A pump and dump scam is where someone buys a stock at a low price and then sends out newsletters or emails to as many people as possible talking about how the stock is about to explode.
When lots of people follow the advice and buy the stock, the price of the stock goes up allowing the originall pump and dump scam artist to sell their shares at a nice profit.
When the market fundamentals kick in and lower the price because it was only hype that was rising the stock price, many people who bought the stock as it was rising will lose most of their money.
How is this different from most of the cable financial news channels?
Jim Cramer from MadMoney on CNBC should be the new poster child for pump and dump investment scams.
He keeps telling his viewers they have the ability to beat the market when almost everyone knows this is not true. Over the long term, only a very small percentage of people and institutional investors are able to beat the market.
Jim Cramer gets good ratings based on his hype. He is fun to watch, but that doesn't mean he is giving good advice. He may be spreading good information, but that still doesn't mean that amateur investors should be throwing large amounts of money into specific stocks they know very little about.
Jim Cramer knows the stock market is a game. I wonder how close he is to turning his game into a professional pump and dump scam with the blessing of CNBC and their parent company GE.
GE benefits by having more money in the stock market. Jim Cramer is one of their hucksters whose main goal is to get more people to put their life savings into the stock market. Investing in the stock market is a good idea, but not if we only invest in specific companies recommended by a cable financial news program. Thousands of people are getting the same advice. We can watch the stock go up and say Jim Cramer was right, but I'm sure lots of other investors are laughing all the way to the bank as they sell the stocks at a high price after so many people follow Cramer's advice.
I don't blame Jim Cramer. He is getting paid well to be the salesman. I just want to remind people that there are very little ratings available to cable financial news networks if they just give good advice like buying index funds and holding onto them for the long term. They also wouldn't make their advertisers very happy if they advised people to stop buying things they don't need in order to stop racking up credit card debt. These are pieces of advice you will rarely hear on cable financial news networks.