How the Insiders create Bagholders in one easy lesson

[Tet]

I think it was Jesse Livermore who used to guarantee he could take any stock no matter how badly it was performing and get out at higher prices. Jesse knew that getting a stock's price to rise required some extra volume which is what his sales would create and Jesse knew that getting the price heading higher also required buying back some of these same shares that you just sold at a higher price.

Jesse's advice involving insiders

Lesson Two: Do not depend your analysis solely on "insider information." Livermore learned this lesson the hard way - twice in all. The first lesson was moderately costly; the second lesson was to cost him his entire fortune:

1. Livermore had always been skeptical about the dependability on "insider information." After all, why would top management tell outsiders that he was selling shares in his own company because he thinks business will be bad going forward (these were the days before insider-trading was made illegal)? Telling outsiders would only add more selling pressure to the stock, and vice-versa. The legendary trader, Bernard Baruch, had always maintained that insider information was useless, and that a person was doing him a favor if he would keep the insider information to himself and not reveal it to him. Livermore got his first real lesson sometime after he closed out his profitable short position in Union Pacific right before the 1906 San Francisco Earthquake. After three days of tape-watching, he concluded that the shares of Union Pacific were being accumulated. He started to accumulate shares in Union Pacific as well - only to be stopped by Ed Hutton, the great New York financier and owner of the E.F. Hutton brokerage house, and a personal friend. Hutton told Livermore that he had inside information and that the insiders have set up a pool and were dumping shares to him at a furious rate. Sooner or later, Union Pacific is going to tank. Despite his own beliefs and the reinforcements of all those beliefs from years of tape-watching, Livermore liquidated his 5,000 shares of Union Pacific at $162 - making only $10,000 in the process. The next day, the company announced a 10% dividend and the shares shot up by an additional ten points. The opportunity cost? $50,000 in additional profits which would be equivalent to over one million dollars today. Livermore did not get upset or emotional, but after this incident, he swore that he will never listen to insider information again and that he will only trust his tape-watching skills and instincts from now on.
2. The second lesson that was handed down to Livermore did not strictly involve insider information, although it was pretty darn close to it. It also taught Livermore a little about himself - his gullibility and his succumbing to another man's sale skills even though he practically knew all the facts of a product (in this case, it was the cotton industry). Let me clarify. This happened soon after the Panic of 1907 - when Livermore was trading successfully at a peak level and soon after he made a small fortune by nearly cornering the cotton market. Some weeks before, a man named Percy Thomas (who was also know as the "Cotton King") had gone bankrupt in trying to corner the Cotton market, and hearing Livermore's exploits, Thomas would seek him out and ask Livermore to be his partner. Livermore refused to be Thomas' partner since he had always played a lone hand. However, Thomas was a man of knowledge (particularly in the cotton market, of course - where he supposedly had "spies" that would report crop conditions and the like to him as soon as they could) and a great charmer, and Livermore was soon put under his spell. Prior to Livermore meeting Thomas, Livermore was short cotton. After a month of listening to Thomas and falling under his spell, Livermore covered his short position and went long. This was the beginning of Livermore's downfall. With his judgment clouded, Livermore continued to average down on his long position even as Cotton fell. He even sold out his profitable wheat position in order to maintain his margin requirements in cotton and to even buy more cotton on the way down. After realizing what had happened, Livermore soon sold out - with a stake of only $300,000 left - 10% of what he had only some months ago. Livermore sold his apartment and his yacht and tried to recoup his losses in the stock market. By this time, however, his emotions were running wild and his trading skills were shot. Soon thereafter, Livermore was broke once again - not only losing his remaining stake of $300,000 - but now, he was in debt to the tune of over one million dollars. Livermore would ultimately establish himself once again, but this lesson further reinforced his beliefs that he should always play a lone hand, and that he should never tell anyone what he was doing or ask otherwise.

In the last seventeen or so trading dayz we just witnessed a pretty good scam pulled by the insiders at one of our DOW components GM. GM on June 7th was trading at $29.45 and yesterday got up to over $38 for a very, very quick and clean 30% gain. Not a bad couple weeks work. What was it that the good innocent folks on the inside of GM knew that the poor bagholders on the outside didn't know? Amazing that a companies stock can go up 30% in two weeks only to find out that GM's sales for the month of June plummeted over 21%. Pretty amazing that the Wall Street gangsters are now so bold and protected they can pull this type of bullshit in broad daylight with no ill ramifications. Somebody should shoot these shitheads but instead I'm sure somebody is going to pocket a huge bonus.




Nice huge distribution spike there in the middle of June, obviously if sales are off over 21% for the month you have a very good idea that they are going to be off at the half-way point in the month. After the huge distribution spike that Jesse tells us is required GM launches for a quick 30% gain in the stock price, leading up to the June sales after-hours announcement, GM off only 1% after hours thanks to every trader leaving a little early today for the 4th of July Holiday. I'm sure a lot of thought went into when the announcement would be made, once again proving how big a role the media plays in this congame. You can't get anymore blatant than this manipulation and I'm sure nothing will become of it. I certainly feel sorry for those who view the stock market as an investment and not a casino.

