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By Louis Basenese
Imagine yourself splashing on top of the water with 100 hungry hammerhead sharks lurking below you. That's what small cap investing can be like.I've seen a lot of small cap scams on Wall Street ... and in my travels visiting the companies themselves.
The first thing you need to know is that someone is always going to make money on small caps.
The second thing you need to know is that, if you aren't armed with the information I share in my Small Caps Maverick course, it's not going to be you.
In the first lesson, I always ask new members to think about the top small cap stock they are looking at.
And guess what? 95% of them are dogs for one reason or another ... but I'm always shocked at how many are clearly these pump and dump scams.
When I show them they are shocked, because all of my students are good, skeptical people ... brighter than average.
Many of them are executives or business owners themselves ... people well equipped to evaluate small caps.
So how do they get duped?
The sad truth is that some of them buy stock in companies with no real business and no real future ...
And the company insiders ... stock holders who got their shares for free or for pennies ... sell it to them for a gigantic payday.
But how does this happen?
These companies don't spend money on Research & Development ... they spend it on marketing. (In Small Caps Maverick, I show my students where to look to discover exactly where companies are putting their dollars.)
They hire brilliant storytellers to write 'research' promoting them as the next big thing.
Ever read the story about a potential cure for cancer using a fringe stem cell technology? Or get an email about a new natural resource discovery? Or read a press release about how a small company is going to rocket on (insert buzzword of the month here)?
It's hard to tell fact from fiction when it comes to these stories.
Insiders spend millions to get a story about their company in front of regular investors. These regular investors buy ... driving the shares up just long enough so the company insiders can sell their shares.
(If you've ever seen the movie Boiler Room, you know what I'm talking about.)
The solution is simple: Don't buy on stories.
Small caps are alluring, because there are always small companies out there that will be tomorrow's big cash cows.
But as with other areas of investing, if you don't have a top-down, systematic approach for finding the good ones... the ones that could single-handedly fund your retirement... you're more likely to end up "swimming with the fishes" than swimming in cash.
Here is a special letter that I wrote to introduce you to my system, if you'd like to learn more.
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A former Wall Street consultant and analyst, Louis helped direct over $1 billion in institutional capital before founding Wall Street Daily - where he serves as Chief Investment Strategist. In addition to being an expert on technology and small-cap stocks, Louis is also well versed in special situations, including Mergers & Acquisitions and spinoffs. Ever the contrarian, Louis delights in challenging conventional Wall Street wisdom to unearth consistent double- and triple-digit winners. Louis has been featured on CNBC's "Worldwide Exchange" and has appeared as a guest expert on several prominent financial radio shows. His commentary has been published in multiple online media outlets, including The Wall Street Journal, MarketWatch, Morningstar, MSN Money, The Street and AOL's Blogging Stocks, among others. |
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