50 Cent’s Latest Investment Not a Sure Thing?
50 Cent knows how to make money. We have been passively watching it happen for years, even maybe drinking his Formula 50 Vitamin Water in the process. Yet when he announced his investment in a direct retail company entitled TVGoods that specializes in home shopping and infomercial cash-ins and then encouraged his fans to jump on the stock, we had to check out how legit (and legal) this could really be. The answer: you probably want to keep your money where it is on this one.
Over the weekend, 50 said fans should put whatever they can into a penny stock under the guise of H&H Imports. First off, penny stocks that are pumped-up with inside information (even over Twitter) are usually schemes to make tons of money for those who were there first. This type of investment campaign is actually one of the most successful email scam techniques to emerge over the past few years. At a few pennies a share, investors can buy hundreds of stocks and watch as the price shoots up.
Thing is, these stocks almost always stall at 40 or 50 cents a share and then fall-out as everyone sells off and takes their loot. Those, like 50 and the company's main investors, that got in at the ground floor make a killing in this scenario if they sell at the peak. Most everyone else that jumped-in after the first few hours of 50's tweet would most likely lose money in this scenario.
After some criticism, 50 did start backtracking on his pick. "I own HNHI stock thoughts on it are my opinion," he tweeted. "Talk to financial advisor about it." Well, the stock shot up and made him approximately $8.7 million in a day. Had he sold-off this morning, the move would have been a classic 'pump-and-dump' con, yet he held firm as the stock crashed down 20 percent off its peak.
Even if 50 stays with TVGoods -- which he probably will as they will handle distribution of his new headphone line -- he clearly has far more money to risk on a shady company than your average investor. Last year, according to SEC filings, the company lent $141,000 to its Chairman's brother and claimed $1.3 million in losses despite capital loans. Financial news service Bloomberg defines the company as "in the wholesale purchase and sale of women handbags."
Our point? Read up before you put your money in any penny stock. Know what you're getting into and don't just follow celebrities because they tweet something to millions of followers.