Little Boy : Penny Stock Chaser :: Hiroshima : Your portfolio

(“Undorsement”? “Exdorsement”?)

Put your money on the keno board at the Red Lion casino in Elko, Nevada before you do business with Penny Stock Chaser.

(NB: A few weeks after this post went up, Penny Stock Chaser went out of business. Its links are dead.) Unless you’re the kind of person who’s dumb enough to be swayed by exclamation points and graphics of money on trees, in which case you should give this company a try.

At least their name is fairly expository. Penny Stock Chaser recommends cheap equities for its customers, in the hopes that said companies will increase in value. At least the company’s one discernible product – its newsletter – is free. As best we can tell, Penny Stock Chaser makes all its money from the companies that allow Penny Stock Chaser to promote their stock.

A penny stock is one that trades for under a dollar a share – that is, its price is quoted in cents. Understandably, the cheaper a stock, the greater its potential to grow – both in absolute and relative terms. Holdings of a stock that trades at 3¢ could easily double tomorrow. Berkshire Hathaway, which traded at $100,899 Friday, is not going to reach $201,798 today.

This makes inherent sense. Take the hypothetical company whose stock trades at 3¢. Let’s even assume it’s a legitimate business, as opposed to an accounting construct developed by a wayward promoter, which is what many a penny stock represents. Say the stock is just a tiny bit desirable, in that some potential buyer is willing to offer more than the current asking price. Even if that bidder expresses his interest by augmenting his bid by the smallest amount possible – one penny – the stock will rise 33%. That’s not going to happen with a stock that trades in dollars or tens of dollars, at least not instantly.

The flip side, of course, is that to attract buyers to his holdings of a stagnant 3¢ stock, a seller would have to lower his price by…well, there’s not much room for him to maneuver here. The smallest possible lowering of the price results in a 33% loss in the company’s value, which means the stock has moved 1/3 of the way toward being completely worthless. Again, that’s not going to happen with any established company whose stock trades for a decently high price.

It’s tough to qualify greed. If you volunteer for an extra shift at your job, thus earning more money, does that make you “greedy”? Only in the eyes of the least repentant Marxist. But if you expect exponential riches for doing nothing more demanding than being lucky, then yes, you’re greedy. Just because it’s slightly more respectable (and credible) to admit to being a “stock ‘investor’” than a “roulette player”, doesn’t make the former any nobler. Most of us are cognizant enough to keep the human penchant for laziness in check. For the rest of us, there’s Penny Stock Chaser. Everything about this company is loathsome, including their radio commercials in which they exclaim that every month, some companies’ stocks “literally explode!”

Check out the company’s disclaimer, which confirms our worst suspicions. Penny Stock Chaser admits, albeit under penalty of law, that it receives payment (in stock) from several of the companies it touts. A legitimate firm (Vanguard, Smith Barney) doesn’t pull that kind of crap.

Penny Stock Chaser brags that its site has been “featured on MSN and Google”. Yes, because nothing advances the credibility of a company than being visible on a search engine. You know whom else you can find on Google?
Hitler!

Penny Stock Chaser also brags that it’s been featured on XM and Sirius. Apparently Penny Stock Chaser never noticed that the companies merged, nor that the merged companies’ logo is something a little more stylized than a hand-drawn dog.

We’re not convinced that Penny Stock Chaser isn’t really an experiment in public gullibility being conducted by a graduate sociology student somewhere. However, one giveaway is the company’s verbiage. Spend enough time on PennyStockChaser.com, and it’s clear that the web copy is being written by someone with the English skills of UFC commissioner Dana White. Either that, or the World Grammar Board changed the plural of company to “companys” and didn’t tell anyone. Here’s a grammatically correct but situationally erratic gem from the company’s “About” page:

“Our team has a total of 40 years experience in the stock market…”

4 lines later, just in case you weren’t paying attention:

“Combined we have over 40 years experience in the market.”

This has nothing to do with money, but here’s a gigantic red flag: any time a company brags that it has x combined years of experience, step back. Does that mean two career veterans, or 40 rookies? All it means is that someone in your company’s HR department knows how to add. Gold star.

Your local Wal-Mart has around 700 employees. With a conservative average of 3 years’ experience per employee, that means…wow, they’ve been selling discount items since before Christ was born!

Patronizing Penny Stock Chaser will give you the equivalent of “40 years experience in the market” faster than you wanted.

Making money is easy and fun! To wit, “We don’t waste time trying to uncover ideas that might move a wimpy 5-10% in a few months like most other guys. No, we’re looking at stocks that can explode 50+% or more in a matter of days!”

Look, no one likes being financially conservative. Of course a 50% return is more attractive than a 5% return. But in the same way, no one likes being unable to fly, either. We live in something called a real world. The chance of you losing money by dabbling in penny stocks is far, far greater than the chance of you profiting. Just because something’s possible doesn’t mean that a) it’s likely or b) you can do anything to improve your odds. Some people jump out of planes with malfunctioning parachutes and survive. Which is to be marveled at from a distance, rather than emulated.

Should the SEC step in and dismantle Penny Stock Chaser for promising flying unicorns and edible rainbows? No. Our society is still largely free, and it’s up to each individual idiot to decide how badly he wants to get screwed over. Should Howard Stern show a little self-respect and not voice Penny Stock Chaser’s embarrassing radio commercials? Yes, but that’s his business. You can assume he at least insists on being paid in something more fungible than stock tips.

Fortune favors the brave, not the idiotic.

(Looking forward to Penny Stock Chaser bragging that it’s now been “featured on Control Your Cash!”)