How to earn Easy Money with Penny Stocks

Normally people promote penny stocks as being an easy way to earn cash. Of course the people (illegally) promoting these will make the most money. But here comes penny-stocks-with-a-twist: we know these people are scamming (usually) and we are going to use this knowledge in our advantage.
The penny stock scam
Penny stocks are what they are because the company behind the stock has got some problems. For now, we will focus on the firm having a large long term debt. If a company can’t pay it’s debts off longterm then it’s an outright scam, period.

To check if a company is a scam we look at the company’s balance sheet and calculate the debt-to-equity ratio. To calculate the company’s debt-to-equity ratio we will divide its total liabilities by its total shareholders equity. If the result is greater than 3 than that company most likely won’t be able to pay off its long-term debts.

Penny stock example
As an example we will take the penny stock COIN. You can view this company’s balance sheet at Yahoo Finance or any other financial service. As mentioned above: by dividing its total liabilities: 27,571,000 by total shareholders equity: 5,047,000 you get a result of 5. Since this is almost 200% above 3 they you can be sure that they won’t be able to pay off their longterm debt. So in our definition this company is a scam.
Lets take a look at COIN’s 2 year chart.

So what do we know about a penny stock scam? The scammers by the stock for cheap. Then the stock is hyped (Jan. 08 in the chart), so that a lot of investors will buy them and the price goes up dramatically. The scammers sell their stock at the top and make 100's to 1000's % of profit. All other investors sell too late and lose money.
The penny stock twist
And here comes our twist: we KNOW that this will hapen with scam penny stocks (of course there are also some serious penny stocks, that’s why we check the balance sheet, as mentioned above). Now we are going to short sell this stock! This means we are anticipating a price drop. Because we know this will happen!
We wait until the penny stock is pumped up 50%, 100%, or even 500% and short them at the right time to make a load of cash. There are 1000’s of penny stocks out there. So this method can be repeated again and again.
This is a short sellers dream and the best way to make money from penny stocks!
Filed under Online Money tip, Stocks. Return to Online Money Tip. You can follow any responses to this entry through the RSS 2.0.
View the original article here