Author Topic: How to recognize a possible pump and dump?  (Read 4557 times)

brandino29

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How to recognize a possible pump and dump?
« on: March 19, 2014, 07:37:03 PM »
So a thread started the other day by SLOOF here: http://www.mrmoneymustache.com/forum/investor-alley/i-know-they%27re-often-risky-garbage-but-does-anyone-dabble-in-penny-stocks/msg246360/#msg246360 got me to check in on a penny stock I bought a couple of years ago, lo and behold it has just recently tripled in value.
 
Quick background, I used to work for the local health department. Not long after I opened a brokerage account, my office was visited by a salesman for a company called Bioject (BJCT) that sold 'needle-less injection technology.'  They were marketing their product across the country as a way to reduce risk of infectious disease from needlesticks.  They had also just recently gotten contracts with a couple of regional pharmacies who were going to begin offering the flu vaccine through Bioject injectors.  I noticed when I researched the company that they were publicly traded and I envisaged there was a market for their products and it seemed to be a company that had some potential.  They were on the pink sheet trading at around 25 cents a share (after having been $40/share in the early 90s, I believe they filed for bankruptcy around 2001). I decided it was a worthwhile speculative investment, I had actually met someone at the company, seen their product, and saw a market for it (as someone who dealt with vaccinations regularly).

About a month after I invested $250 to get 1100+ shares at 22 cents a piece, the FDA denied approval for their injector for use with the flu vaccine which decimated the stock price---at which point I figured my money was gone and wrote it off as a useful experiment in penny stocks. 

I would check on the price from time to time over the past couple of years and it hovered pretty consistently between 8 and 10 cents a share.  In January, there was news that they had received approval in Australia for their products which saw a bump to about 14 cents a share.  Then, just this week, seemingly out of the blue the price has gone up steadily, closing at 38 cents a share today.  I found their most recent news release from Monday 3/13 which included their year end financials, which were not good.  $1.5 million in revenue, $2.5 million in operating cost, loss of $1 million for the second (probably 3rd) year in a row.

In sum, what's the deal here?  Poor financials for yet another year but the stock nearly quadruples from 10 cents a share in January to 38 cents a share today.  If I sold first thing tomorrow morning (at 38 cents) I would be up $186 bucks (less transaction costs and taxes).  However, every cent this thing climbs is another $10 dollar return for me.  If there is something legitimately driving the value of the company up---maybe it actually is making some rebound---I could stand to make a nice little chunk of money.  If it's just market quirks or if their lucky number has been pulled by some pump and dump scheme and collapse is inevitable, I'd like to get out while there's at least a few dollars in it for me.

Is this suspicious of a pump and dump or am I just thinking along those lines after having read the article someone posted in the penny stocks thread from the other day about Jordan Belfort? 


englyn

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Re: How to recognize a possible pump and dump?
« Reply #1 on: March 19, 2014, 07:55:45 PM »
I would lose it as a business with shaky financial management and spend the brain time on something else. But that might just be risk-averse me.

KingCoin

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Re: How to recognize a possible pump and dump?
« Reply #2 on: March 19, 2014, 07:56:39 PM »
You can read public filings here:
http://www.sec.gov/cgi-bin/browse-edgar?CIK=BJCT&Find=Search&owner=exclude&action=getcompany

News releases here:
http://www.bioject.com/resources

Random gossip here:
http://finance.yahoo.com/mb/BJCT/

I'd sell it, give yourself a hundred dollar high five, and move on with your life. Hours of sleuthing and conjecture aren't really worth it given your position size.

Or gamble! All the fun of Vegas without having to leave your home town!

Rob

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Re: How to recognize a possible pump and dump?
« Reply #3 on: March 19, 2014, 08:15:04 PM »
If the company still seems like it has potential, just get your cost $ out and forget the rest for another 3 years.

warfreak2

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Re: How to recognize a possible pump and dump?
« Reply #4 on: March 19, 2014, 08:24:31 PM »
Why does it matter how much the shares cost when OP bought them? There's an optimal quantity of them to own now, which depends on the future, not the past.

I vote sell. There's any number of individual stocks that might go up, even if this one wasn't so dubious, an index fund is a better investment.

brandino29

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Re: How to recognize a possible pump and dump?
« Reply #5 on: March 19, 2014, 08:33:13 PM »
I'd sell it, give yourself a hundred dollar high five, and move on with your life. Hours of sleuthing and conjecture aren't really worth it given your position size.

Or gamble! All the fun of Vegas without having to leave your home town!

