Usapang Pump and Dump: A Guide for Beginners

For sure, you’ve heard of the term already. Yup, we’re going to talk about something called “pump and dump,” which is a sneaky trick that some bad people use to make money by tricking other people.

First, let’s talk about what “pump and dump” means.

Imagine you have a toy car that you want to sell. You tell your friend that this toy car is really cool and valuable, even though it’s not that special. Then, your friend tells another friend, and that friend tells another friend, until lots of people think that your toy car is really valuable.

Once lots of people want your toy car, you can sell it to them for a much higher price than you paid for it. But after you sell it, the truth comes out and people realize that the toy car isn’t worth as much as they thought. That’s when you “dump” the toy car and walk away with your profits.

Once the stock price is high, the people who started the rumor sell their shares for a lot of money. But after they sell, the truth comes out and people realize that the company isn’t doing as well as they thought. That’s when the stock price crashes, and the people who bought shares lose a lot of money.

Unfortunately, there have been some cases of “pump and dump” happening in the Philippines. One example is when a group of people spread rumors about a company called Calata Corporation, saying that it was going to do really well. 

In a post from Rappler,  The SEC said the respondents “traded Calata shares from May 23 to June 8, 2012 through multiple brokers to intentionally and unlawfully raise the price of the said shares through illegal schemes such as as ‘painting the tape,’ ‘hype and dump’ and other methods for their own profit.”

Lots of people bought shares in the company, but after a while, the company started to have financial problems and the stock price crashed and eventually delisted from the Philippine Stock Market (PSE). Many people lost a lot of money.

So, what can a new trader do to avoid falling victim to “pump and dump”?

• Do your own research – Look at the company’s financial statements and news articles to see if there are any red flags.
• Be careful about getting tips from strangers or people on social media who claim to have insider information.
• Only invest money that you can afford to lose
• Never invest based on rumors or hype.

Remember mga Lods, the stock market can be a fun and exciting way to make money, but it’s important to be smart and cautious to avoid scams like “pump and dump”.