Beware of pump and dumped/ramped stocks

Jgibbes · Member

Greeting ladies and gentlemen,

For those of you who are not very experienced with the stockmarket, I would like to discuss the meaning of pump and dump and ramping of stocks.

Pump and dump means to push the price up intentionally by manipulation and then walk away from it. Ramping is similar but it is more reliant on telling the 'story'.

These can be very dangerous for investors who are unfamiliar as to what is going on.

Generally a ramped stock is one which has a good 'story line' that will catch the public's interest. Often a 'Dorothy Dix' question will be asked at various talk-back radio stations and all of a sudden ....what a co-incidence, the very person who knows about the product or who is associated with the company will ring in and say what a wonderful thing X product is and it is from Y company, which incidentally, is a listed company.

Then it may be featured on TV on a 'magazine' type show, if they are very clever.

In the meantime, people are busy ramping the stock to the chat rooms,increasing the numbers buying in, just so the short term traders and self interested parties can get ready to make lots of money.

Eventually, when plenty of money has been made by all the experienced traders, the stock is dumped and the fun is over. All that is left is a slowly dwindling share price or a fast collapse of price, with the only people still in the stock, being the inexperienced 'investors' [read 'fresh meat', this means people who are milked and then slaughtered].

What can we do about people and companies who do this sort of thing? We WATCH them. We expose them for what we think they are.

We try to teach people who haven't had the same years of experience about this sort of thing. There are so many good companies with good products who are doing good business with good managements, that is where short/long term money should be put.

The more people who feel comfortable about putting their money into the stockmarket, the more money can be made by everyone. Every slaughtered investor/trader is one less person we have involved in the market.

My interest in telling you this is because I have been caught in my early days by these sort of stocks. It hurts and it is heartbreaking.

You may ask how to avoid them. My feelings are to gain a good knowledge of being able to read a chart. You can see stocks from times gone by that have been pushed up into price spikes. They don't only do it once but may try several times. Once a company gets a bad name it will often change the business it is involved in and change its name. Then off it goes again.

Hope this may help someone Idea

Regards
Jgibbes

James H. · Member

Great post!

Unfortuantly this is the environment the sharemarket works in... and particulary since the explosive abdoption of the Internet, the small investor/trader now has access to unlimited information -- information that is too often hyped up and ramped by unqualified, inexperienced investors.

Through sharemarket forums such as this one, everyone is free to express their opinion on particular stocks and market trends. More often then not, many forums turn into a frenzy of 'ramping' commentry...with inexperienced, inpatient investors trying to convince other people to buy into the stock they hold and help push the price back up.

From my experiences, I've found a lot of the time biotechnology companies recieve a lot of hype and are ramped up by people treating the emerging technology as elixir type cures. The retractable syringe bubble is one good example of pump and dump by the market... and many small investors were caught out. You hear stories that "this one will be the next Cochlear".... just like telemarketers trying to sell you a new brand of hair shampoo...

Of course its not just biotech shares, but all shares in general... You see it a lot with commodity stocks now, particulary emerging oil companies.

We have to sift through the hype and ramping... The best approach is to take an ACTIVE approach to enhancing your own financial education in the sharemarket. We have to develop our own "set of rules" to trade with... and not purely take someone else's word. There is no crystal ball.... and bad advice is usually very, very costly.

Jgibbes · Member

Hello James H.,

Thank you!

Please don't misunderstand me, I am not saying all the rampers and pumpers and dumpers should be run out of town. I love all of that, it creates the colour and action in the markets. The vibrancy.

Large amounts of money can be made from these stocks for those who know what they are doing and have the time to focus on the chat rooms, company notices, market depth, charting skills and so forth. All great fun if you have the time, the skill and the desire to do so.

The problem is for the new kid on the block. This is my 'target audience'. So many people hear from their friends about making a 'killing' on the market and how easy it was.

There are always new participants entering the market. Mostly they haven't figured out if they are long term investors or high flying day traders. Newbies tend to vacillate between the two styles. Generally losing, either way they try.

I feel a lot of people when they first start in the markets are very gullible, I am just trying to offer a warning for the newbies. The market is such fun if you can come to grips with some of the traps for young players.

Regards
Jgibbes

jinning · Joined: 09 Jan 2006 Posts: 1

Hello Jgibbes,

I just have read your post today and I fill that it is the similar situation during I traded stock in Thailand. And I have lost some money. I have many doubts in mine mind about trading stock but I don't know whom is the right one. Since I read your post I think you are the right one could make me clear in mind. I want to talk you Jgibbes! Here is my email address jinning-bear@hotmail.com

By the way, I do not unterstand about this word "Dorothy Dix". what is sort about ?. and so many investment term words too. I am a Thai chiness, born in Thailand.

Regards,
Jinning