Page 26 - Provoke Magazine Vol4

The Penny Stock Slot
capital of less than $300 million at $5 per share would issue 60,000,000 shares. The market capital of a compa- ny equals the price per share multiplied by the number of outstanding shares. Sixty million shares may seem like a lot, but Dell Technologies reported 770 million shares outstanding in the 4th Quarter of 2018.
When a small company funds its operations through the offering of shares the affordable price and low amount of shares outstanding create an opportunity for stock manipulators. The small number of investors control the buy and sell demand for the outstanding shares. Significant news and activity can influence the stock price. Stock manipulators either collude with oth- er investors to buy more shares or spread fictitious in- formation to generate interest in the stock.
Unfounded rumors about stock acquisition or re- search could mean that the company might be headed for immediate success. News about impending part- nerships with other successful companies may mean an increase in revenues and value of the business. Be- cause there are so few shares a small number of inves- tors could hold most of the company. Positive market movements would mean large gains.
Sharing false information with others can generate interest in the stock. Simply spreading rumors among other investors that “now” is the time to buy can lead to purchasing activity. Cooperative stockbrokers might contact their clients looking to invest in lucrative com- panies at a deeply discounted price and feed them in- formation about a penny stock investment. Brokers might use a reverse sales tactic by briefly mentioning the investment opportunity and then convincing the client that the strategy is too risky for them. When the client feels that they are missing an opportunity they insist on “getting in” on the deal. This tactic tricks the investor into thinking that the purchase is unsolicited and take responsibility for speculative strategy.
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If you have ever played a penny slot machine, you realize that small change rarely results in high payouts. Casinos make a considerable amount of money bet- ting that the gambler will keep feeding the gaming ma- chines in anticipation of a bigger payout than expense. The odds are in favor of the dealer which leaves many people frustrated and broke. Another type of penny gamble is the penny stock investment.
Investors participate in penny stock investments by buying shares of smaller companies that trade outside the NASDAQ and NYSE markets. The stocks of these smaller companies typically have a total market cap- italization less than $300 million. The Securities and Exchange Commission identifies micro-cap firms as having a share price of less than $5. However, there are some definitions on the internet that define a penny stock company trading for less than $1.
Micro-cap and “penny” stock investments are high- ly speculative investments because they are low-priced securities. With a small amount of money, there is the potential to earn a hefty profit. The price is so cheap that it doesn’t take a drastic price drop for the stock to fall to zero. Penny stocks are appealing because of the per- ceived value. A stock selling for $1 a share would cost $100 – for 100 shares. If perchance that stock increases to $2 you have doubled your money. If the stock makes it to higher prices the value increases exponentially.
The number of outstanding shares is lower than more commonly traded securities. The overall market capi- talization makes the stock a target for price manipu- lation. A small company attempting to raise a market 26 provokeusmag.com