Yes, you too can make money on pump-n-dump stocks

Something I've always suspected: ZDNet had an article last month in which Ryan Naraine described how he made 25% on paper in five weeks by shorting pump-n-dumped stocks.

The theory is simple enough. Pump-n-dump makes money for the spammers because the spammers buy the stock cheap, convince a bunch of suckers to buy it, and sell their own shares when the price goes up. The price then goes back down and all those suckers lose their money.

Ryan Naraine's technique was pretty obvious: when you get the spam, you assume it's too late to buy the stock before it goes up, so you short sell the stock and make a profit when it inevitably collapses.

Of course, this is all theoretical and probably won't work in practice. The trick here is to actually find the stock to borrow. Since the pump-n-dumpers specialize in Pink Sheet stocks, it may not be so easy. Naraine's profit was on paper only; I don't know of anybody to ever do this for real.