This is the type of crap that I could put up with when it involved $5 petfood companies and 50 cent penny stocks from Toronto and Salt Lake City, but now we've reached the point where even GM is a manipulated stock and nothing is done about it. Incredible, buyer beware, Wall Street might find it more difficult getting the suckers back to the table next time, but I guess we've been dumbed down to the point that's not going to be a problem.

[metalman]

Re: How the Insiders create Bagholders in one easy lesson

I think it was Jesse Livermore who used to guarantee he could take any stock no matter how badly it was performing and get out at higher prices. Jesse knew that getting a stock's price to rise required some extra volume which is what his sales would create and Jesse knew that getting the price heading higher also required buying back some of these same shares that you just sold at a higher price.

Jesse's advice involving insiders

Lesson Two: Do not depend your analysis solely on "insider information." Livermore learned this lesson the hard way - twice in all. The first lesson was moderately costly; the second lesson was to cost him his entire fortune:

1. Livermore had always been skeptical about the dependability on "insider information." After all, why would top management tell outsiders that he was selling shares in his own company because he thinks business will be bad going forward (these were the days before insider-trading was made illegal)? Telling outsiders would only add more selling pressure to the stock, and vice-versa. The legendary trader, Bernard Baruch, had always maintained that insider information was useless, and that a person was doing him a favor if he would keep the insider information to himself and not reveal it to him. Livermore got his first real lesson sometime after he closed out his profitable short position in Union Pacific right before the 1906 San Francisco Earthquake. After three days of tape-watching, he concluded that the shares of Union Pacific were being accumulated. He started to accumulate shares in Union Pacific as well - only to be stopped by Ed Hutton, the great New York financier and owner of the E.F. Hutton brokerage house, and a personal friend. Hutton told Livermore that he had inside information and that the insiders have set up a pool and were dumping shares to him at a furious rate. Sooner or later, Union Pacific is going to tank. Despite his own beliefs and the reinforcements of all those beliefs from years of tape-watching, Livermore liquidated his 5,000 shares of Union Pacific at $162 - making only $10,000 in the process. The next day, the company announced a 10% dividend and the shares shot up by an additional ten points. The opportunity cost? $50,000 in additional profits which would be equivalent to over one million dollars today. Livermore did not get upset or emotional, but after this incident, he swore that he will never listen to insider information again and that he will only trust his tape-watching skills and instincts from now on.
2. The second lesson that was handed down to Livermore did not strictly involve insider information, although it was pretty darn close to it. It also taught Livermore a little about himself - his gullibility and his succumbing to another man's sale skills even though he practically knew all the facts of a product (in this case, it was the cotton industry). Let me clarify. This happened soon after the Panic of 1907 - when Livermore was trading successfully at a peak level and soon after he made a small fortune by nearly cornering the cotton market. Some weeks before, a man named Percy Thomas (who was also know as the "Cotton King") had gone bankrupt in trying to corner the Cotton market, and hearing Livermore's exploits, Thomas would seek him out and ask Livermore to be his partner. Livermore refused to be Thomas' partner since he had always played a lone hand. However, Thomas was a man of knowledge (particularly in the cotton market, of course - where he supposedly had "spies" that would report crop conditions and the like to him as soon as they could) and a great charmer, and Livermore was soon put under his spell. Prior to Livermore meeting Thomas, Livermore was short cotton. After a month of listening to Thomas and falling under his spell, Livermore covered his short position and went long. This was the beginning of Livermore's downfall. With his judgment clouded, Livermore continued to average down on his long position even as Cotton fell. He even sold out his profitable wheat position in order to maintain his margin requirements in cotton and to even buy more cotton on the way down. After realizing what had happened, Livermore soon sold out - with a stake of only $300,000 left - 10% of what he had only some months ago. Livermore sold his apartment and his yacht and tried to recoup his losses in the stock market. By this time, however, his emotions were running wild and his trading skills were shot. Soon thereafter, Livermore was broke once again - not only losing his remaining stake of $300,000 - but now, he was in debt to the tune of over one million dollars. Livermore would ultimately establish himself once again, but this lesson further reinforced his beliefs that he should always play a lone hand, and that he should never tell anyone what he was doing or ask otherwise.

In the last seventeen or so trading dayz we just witnessed a pretty good scam pulled by the insiders at one of our DOW components GM. GM on June 7th was trading at $29.45 and yesterday got up to over $38 for a very, very quick and clean 30% gain. Not a bad couple weeks work. What was it that the good innocent folks on the inside of GM knew that the poor bagholders on the outside didn't know? Amazing that a companies stock can go up 30% in two weeks only to find out that GM's sales for the month of June plummeted over 21%. Pretty amazing that the Wall Street gangsters are now so bold and protected they can pull this type of bullshit in broad daylight with no ill ramifications. Somebody should shoot these shitheads but instead I'm sure somebody is going to pocket a huge bonus.




