'The Wolf of Wall Street' Exposes Danger of Penny Stocks
NEW YORK ( MainStreet) "The Wolf of Wall Street" opened amidst intense Oscar buzz but some finance professionals are taking offense at how Leonardo DiCaprio's character, Jordan Belfort, is portrayed in the Hollywood movie.
Much like Director Ben Younger's film "Boiler Room" produced in 2000 starring Ben Affleck, the "Wolf of Wall Street"'s lead character is caught defrauding thousands of people with penny stocks.
In Belfort's case, the swindle was to the tune of more than $100 million.
"'The Wolf of Wall Street' takes a man who bilked investors large and small out of millions and turns him into hero, a type of modern day Robin Hood," said Randy Shain, a private investigator with First Advantage BackTrack Reports. "Glamourizing white collar crime only leads to more of it."
Although prices vary, penny stocks typically trade over the counter for less than $5 on the OTC Bulletin Board or Pink Sheets. According to PennyStockReporting.com, stocks to watch include Plug Power (PLUG) and Jinkosolar (JKS).
Finance veterans, however, are largely hesitant.
"I am not a big fan of penny stocks," said Edward Keon, managing director and portfolio manager with Quantitative Management Associates. "We don't buy them for our portfolios because there's too much risk."
In the case of many penny stocks, low market price inevitably leads to low market capitalization. Although these stocks are known to be highly volatile, deluded citizens fall prey to manipulation by stock promoters and pump and dump schemes in the pursuit of large and quick profits.
"These stocks historically have attracted people that are trying to manipulate prices or behavior in an inappropriate way," Keon told MainStreet. "Doesn't mean there's no value in lower priced stocks but it's an area that's difficult to get a good return on your money."
Shain wants movie-goers to pay attention to the victims who got lost in the Hollywood shuffle of producing "Wolf of Wall Street."
"The problem with telling Mr. Belfort's story this way is that it overlooks the fact that real people, many of them not rich, lost a lot of money investing with this guy," Shain told MainStreet. "It's a strange story that says theft and greed are O.K. so long as we had a good time doing it. I wonder how happy the movie makers will feel when the next Jordan Belfort steals their mother's life savings."
What's Risky About Penny Stocks? Plenty!
- 1. Penny stocks don't require the same disclosure and regulation as larger stocks, which can create additional risk.
- 2. Look for penny stocks that are traded over a regular market exchange and not as an over-the-counter (OTC) stock listing.
- 3. Most aren't traded on the stock exchange. As a result, penny stocks are not required to file with the SEC.
- 4. Rarely are there minimum standards for penny stocks to remain on the OTCBB exchange, which means no added safety cushion exists between sellers and investors.
- 5. Because buyers are hard to find, there's less liquidity in penny stocks
--Written by Juliette Fairley for MainStreet