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Who Can Manipulate The Market? -- Stock Market (2)

Who Can Manipulate The Market? -- Stock Invest (2) The existing environment in the stock market is conducive to manipulation as described below: Lack of Competition Let's take jeans and cell phones as examples, people have a wide choice of products and prices based on utility, need, and fashion. The sellers have to display the price clearly. It cannot charge an unreasonably high price for fear that the consumers will switch to another product. This situation fosters a competitive environment. The stock market does not have a physical product to sell. The share certificates made of paper have no utility value. The moving price results from continuous bids and offers between buyers and sellers influenced by news and emotions. When you buy a company's shares, you're just buying a dream. The company only serves as an anchor for that dream. The share price reflects what people think the dream is worth at the time of purchase. Their thinking is influenced by what they see and hear about the company. You don't own the company by buying its shares for you have no say whatsoever. The real owners are the few top shareholders who sit on its board of directors. How about competition between shareholders? The millions of small shareholders (or the so-called herd) don't buy or sell at the same time unless being somehow seduced or orchestrated. The herd will only begin to rush in after the big traders have made their first moves causing a significant change in price. When the millions of small shareholders start to move in, we'll see either a bubble or a stampede in the making. Do you think there is competition between big shareholders? They are fools if they choose to compete. Due to their small number, they will find a way to know each other, to consult and collude discretely. In this way, they can profit together without undercutting one another, but at the expense of the millions of small shareholders. Lack of Relevant Information In the case of jeans or cell phones, information about the product is so obvious because you use it and derive satisfaction out of it. The case is different with shares. There is no tangible product to speak of except your dream about the prospect of the company issuing the shares. You may have done a lot of research before you buy. How relevant is your knowledge about the company? All the information you get is news and statistics designed for public consumption. Do you think a big trader gets the same information as you? If I were a big trader, I would call the Chief Executive direct and ask about their business orders for the next few months. Better still, I would do it discretely. I would first make him my friend by inviting him to my parties or country club. I could easily get all kinds of insider information in a social environment direct from the horse's mouth. Lack of Transparency If deceit and manipulation of the market is to be avoided, transparency must be enforced. Do you think the stock market is transparent enough? Yes, to a very small extent mainly designed for public consumption. Does the market reveal the daily activities of big traders who can influence share prices? Does it explain why big traders can trade during after-hours while the public cannot? Big traders prefer not to use their names. Does the market reveal which companies represent big traders? Should the market become more transparent, the big traders would lose all their predatory advantages. They will never surrender this precious power. Why should they? Who make News and Rumors? When an analyst opines about a company, how much can you believe? Should you be prudent? You must realize that analysts are employed by finance companies, which are big traders waiting to make a kill. Analysts don't make buy and sell decisions like powerful fund managers. They are hired as mouthpieces for big traders to orchestrate public behavior with news and statistics, which can be interpreted either way they like. The smart analysts know that they serve their employers' profit motives. Only the less smart ones think that they are independent researchers. As you know, the people who believed in the analysts about Enron have all been burned. Zero-Sum Game In the case of jeans or cell phones, a condition exists where the consumers get satisfaction and the producers make good profits. Everybody becomes better off. The producers have the incentive to satisfy the customers. The customers continue to demand better quality. This is what we call a positive-sum game that should be nurtured by the capitalist system. In the stock market, no such condition exists. When somebody wins, someone else has to lose, which is the same as in the casino. This classic dog-eats-dog situation encourages manipulation and deceit to get out of the game alive. It is easy to tell who has the upper hand. For further information, please email to stockfessor@comcast.net.

Channel: Education
Uploaded: November 30, 1999 at 12:00 am
Author: stockfessor

Length: 05:57
Rating: 4.00
Views: 906

Tags: finance  fund  invest  manipulate  market  mutual  retire  share  stock  stockfessor  

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