Nice huge distribution spike there in the middle of June, obviously if sales are off over 21% for the month you have a very good idea that they are going to be off at the half-way point in the month. After the huge distribution spike that Jesse tells us is required GM launches for a quick 30% gain in the stock price, leading up to the June sales after-hours announcement, GM off only 1% after hours thanks to every trader leaving a little early today for the 4th of July Holiday. I'm sure a lot of thought went into when the announcement would be made, once again proving how big a role the media plays in this congame. You can't get anymore blatant than this manipulation and I'm sure nothing will become of it. I certainly feel sorry for those who view the stock market as an investment and not a casino.

This is the type of crap that I could put up with when it involved $5 petfood companies and 50 cent penny stocks from Toronto and Salt Lake City, but now we've reached the point where even GM is a manipulated stock and nothing is done about it. Incredible, buyer beware, Wall Street might find it more difficult getting the suckers back to the table next time, but I guess we've been dumbed down to the point that's not going to be a problem.

good one! i'm fond of the term "reloader".

Definition: A sucker with a track record of naivety, ignorance, or just plain stupidity, hence a scam artist's preferred customer.
Comment: A sucker who has proven his vulnerability is more likely to fall for a subsequent, properly constructed scam than the average person in the telephone directory. For example, a classic follow up fraud is to approach someone who has been defrauded and sell him services to "recover" previous losses. The smartest investors and traders learn from someone else's mistakes, which is good, because nobody lives long enough to make all the mistakes himself. Many people seem to learn only from their own mistakes. Some poor, lost souls don't even learn the hard way. They become "reloaders", two-time losers, or even serial victims.

http://www.margrabe.com/Devil/DevilP_T.html

noticed iTulip is credited with inventing the term "sheeple"

7/28/00 "n: a mass of investors comprised of individuals each of whom makes investment decisions based on the observed actions of the other members of the herd : sheep-like as a : one unable to make rational investment decisions based on personal observations that lead to actions that contradict the actions of the herd b : uncritical of information inputs from those who seek to profit from them, such as financial services companies c : in for a big surprise"
Source: Eric Janszen, www.iTulip.com.

[metalman]

Re: How the Insiders create Bagholders in one easy lesson

there are some other beauties there...

Package
Definition: An investment vehicle that lets you magically transform a large sum of mere idle cash for a small, priceless, timeless nugget of a "boiler room" operator's wisdom.
Usage: Says the boiler room pro, "I have a six-figure package or a seven-figure package. Which would be better for you?"
Proper Response: "They both sound very interesting. Could you hold for a minute. I need to call the SEC's Office of Investor Education and Assistance. What's your name, again? ... Hello? Hello?"


payment for order flow

1. Chump change for those who don't understand that when Wall Street invites you to a free lunch, you are likely to be the main course. The wolf's kickback to the broker who delivers lambs to the slaughter.
2. A mechanism that allows a broker to offer to do your trade for almost nothing.


Portfolio Insurance
Definition: Hypothetical downside protection at the certain expense of upside participation.
Example: Its providers used mainly a Dynamic Trading Strategy, namely sell into a falling market and buy into a rising market.
Comment: The effect is to create sitting ducks for predatory traders during violent market swings, as we saw in October 1987.


Quant
A mathematician who observes the price of a Derivative Products in practice and tries to figure out what it is in theory.


Red Herring
A legal document that grants the issuer in an IPO the right to pick the pockets of the unwary [redundant – Ed.] investor. A preliminary prospectus in an IPO, designed to overwhelm and confuse investors, and required by securities regulators.

roach motel
An investment that you can get into, but can’t get out of.

The prime example is a thinly traded penny stock whose price promoters are manipulating. Its price keeps rising on small volume. You get in at three and watch the price go up to seventeen. You try to get out and find that the only bid is two.

i'd add hedge funds to that list.

[Tet]

Re: How the Insiders create Bagholders in one easy lesson

Nicely done, I think more people need to rent the Robert Redford and Paul Newman movie "The Sting" and hopefully realize that yes Virginia, there really are people like that.



E-mail has really helped lower costs involved for the Pump and Dump Penny stock scams that I get at least six or seven of everyday. These boiler rooms are now set-up all over the world, mainly in one small middle-east country.

[metalman]

Re: How the Insiders create Bagholders in one easy lesson

man, i forgot how good this guy is...

transparency
The unprofessional and total abdication of the normal and prudential practice of hiding all inconvenient details from one's intended victim.

day trader
The financial market's equivalent of the little old lady who spends every day at the casino, sticking quarters into a slot machine. One who believes you can lose a nickel on every trade and make it up on volume.

packing
The lending practice of piling credit fees and insurance products onto a loan, until the drowning borrower can no longer stay afloat. Cf. "flipping" and "packing". To the great credit of Sen. Charles Grassley (R. Iowa), chairman of the Senate Special Committee on Aging, he does not plan legislation to infantilize American borrowers by regulating this process, but is only pointing out the abuses by "a few bad apples" who are "con artists" and "immoral and unethical". (Matt Murray, "Ford's Loan Unit Draws Criticism at a Hearing," WSJ, 3/17/98.)

emerging market
A backward economy, temporarily growing faster than its indigenous thieves can deplete it, as brokers and dealers, those imaginative authors of modern financial fairy tales, describe it to their starry-eyed victims. A future submerging market (q.v.).