In this article, we are going to explain the mechanism or inner workings of a pump and dump group. Subsequently, we will elucidate how the setup is spectacularly different from Recompound’s setup.
Motivation of a Pump and Dump Group
Main motivation of a pump and dump group, as the name suggests, is to pump a stock price and then dump the stocks into unsuspecting buyers who do not have a clue about the company.
Groups of people who do this usually can profit a good amount from this operation. Why? Simply because they have a huge number of shares at a much lower price and then they can generate buyers to purchase such shares at their target price.
Lets show a super simple example. Say a fictive public company XYZ has 1,000,000,000 shares outstanding. The amount of shares floating in the public market is 10% of total number of shares which is 100,000,000 shares.
Theoretically, we can have a fictive character Mr. X, owning a whopping 90,000,000 shares that are floating (90%) at an average price of 100. Mr. X, having this many shares want to jack up the price artificially such that he can sell his shares at 200 (a handsome 100% increase). For a stock price to appreciate, it needs to have buyers. If there are no buyers, there will be no price increase.
So how does Mr. X generate “buyers” to buy his shares? Now we shall examine the “Promise” of a pump and dump group.
The “Promise” of a Pump and Dump Group
Promise of a pump and dump group is super simple. They would promise quick profits to their clients, claiming that this is a profit sharing project, or some sort.
Who does not want a quick profit??
I do. But if you want to give me a quick profit or free money, perhaps you can just wire the money directly to my bank account, thank you. No need to ask me to purchase a dubious stock that is hugely in debt with no prospects.
The Endings of a Pump and Dump Group
At first, there will be price appreciation and everybody in the group will be excited. “We are going to be rich”, “I have booked a Lambo”, yada yada.
But when price increases, the clients will be asked to buy the stocks again and again. The promise keeps on growing. It completely neglects the fact that the higher the price, the riskier it gets because of Economics 101. When price increases, quantity of demand decreases. The risk of price falling also increases.
As the stock in a pump and dump group is almost always dubious, after the price increase, there is no buyers. But greed is inherently wired in us and we are fine to keep buying because the price can perhaps go to infinity.
Once Mr. X finishes offloading his stocks at a handsome profit, price obviously plummets and the clients are disappointed and angry.
But there is a million dollar pretext that Mr. X uses against his clients. That pretext is this is because the clients tell their friends about the project and information about the project leaks which causes the project to fail. Mr. X will usually claim that he is also at a loss, even though it is clear that he has raked in a nice profit.
But Recompound is also a WhatsApp Group!
Let us elucidate the difference between Recompound and a typical pump and dump group and the reader can decide if we are trying to scam people or not. This is how Recompound is setup:
There will be usually 5 - 7 stocks inside the investment information that is issued to our clients, each with investment thesis that is constantly monitored by our team.
Each stock also comes with a max price, of which we implore our clients not to be greedy and not buy the stocks above the max price (doing so is risky). If it crosses the max price, we’d come up with a different stock information.
Almost all, if not all, of the stocks we believe in would issue dividends regularly. This means that stock usually has a good fundamental because:
Management is prudent
Stock does not have crazy debt
Return on Equity is decent
Growth is spectacular
Due to the spectacular fundamentals, it is completely reasonable for us to expect future buyers to purchase our stocks at a premium, especially when our earnings forecast have been reflected as their true earnings.
If our calculation is wrong (which happens because no body is perfect), we would inform our clients immediately to prevent further risks.
In a nutshell, the fundamental difference between Recompound and a Pump and Dump Group is risk management. When we can help our clients to manage their risks well (which takes time and effort), we can expect our clients’ portfolio to grow consistently and organically.
But investing is a zero sum game! There is a winner and there is a loser.
We disagree. Short term trading is a zero sum game. Investing is a one sum game simply because the underlying companies that we invest in grow in size and earnings in a longer time frame. When a company grows 12% their net earnings year on year is because the company and management focuses on delivering value to their business and in turn shareholder. They then distribute their earnings via dividends which then can be re-invested, which is what Recompound is all about.
Closing Remarks
We hope that it is clear that ultimately, Recompound’s core service is to help people manage their risks instead of the otherwise commonly committed by typical pump and dump group. We are also not doing it for free because we are a business and not a charity. We just happen to have a unique pricing structure in such a way that people may perceive it to be too good to be true. But it is actually really fair for both parties involved 🙂
Appreciate you reading this far!