The idea of not putting in more money than one can afford to lose is so the investor and his family can sleep well at night. Playing hyped pennies is gambling not investing. Most of these companies' businesses will go nowhere due to misfortune, incompetence, or crookedness. Say you discover one run by honest insiders. It'll take them many years to grow their company. There will be ups and downs. Sometimes the downs won't go back up. To make money on pennies, you have to recognize what is the play then get in and out. Don't get greedy.
A number of folks believe the same as you that MMs are killing pennystocks by shorting. In the vast majority of cases though, what you're watching is dilution created by insiders. Most small public companies do not generate anywhere near the revenues needed to cover expenses and cannot qualify for loans from reputable financial institutions. So, they sell stock to raise money. Sometimes they cut deals w/ pretty shady characters who short against their CDs. Sometimes insiders have their attorney write bogus opinion letters to turn restricted into unrestricted immediately avoiding the required holding period or having to file a registration statement. There's all sorts of other tricks done. MMs and brokers are used as vehicles for illegal dumping, but they rarely run an abusive shorting show themselves.
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