Crimes of Persuasion

Schemes, scams, frauds.

Major Market Investing

Envy Those Who Stay Away

One is influenced to invest by subtle pressure from those around you, where meaningless gossip is passed around like it was a major economic factor, and by financial experts, whose professionally sincere opinion is simply their own brand of gossip.

Research for most investors means hearing the same gossip from two different people.

It has been noted that we associate wealth with intelligence. As we strive to gain more wealth through investing we assume an air of worldliness and insider knowledge by repeating gems of business gossip gleaned from the financial pages.

As ones' wealth increases temporarily from skyrocketing stock valuations we congratulate ourselves on our insight and financial acumen.

Impressing friends with your psychic insight of world markets fosters your smug comfort level.

You never hear someone recount their failed visions or lost investments.

Like royalty buffs we seek to share in the glimmer of affluence by owning a share of that corporate success.

While hoping to be a part of it we are in fact merely enhancing it, by shipping public corporations and their officers more money for consumptive display.

Regardless of a company's financial results, insiders and company officials regularly appoint themselves huge salaries and stock options, along with forgivable loans, all from the proceeds of your stock purchases.

The 1920's Russian economist N.D. Kondratieff believed that people are predictable, greedy, speculative and short-term thinkers, prone to making the same mistakes over and over again.

The ultimate vanity is to think you know enough to succeed in the world of investments.

Each new generation has no personal experience with the speed with which an atmosphere of comfortable greed can be turned into one of abject fear or the imperceptible way in which an atmosphere of investment can become a climate of speculation.

As the market goes up and people make money on even the most inferior and suspicious issues, they never stop to question the rationality of the process.

Even sensible investors come to overlook the Ponzi-scheme aspect of stock markets in which higher participation means higher prices only until the rate of participation inevitably stops rising.

The assumption that pension and mutual fund managers are something more than individual investors playing with unrealistic amounts of other peoples' money is perhaps the grandest illusion.

These "paid by results - forget the risks" high-flyers will readily spend $10 million on a stock purchase that they would deliberate much longer on if they were spending just $10 thousand of their own money.

With not enough new money entering to sustain the euphoria the peak becomes unstable and unsustainable, which is why a period of speculation always ends quickly and harshly.

The Inevitable Hindsight

People learn very little when they win. Intelligence in investing should not be measured by what you succeed to gain, but by what you fail to lose.

Despite your optimism, and contrary to your certainty, the worst possible thing can and likely will happen at the worst possible time.

If a stock is climbing, it is hard to sell and lock in profits, but it is infinitely harder to sell and tally your losses when it's going down.

Any downturn in the market creates margin calls for borrowed funds to be repaid by people financially strangled by leverage gone wrong.

Already tapped out, people must submit orders to sell which quickly surmount any intrinsic value left in the investment. The only place to go is down once the imagined worth vaporizes.

Expert advice is always given after the fall by people unwilling to gamble their own savings on their learned convictions and clairvoyant insight.

And how many times will you get burned before you stop putting money into the fire pit of speculation? Many.

As long as you consider your losses as merely bad investments. A speed bump on that highway to riches.

Like bad jobs, our mistakes are quickly forgotten, our memories mercifully fogged for the protection of our self-esteem.

An investment, to be truly sound, must be backed by something negotiable and convertible. Stock certificates are backed only by imagined future value.

An infinite number of incalculable variables are involved in assessing the perceived or real value of a stock.

Even book value is meaningless without a buyer who will pay "full retail" for a defunct company's assets.

You can be sure that there will be more than enough preferred and secured creditors to eliminate the slightest chance of ever seeing an after-bankruptcy payment for your common shares.

The root cause of a market crash will always be blamed on an external source such as interest rates, foreign economic turmoil, inflation statistics, or budget deficits.

Never is it noted that the fever of buying has waned due to a saturation of new and adequately gullible investors being reached.

The most basic, but least appreciated, maxim for common stock investing is that for every buyer there is a seller, for every winner there is a loser, and for every dollar of gain there is someone, somewhere, who has lost that dollar.

It is not P/E ratios, yields or floating averages that matter but who is the winner or loser in the transaction.

For if you sell high you win, and the loser, who thinks he will be a winner, must find another loser to change his position in the game of financial musical chairs.

The SEC, NASD, and Securities Law Information Center - Helps investors understand laws and regulations governing stockbrokers and their relationship with investors. Explains the securities arbitration process.

NASD Dispute Resolution Arbitration Forum - Lists rules and filing costs and explains mediation.

PIABA - Listing of attorneys which specialize in arbitration disputes.

Investors of Sunshine Fresh Produce, Oxnard, California, Strawberry Brokerage Business

- Arrest in Strawberry Ponzi Scheme - article from 12/19/03

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