Buy Low Sell High

In case you didn’t realize it, the stock market is a scam. One of the worst and scammiest things about it is that it’s been arranged so that your money becomes worth less, if you don’t invest in it: so you gotta play, and the game is rigged.

It’s rigged for and by the winners, of course. The biggest winners are the investment banks that “make a market” in a particular stock – they do nothing except move a number from one ledger to another and charge a fee for doing it. It’s a great business: if you win, they win too and if you lose, they still win! And, of course, whoever has some advantageous knowledge can trade ahead of the market – i.e.: “insider trading”, but it also could be espionage or brilliant market analysis. The main trick is to start with a large amount of money and then you can work the market better. If I have $100 and increase its value 40% I have $140, but if I have $1 million and do the same thing, I just pocketed enough for another nice house.

Sometimes there are genuine visionaries who time a market well; I remember one guy who had about $1 million and shorted the real estate market in the fall of 2007. He tripled his money when the market fell, then bought: real estate, and rode it back up, tripling his money again. That’s just a couple trades; a very valuable activity to society, so he was duly rewarded with $9 million over the course of 4 years. If he’d started with $100, he’d have wound up with just under $1000. Big fucking deal.

But you gotta start small to get big, unless you’re lucky enough to be born with a platinum spoon in your mouth. You have to pry that platinum spoon out of some other guy’s mouth, by being in the market ahead of them. See, when someone has inside information, they’re stealing from the people who are doing transactions with them: it’s exactly the same as if I sell you a Lamborghini for $500,000 (what a deal!) except I know its transmission is on its last legs and you don’t. (Differential information is money in capitalism) So, here’s what’s going on in Washington: everyone is trading ahead of the market. Because they have information and Washington is a gossip-fest. You start out a lowly peon working for some senator and, if you can double your portfolio every year through careful insider trading, you’ll wind up an oligarch like your boss. Unless you go for a bigger table-stake by doing some outright graft like using some of your campaign money as table-stakes, which is great as long as the market goes up.

So you get things like small-time grifter representative Susan Davis (D-Calif) who unloaded “thousands of dollars” of Royal Caribbean Cruises shares when she first got the briefing about the coronavirus. Here is the kind of investment genius that Warren Buffet does not envy (because he does his research and probably figured out years ago that cruise lines were a bad investment)

Let’s say you have 50 shares and you sell them at 130 – near the peak: that’s $6,500. If you held onto them a week longer, then you’d get $1,150. That’s such a big move that you can see how it’d make a real difference in someone’s pocket. Especially if they got out with the $6,500 and invested in something that would go up in the event of a pandemic. Like “a senior aide” to Mich McConnell who invested in Moderna stock in January.

Moderna is one of the companies researching generalized flu/corona virus vaccines. Between January and now their stock is up about 70%. So, if you were the same congressperson who pocketed the $6,500 when you bounced out of the Royal Caribbean Cruise company stock, and you invested the $6,500 in Moderna, you’re now sitting on $11,000 or so. That’s pretty good “making lemonade out of lemons” since just January – our little portfolio is nearly double what it was a few months ago. If you can keep up that rate of return for a few years, you’ll be as rich as Nancy Pelosi! [Pelosi made her money in real estate, which is a great investment for people who already have money; you still get rent even in a crisis and, while your property values fluctuate they tend to fluctuate up if you’re smart enough not to buy properties in Miami. Although there are speculators buying properties in Miami because they think they can pick them up cheap, then line up for a bail-out when the water goes over them. Oh, and Pelosi got started on the path to wealth the traditional way: she inherited it.

Cause and effect: heritable wealth -> oligarchs.

But the absolute creamiest situation is to be one of the people who controls government’s response to crises (or even creates crises) and you’re able to trade ahead of the market on it. That’s like giving these people a license to print money. It’s OK though, there are no sleazebags in congress, right?

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Politico on congressional stock trading: [politico]


  1. aquietvoice says

    “It’s OK though, there are no sleazebags in congress, right?”
    Correct. The bags were stolen immediately.

    Then money was allocated to Bag Theft Inc. to search for and replace the missing bags. No results yet, obviously needs more funding.

    Also, speaking of the stock market, my favourite take (in all senses of the word) is that of fucking Optiver and the other “Low Latency Trading” goons, who trade by doing a buy-sell cycle between one person’s “sell” order coming in and another persons “buy” order in response. How do they do that? Hiring a space right next to the stock exchange, or making a microwave link to somewhere so they can beat out optical fibre transmission.
    Speed-of-light delay information differential, I would be impressed if I could do anything other than loathe them.
    They are my favourite because:
    1) There’s no way for anyone, anywhere to claim they are adding meaningful value to society by providing companies with extra capital for approximately 12 milliseconds
    2) They are the proud innovators in the realm of pin-striped prisons
    3) They keep sending me emails, calling themselves fucking “research opportunities”. At this point, I think I would literally rather show up in person and bite them than work for them. Fortunately, I have the option to do neither, which is infinitely more appealing.

