My view of Ruthless Professional Stock Trading and Corporate Raiding

Years ago the law only permitted selling stock that you did not own, known as Short Selling, on an uptick. For example, if the last trade of XYZ stock was $10.50 a share you would have to Short the stock for, say $10.58 or higher. If Traders got together and tried to drive the price of a company down by Short Selling it would be hard to do on up ticks.

Our friends in Congress changed that law so that now Traders can attack a company and drive the stock price down to the basement. At some point they have to Cover or buy back the stock they sold that they didn’t own, presumably at a much lower price. Crashing the Stock Market may wipe out your 401k and your savings but it can be very lucrative for the big boys on Wall Street.

I have seen companies driven so low that the Market Cap, the share trading price multiplied by the shares outstanding, was actually below the cash that the company had in the bank. In simple terms, the company had enough real money to theoretically buy all the shares of the company and still have cash left over plus all the assets, buildings, property, equipment, etc. A corporate raider can come along and buy controlling interest, put some lipstick on the company, pocket the cash and liquidate the rest.

The price the shares sell for in the Markets may or may not have anything to do with the actual value of the company. Professional Stock Traders can run prices up or down. It is easier to run prices down because many investors buy on margin meaning they borrow most of the value of the shares. To do that there are lots of rules. Margin requirements might jump from 20% to 70% to 90% depending on conditions. That forces the little investors to sell their shares at bargain basement prices. To add insult to injury, a Corporation that is unprofitable may still give their officers huge bonuses.

I watched the talking heads on TV trash Gold and Silver for decades as Gold went from $200 an ounce to $1,900. Why did they do it? They couldn’t control Gold. They can mess with heating oil and pork bellies but Gold is not so easy. Be very careful when you listen to those talking heads, they can be bullish today and bearish tomorrow. Investing in the markets can be perilous and treacherous. Ruthless people pursuing wealth can trample you under their feet. The people you see on TV running for Public Office or enjoying their billions of ill gotten gain may not be someone you would invite into your home or go fishing with.

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