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Those Risky, but yet tempting...Penny Stocks

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Hello LLH,

I've been enjoying your Rolling Stocks web page for a few days now. I got the following unsolicited email recommending American Benefits Group (ABFG). I looked at their chart and it looks like a roller, buy at 1/2 and sell at 1. Do you agree? How do you feel about stocks promoted by unsolicited email?

Tom

From: LLH Hi Tom;

I also checked the chart and I do agree, that it looks like a roller. I recommend a Buy @.38, Sell @.60.

As far as my feelings about unsolicited e-mail; I am in disagreement with it. I'll admit though, that until I received this message, that I had never even heard of unsolicited e-mail for stocks (guess I've been leading a sheltered life.) I can only guess that it is in part, the problem in dealing with Penny Stocks. Possibly contributing to the wild fluctuation of their prices, which is normally followed by a sudden drop in price, seemingly right after you have followed the trend and bought up a bunch of it.

My guess is that the intent behind the advertising of this stock, is an attempt to build up some interest in the company, thus causing an increase in the amount of trading, of the company's stock. Those, who are the instigators of the process, will generate as much hype as possible, (much ado about nothing) having already bought huge amounts of the stock at a very low price. Once they've convinced other traders to do the same, the price will begin to increase, due to the increase of volume being traded.

These "instigators" simply sell all their shares when the stock is up. Usually they own enough of it, that when they sell, it has an effect on the stocks price, causing it to fall. When the poor slobs such as you and I see this drop in price, our initial response is to sell before we lose everything. So begins the chain reaction. The stock falls, "we" lose our money and the "instigators" are last seen happily driving off with a hefty profit!

Bottom line, it's a risk, the more money that you pump into the stock, the higher the risk is. My advice; if you're going to partake in the stock, buy it now while it's still real cheap, then after it climbs a little…dump it. You'll reap an okay profit. Just don't let greed blur your vision. It's very easy to convince yourself to bet the whole farm on a stock that's dirt cheap and glitters with a hyped up potential for profit. You start running simple math problems in your head and the next thing you know, your multiplying 100,000 shares at .38 as the initial investment. You then find yourself figuring that your profit is going to easily be twice that. Something to think about!

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