in blue chip or medium growing companies because I know they're safe. And the chances of being pumped in dove is really low. So if you have been burnt before by a stock that is pumped and dumped, and you're stuck with a lot of shares for a penny stocks and it's time to reevaluate your strategy. And basically you want to avoid these stocks and focus on safer and more predictable companies, because when it comes to investing, here's what I find. If you are an entrepreneur, if you are a venture capitalist and you will probably want to invest in a hundred companies and one or two or three of them will work out. But if you are a regular investor, you're investing with your retirement money. You want to invest in companies that you will know, 90% will work out. You're not trying to be a venture capitalist. You're not trying to be an entrepreneur where the odds are stacked against you. You want the odds to be in your favor. So then when you're investing 90%, you're going to be making money and that's going to give you better sleep at night. And that will also make you a more profitable investor. So avoid pump and dump stocks.

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