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“Pump and Dump”, Explained

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Pump and dump is a form of securities fraud. It involves artificially inflating the price of a stock by false and misleading statements. Here an investor or a group of investors promote a stock they purchased at a low price. They manipulate the share price and drive it higher to book significant gains.

The stock is generally promoted a “hot tip” or “the next big thing”. The fraudulent investors will state that an upcoming announcement will send the share price “through the roof”. There are several ways to manipulate share prices and these have changed over the years.

The basic idea of a pump and dump scam is to shift supply and demand dynamics. This is done via SMS messaging, email campaigns, online media channels or a fake press release. There are claims to insider information and impending news as stated above.

If an investor is successful in “pumping”  the price of the stock, it will create a sense of euphoria among potential buyers. The increase in stock price and trading volume may convince other retail players to believe in the hype and purchase its shares.

Penny stock are generally targeted in this scam

The pump and dump scheme is tied to penny stocks as it is almost impossible to do so with large-cap stocks or even popular mid-cap and small cap companies. This ploy is used to inflate prices of companies with a small trading volume that are traded over the counter.

The stock is then sold for a handsome profit once the price rise has formulated.

Who are impacted in these scams?

More often than not, it is the average retail investor who is a victim of this scam. Retail investors are not aware of every market dynamic and are inviting prey. The lure of fast and easy money is difficult to ignore.

Even if the retail investors who are a victim of this scam try to sell off the stocks at a significant loss, they might be unable to do due to a lack of buyers.

The unregulated crypto market has seen several pump and dump scams where investors have burnt significant wealth. Investors need to keep in mind the caveat “If it’s too good to be true, it probably is”.

They need to be wary of a stock tip from someone unknown to them and think why that party would be so willing to give out insider information.

Though there are stock market regulators, such as the SEC (Securities and Exchange Commission), it is difficult to keep an eagle eye on every stock trading on the exchange or over the counter.

Money

FAANGs Lose Over $135B Overnight

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The stock market was in a sea of red yesterday. The broader markets witnessed yet another correction. Stocks such as Facebook [FB], Apple [AAPL], Amazon [AMZN], Netflix [NFLX] and Google [GOOG], also known as FAANGs led the sell-off yesterday.

FAANGs lost over $135B in market value overnight. Analysts have raised concerns over Apple’s iPhone unit shipments. Several of them have cut iPhone shipment estimates and this has driven Apple shares lower.

Apple’s market cap has fallen from a high $1.1T to its current value of $882B. During its last earnings call, Apple had also stated that it will no longer provide data for device sales further adding fuel to fire.

Facebook trades at a two-year low

Facebook shares continue to burn investor money. Shares are down 13% this month and 20% since Oct. 2018. Facebook shares have impacted after an investigative report by New York Times accused the former of promoting anti-Semitic conspiracy theories.

Amazon shares fell declined over 5% yesterday. The stock faced the wrath of investors as it missed revenue forecasts last month. Netflix, on the other hand, has slumped over the last few months as there are concerns over the company’s international expansion efforts.

Have FAANG’s bottomed out?

FAANGs drove the markets for several years and generated spectacular returns for investors. A focus on developing innovative products and services have ensured market leadership for FAANGs.

However, since Oct. 18, these shares have declined significantly. FAANGs have lost a whopping $700B in market cap over the last 50 days. Does this mean that FAANGs have bottomed out and are trading at attractive valuations?

It’s too early to tell. We have seen that concerns over iPhone device sales, Facebook controversies, and decelerating growth for Amazon and Netflix have weighed in on stocks. Investors are now paying attention to fundamentals in an uncertain macro environment driven by rising interest rates and the trade wars between China and the United States.

Does this mean that the party is over? Certainly not! These companies are leaders in innovation and are expected to launch products and services that will help them maintain revenue growth in the near future.

Analysts estimates

Analysts though are still bullish on FAANGs. They have a 12-month target price of $233.47 for Apple, implying an upside potential of 26%. Similarly, shares of Facebook, Amazon, Netflix, and Google are trading 50%, 41%, 48%, and 32% respectively below their target price estimates.

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Money

3 Ways To Invest From Your Smartphone For Under $5

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The numbers say 80% of Millennials don’t invest in stocks.

Reason? Half say they don’t have money, one-third says it’s for “old white men,” another third says they don’t know how.

In addition to that, there’s demographic gap. “The average age of a financial advisor is 55,”Douglas Boneparth, a New York City-based financial planner last year. “There are more financial advisors over the age of 70 than there are under 30.”

Despite these beliefs, you don’t really need much money, nor experience, to get started. (Just look at our fearless co-founder Odunayo Eweniyi and what she’s pulled off here…)

Be that as it may, here are three ways to get started for $5 or less.

1. Stash

Image result for stash app

What: A micro-investment app (iOS and Android) with over 30 ETFs according to industry, sector and risk tolerance.

How it works: Download the app and choose your investment.

Minimum investment: $5

Cost: Fees range from $1 a month for accounts under $5,000 to 0.25% a year.

“We help people who don’t have a lot save money on a weekly basis,” CEO and co-founder Brandon Krieg said in one interview. “Stashers look like America, they look like people you meet every day: they are nurses and teachers and Uber and Lyft drivers.”

2. Acorns

What: iOS and Android app.

How it works: Download the app and choose one of six index funds. When you buy, say a cup of coffee for $1.75, it rounds up the change to $2 and deposits the difference.

Minimum investment: $5

Cost: Just like Stash, fees range from $1 a month for accounts under $5,000 to 0.25% a year.

“We’re not trying to preach austerity to the client, because that’s a bummer,” CMO Manning Field says. “Some people will say, ‘Don’t have the cup of coffee.’ We’ll tell you to have the cup of coffee and invest along the way.”

3. Robinhood

What: A commission-free investment app (iOS and Android).

How it works: Download and start buying stocks.

Minimum investment: Whatever stock you want to buy.

Cost: Free.

And by the way, if you want to get a fast start on real estate, here’s Forbes’ list of nine REITs with yields between 8% and 10%.

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Analyst: ‘Bitcoin Just Collapsed Like A House Of Cards…’

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Oh, how the mighty have fallen.

Ever since their mighty peak back in December, Bitcoin has seen a consistent plunge all year long, briefly dropping under $5k a coin today.

“Bitcoin collapsed like a house of cards on Monday,” Lukman Otunuga, research analyst at FXTM, wrote Business Insider in an email.

In fact, today’s drop continues a filthy week for Bitcoin, which has now dropped to a low not seen since December, right before the wicked explosion in prices that had Bitcoin as high as $20k per coin.

Once that happened, Bitcoin basically went mainstream, with “Blockchain” and “cryptocurrency” becoming words du jour. And once that happened, it basically created a frenzy around cryptos.

Just peep this. It’s not even a hockey chart, it’s just insanity.

 

Aaaaaand, here’s another showing the raucous trading activity back in December 2017.

All in all, Bitcoin lost 12% of its value in the past week and nearly 20% in the last three months.

For whatever it’s worth, it’s not just Bitcoin that’s taking a beating; other cryptos are getting slammed as well. Both Litecoin ($5.10 per coin) and Ethereum ($156/coin) are down 12%.

So, who else is bullish on crypto?!

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