Elaine Jackson just had a visit from her cousin Phil. He wanted to apologize. Last year he had regaled her with stories about a small company he had discovered that had just invented a high-tech converter to allow cars to run on water. It was still all hush-hush. The stock was trading for just one penny a share. He had put all his savings into it, and he wanted to share the tip with her. She ponied up $8,000 that she had been saving for two years. Later, when her money was long gone, she realized she had been the victim of a classic “pump and dump” scheme whereby unscrupulous promoters bought up “penny stocks,” started a rumor about big profits, and when enough suckers bought in and the stock price shot up, the promoters bailed out and made a profit. Phil had just gotten out of prison and he felt terrible about what he had done. Elaine had learned an expensive lesson.

Requirements

1. Does the current market price of a share of stock give any indication of the value or success of a company?

2. What sort of information should an investor look for before deciding to invest in stock of a company?