I recently received an interesting email from a reader. He said:
"I have recently received an offer for a subscription to 'Penny Stock Fortunes' newsletter for $59 per year. ... Here is the thing; [the author] says if the readers of his newsletter follow his recommendations, those readers could turn an investment of $200 dollars in January into $6.6 million by December 31. [The reader's email to me was dated Dec. 1.] . Have you ever heard of [him]? What is your take on penny stocks as road to fast riches?"
First off, I hadn't heard of this particular author -- though I've now looked up some info on him. Next, my take on just about any road to fast riches is: If it sounds too good to be true, it probably is. You probably won't get rich quick, but you may discover you've just gotten stupid in short order.
Let's take a closer look at the ridiculous proposition, that you'd turn $200 into $6.6 million. If it were really possible, why would anyone just invest $200? Wouldn't it be worth forgoing all kinds of other expenses and investing as much as you could? Let's say you invested $5,000 instead of $200 -- at the suggested rate of return, you'd end up with . (drum roll .) $165 million! If you could invest $30,000, you'd get just about a billion dollars! Hey, I'd sell my car and my mom's car, too, if it meant I'd get a billion in a month. Heck, we can take the bus for a few weeks before we buy our new Bentleys, right?
Another way to look at it is this: If the author in question really had the secret to generating great wealth through penny stocks, why wouldn't he simply make his money by employing that method? Why bother selling subscriptions? Why take time away from your penny stock investing in order to write newsletters? It looks to me like he may be making more from his subscriptions (and other endeavors) than from his investments.
This kind of discussion invariably reminds me of a guy named Wade Cook. Read a little about him and you may start realizing that there are a lot of folks out there promising quick riches, while they make money selling books and newsletters and costly seminars.
And for a little disclosure and promotion at the same time, consider this: Your friend the Fool offers books and newsletters and seminars, too! Yikes! But our books are designed to help you plan for retirement, get started investing in stocks (often via an index fund at first), and pay for college. The seminars we were once well known for are now reshaped into "How-to Guides," which offer to teach you about important topics in organized, systematic ways. The guides cost very little, include money-back guarantees, and some are even free! Topics include how to read financial statements, how to know when to buy and sell, how to get out of debt, how to pick the best mutual funds, and how to disaster-proof your finances.
And our newsletters? Well, check out this article and see how well they've been doing. They won't make you rich overnight, but they could really boost your performance over years -- and that's really what counts, isn't it? You may have read recently that Warren Buffett's Berkshire Hathaway (NYSE:BRKa) (NYSE:BRKb) has been buying shares of European liquor company Diageo (NYSE:DEO). Well, our Income Investor newsletter picked it well before this news broke, back in April 2004. Berkshire also bought into Anheuser-Busch (NYSE:BUD), as did our Inside Valuenewsletter, back in April 2005.
We have newsletter services focused on undervalued stocks, rapidly-growing small-cap stocks, rule-breaking dynamic young firms, dividend payers, retirement planning, outstanding mutual funds, and more. You can try these newsletters for free -- so consider doing so. And in the meantime, steer clear of anyone promising to make you rich overnight. Or even in a month.
Longtime Fool contributor Selena Maranjian owns shares of Berkshire Hathaway.
