Give Me Truths
1. Stock Market
The stock market is not casino gambling or flip of a coin. With smart insight and perspectives, you can make reasonable predictions about price movements.
The stock market never comes close to perfect competition due to the presence of a small number of big players conspiring together, millions of small players acting like a herd, and some medium ones in between. The medium players are in constant flux. Some of them merge to become big players. Some of them just lose out.
The stock market is a zero-sum game where one group profits at the expense of the others. Given the huge power imbalance between big and small players, who are most likely to profit at the expense of whom?
Power in the stock market comes from lots of cash to buy and lots of shares to sell. Coupled with insider information that goes with power, this constitutes a real lethal weapon. With this weapon, all other market factors become secondary.
Stocks must move, either up or down. Else nobody will make any money. Then who have the power to move the price?
Stock prices always move several months ahead of company performance. Can’t you figure out why after you have read the previous paragraphs?
You may think that the news drive the market. News can be manufactured, deliberately leaked, released to serve a purpose, and subjectively interpreted. The news do not drive the stock market. The business and economic fundamentals do. Some people purposely use the news to direct what will happen for the day. Most people conveniently or blindly use the news to explain what has already happened.
The stock market hates uncertainties. Prices always drop under a cloud. When the market nears its peak where all the good news become regular news, uncertainty begins to set in. Stock prices will fall. Conversely, when the end of a recession nears where all the bad news become regular news, the cloud begins to clear and people see the end of the tunnel. Stock prices will soar.
“Successful investing is anticipating the anticipations of others.” (John M. Keynes)
There are two bottoms for any company stock. The real bottom is zero when the company goes bust. The market bottom is your own illusion. It only happens when the big guys start to go in.
There is no real peak for any company stock. The market peak is wherever the big guys decide to cash out.
Long term or short term is just your own convenient definition. The truth is, “In the long run we are all dead.” (John M. Keynes)
2. Big Players
You don’t have to be a big player to understand their motives and actions. You just need to put yourself in their shoes.
The big players consist of an exclusive club of wealthy individuals who are born rich or self-made billionaires, major banks, investment banks, various investment funds, brokerage companies, venture capitalists, and all kinds of money launderers. Do you want to know who are the big players of a given stock? Ask the Board of Directors of the company. Whether they want to tell you is a separate matter.
Since there are thousands of public companies out there, the big players must focus their firepower in a short list of companies that they can manage. These are known as their own territories. When territories overlap, the big players consult and conspire together. Otherwise, they have more freedom of action. The overriding objective is to profit at the expense of the small guys, not any member of the exclusive club for fear of retaliation. The big players don’t want to step on each others’ toes, or negate each others’ schemes.
The banks and brokerage companies possess something that the other big guys don’t: They know all about your private trading accounts. They know how much money you have, how much you have borrowed on margin, how much short sales you have made, when will your options expire, and what price levels you want to buy or sell as specified in your limit orders. How can you win if your opponents know everything about you?
The banks and brokerage companies are forbidden by law to divulge private account information. But that does not prevent them from aggregating all the data regarding their account holders. Also, it does not prevent them from sharing or selling the aggregate data. If they share this data, they will know for example how much short sales have been made by all small players for a given stock and at what prices. They can easily make the short sellers lose by pushing up the price of that stock. They can do all kinds of other things, too.
To shield their identities, the big players do not buy or sell in their own names. They employ special companies or agents to trade for them on a daily basis. They may do share exchanges or other back room deals outside of the stock market.
The lead-time of stock price ahead of company performance by several months shows that the big players have access to insider information.
Do you think big players read the news or analyses before going out to buy or sell just like you? If they do, they are no big players. Big players make news and make analyses for you to read.
Big players practice the age-old game of buy low and sell high. In the stock market, the game involves more sophistication: Buy most shares at lowest possible price, buy panic sales by small guys, push up the price by continuous buying, seduce public participation by trumpeting the stock, short sell at higher prices, begin unloading near the peak, and depress the price by continuous selling. Then come back later to repeat the cycle again. Or switch to another company stock.
People work for the sources of their paychecks. When an analyst works in an investment firm owned or controlled by a big player, can’t you tell for whom the analyst is working?
When an investment firm controlled by a big player operates a mutual fund, can’t you tell for whose interest the fund is serving? Remember the stock market is a zero-sum game.
3. General
Truths are usually learned through observation, reasoning, and experience, not by remembering what an expert or authority says.
We all suffer from B.A.D. syndrome (blind, amnesia, deaf). So many things can prevent us from learning a good lesson. Even after we have learned from seeing and hearing, we tend to forget. So be on guard all the time.
The butcher does not try to feed you by selling you meat. He only tries to feed himself. The same is true for any business dealing (Adam Smith).
The world is never fair. It may be fairer in some cases than others.
If you want more fairness, insist on more transparency. When people short-change you, they want to do it in the fog, behind closed doors, or in the fine prints.
If you want more transparency, insist on simplifying procedures, rules, red tapes, and technical details. People tend to get immersed in those complicated things and forget to ask what is good for them.
Laws are never sufficient and are broken all the time. Laws are usually written or influenced by the rich and powerful for their own benefit. Don’t assume that the laws provide you with automatic protection, especially in financial matters. You need to protect yourself with your own smarts.
Most contracts or agreements between a company and a consumer are less than fair. Take a look at insurance policies, loans, credit card rules, investment funds, leases, lawyer services, hospital care, and so on. Do you have the time to read all those fine prints in the contract? Even if you do, do you really understand what they mean for your benefit?
“A crisis is a terrible thing to waste.” (Paul Romer, economist at Stanford)
You become a smarter person the moment you recognize that you are not that smart.
