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.
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Longtime Fool contributor Selena Maranjian owns shares of Berkshire Hathaway.