  2. xohjoh2n says

    The bags were stolen immediately.

    Quite right too: Government is particularly inefficient at bag-management, so you’re in fact doing the whole country a favour by “transferring them to the private sector”.

  3. says

    I’ve been saying for years now (the reality hit me finally when I first heard of profitable companies laying of workers to increase profits) that the stock market is the biggest blight on society. It’s never enough for a corporation just to do well, it has to be constantly growing.

  4. says

    Tabby Lavalamp@#3:
    the stock market is the biggest blight on society

    It’s the most obvious manifestation of the inherent unfairness of capitalism.
    The “constant growth” problem is interesting; I think Malthus said something about that.

  5. cvoinescu says

    It’s the most obvious manifestation of the inherent unfairness of capitalism.

    No no, it’s bad beyond that. I mean, sure, but the stock market brings short-termism, perverse incentives, and costly externalities to the party, on top of the inherent unfairness.

  6. says

    And, of course it’s much worse than all this.

    If you have actual insider information that you feel like you can rely on, and if you don’t think you’re going to get caught, you sell the stock that’s going to decline, then you buy a short put for 5% to 10% of the price of re-buying those same shares. Basically instead of holding shares in the stock, you hold the right to sell 10 to 20 times as shares of the same stock for a specific price which is below the current trading price. But you don’t actually own the shares. You hold the right to sell shares for a specific price, but to complete the contract, you’re going to have to buy some shares.

    But it’s also not much below, so you control the sales rights to 10x to 20x the amount of stock that you could sell at $6500 (in your example), but you can only sell them if you actually own them, which requires investing another 65,000 to actually complete the contract. So you spend $6500 + $65,000 and you only get back $65,000. Bad deal, right? And it gets worse, since the short put is the right to sell for a price that is less than the current sale price. So you’re going to pay the current price – $65,000, to sell for an amount that might be more like $60,000.

    So since your costs are $71,000 and your sales revenue is $60,000, you actually lose $11,000.

    BUT… remember you know that the market is going down, and down pretty hard. If you know it’s going to fall more than 10%, then the fact that you pay 10% for the short put evens things out. If you know that the market is going to fall harder, you can make a huge profit.

    Continuing using the above example, Marcus said that the same stocks worth 6,500 were worth only $1,150 a week later.

    With a short put, you sell your current stock and collect $6,500, then you spend that on a short put, granting you the right to sell 10 to 20x the number of shares of that stock at a set price, in our example about 8% less than current trading value or $60,000 to $120,000. You’ll still have to spend money to buy those shares from someone else if you want to sell to your contracted buyer and complete the contract, but …

    …with the stock crashed, you can now buy those shares for $11,500 to $23,000. The least you’ll able to make, then, is if you were only able to get the put for 10x as many shares.

    Cost to you, $6,500 up front for the contract + $11,500 for the shares to complete the contract = $18,000
    Sale price of 10x the number of shares, $60,000.

    Profit = 60k – 18k = 42k.

    Sure, you can make money by moving your travel-related stocks to biotech, but if you really aren’t afraid of getting caught, it’s much easier to predict the losers in this situation than the winners. Biotech generally might do well, but people will be afraid of spiking one stock too much even if it is biotech since they might have bad management or not end up with any coronavirus contracts or whatever. We KNOW travel is going to falll and that all travel stocks will suffer. We know that some biotech stocks will win long term, but not all of them, so they don’t go up as much as travel stocks go down.

    If you really think you’re immune to prosecution, selling a stock and then shorting that very same stock is the safer bet and collects far more money. Also, if you think you can justify selling a stock, wouldn’t the same information that justifies selling the stock on non-insider info also justify shorting that stock?

    I don’t get it. To me, it seems that there’s something going on here with appearances and propriety and manners or something, something that only the insider-trading class know or cares about. But to me it only shows that they’re brutally corrupt AND brutally stupid. Why break the law to get $13,000 when you can break the law to get $42,000 at the risk of only the same jail sentence?

    Oligarchs: can’t live with them, can’t execute them in the public square. At least not very often.

  7. jrkrideau says

    I see the Las Vegas casinos are closed. Probably a good idea to close the various exchanges. At least in the short run, say six months or so, they probably would not be missed.

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