I once bought a stock for a major loss and didn't understand what happened until later, when I realized I was the victim of a pump and dump penny stock scam. Here's how penny stock scams work:

A person who has gained your trust sends out an email or writes a blog hyping a particular stock/company as being the "next big thing". They might give facts or even logical arguments as to why the stock will succeed, then they'll urge you to get in on the ground floor and buy as much as possible. After all, this stock is going to blow! Once the stock price goes up even a few dollars, the initial person praising the stock sells all his shares, and everyone else is left holding the bag, from which all the air quickly deflates and all the people who came in late lose a lot of money.

When investing, think long-term value, or understand the cycles of the market before making a big trade. Check the earnings, price/earnings ration P/E, and always be on the lookout for a quick pump and dump easy buck.

Also read "The Intelligent Investor" (co-written by Warren Buffett). Click here: http://patrick-warren.com/the-intelligent-investor
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https://www.youtube.com/watch?v=M_gz1VlJsuo