Thanks for the resources KingCoin.  That message board reeks of shady shit for sure.

While I agree with the hundred dollar high five logically, I'm being hindered by my greediness as my mind runs wild thinking --- but what if it is legitimate and I sell now and 10 years from now this company is worth a billion bucks and I could've made out like a bandit...or even, so what if it's a pump and dump, maybe the pump will drive it up to 3, 4, or 5 bucks and I can get out nicely with a couple thousand in hand and still escape with my morals since I just got lucky and someone else pumped my penny stock.

tomq04

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Re: How to recognize a possible pump and dump?
« Reply #6 on: March 19, 2014, 10:01:57 PM »
I'd sell it, give yourself a hundred dollar high five, and move on with your life. Hours of sleuthing and conjecture aren't really worth it given your position size.

Or gamble! All the fun of Vegas without having to leave your home town!

Thanks for the resources KingCoin.  That message board reeks of shady shit for sure.

While I agree with the hundred dollar high five logically, I'm being hindered by my greediness as my mind runs wild thinking --- but what if it is legitimate and I sell now and 10 years from now this company is worth a billion bucks and I could've made out like a bandit...or even, so what if it's a pump and dump, maybe the pump will drive it up to 3, 4, or 5 bucks and I can get out nicely with a couple thousand in hand and still escape with my morals since I just got lucky and someone else pumped my penny stock.

Then sell half and move on, trading costs won't kill you in this scenario.  Hundred dollar high fives are sometimes rather fortunate in the penny stock world... *sigh*

warfreak2

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Re: How to recognize a possible pump and dump?
« Reply #7 on: March 20, 2014, 05:15:13 AM »
but what if it is legitimate and I sell now and 10 years from now this company is worth a billion bucks and I could've made out like a bandit...
There's no reason why this particular penny stock is more likely (than average) to grow enormously; you've done your research, and it appears this stock is less likely (than average) to do that. It's a losing proposition; if you want to gamble, and you get a thrill out of the possibility of a tiny investment skyrocketing, you could pick any penny stock you want - why this one?

Don't let your emotions decide your investments.

Numbers Man

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Re: How to recognize a possible pump and dump?
« Reply #8 on: March 20, 2014, 10:00:52 AM »
If you can't do your own research and wouldn't buy the stock at it's current price then why would you own it? Know what you buy. Pigs usually get slaughtered in the stock market.

brandino29

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Re: How to recognize a possible pump and dump?
« Reply #9 on: March 20, 2014, 02:21:40 PM »
If you can't do your own research and wouldn't buy the stock at it's current price then why would you own it? Know what you buy. Pigs usually get slaughtered in the stock market.

So I'm not quite sure what you're getting at with the pigs get slaughtered comment.  I wasn't asking for others to research the company for me and tell me if it was a good buy.  And as I mentioned, I did research it when I bought it, including meeting a company representative and having some knowledge of the potential market.  Again, I recognized that it was purely speculative but I thought it could be a 'fun' experiment.

Is this suspicious of a pump and dump 

This was my central question.  What is the appropriate course of action when a penny stock you already own starts increasing sharply but the most recent financials were pretty awful?

Nords

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Re: How to recognize a possible pump and dump?
« Reply #10 on: March 20, 2014, 03:45:17 PM »
Is this suspicious of a pump and dump 
This was my central question.  What is the appropriate course of action when a penny stock you already own starts increasing sharply but the most recent financials were pretty awful?
It's only a pump & dump if you're losing money.  Right now you're a brilliant investor with impressive foresight.

Someone has high expectations of the stock, and maybe the info is public-- or maybe not.  It also could be just normal trading volume of a very illiquid security with a high spread, so it might not take much demand to drive up (or drive down) the price.

Unless you need the money to buy groceries, you should hang on to it.  Set a Google Alert for the news and maybe another alert on the share price.  If the stock price drops by 20%-30% and annoys the crap out of you then go ahead and sell.  If it keeps going up then you could sell a few shares to recoup your cost basis, and then just let the rest ride for five years.

brandino29

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Re: How to recognize a possible pump and dump?
« Reply #11 on: March 20, 2014, 08:05:30 PM »
Right now you're a brilliant investor with impressive foresight.

Haha, yes!

If it keeps going up then you could sell a few shares to recoup your cost basis, and then just let the rest ride for five years.

Seems like a pretty reasonable way to go while still being able to have a little fun and the outward possibility of 'hitting it big' with a few hundred shares.

Thanks for the advice everyone!