All Warfare is based on deception

or so Sun Tzu said, and the stock market is a war ! If you keep that in mind, then maybe you will be able to understand many asburd things on Wall Street, and avoid being “killed” by the “sharks”.

Nowadays, only about 2% of all trading on the stock markets are real investing  (long term, fundamentals-oriented, “cooperative”, “win-win”), the other 98% is a zero-sum game, where for some person to win, another person must lose. When you enter the stock market, you enter a war, where a multitude of adversaires are there trying to kill you (that is to take all the money they can take from you). And how do they do that ? By deception, of course !

How do they deceive you ? By

– withholding important information from you

– feeding you with confusing info, propaganda, and outright lies

– manipulating the stock, painting the tape, etc

Who can deceive you ? How about:

– The president of your country ?

– The management of the companies that you invest in ?

– The investment bankers ?

– The financial analysts ?

– The market makers ? etc.

Of course, there are many ethical people out there who don’t “sell their soul to Satan”, but unfortunately there are also too many people in the financial or political world who don’t hesitate for a second to deceive you to their advantage.

Have you ever heard a president admit that he was a failure ? Even if the economy is on the brink of a total collapse, your president will still sound very confident. And this fact is true for imperialist, capitalist, socialist and communist presidents alike. Same thing with the management of many companies. They will try to hide fishy things which go wrong  until it’s too late. Just look at Worldcom, Enron, GM, …

The subprime crisis is one of the biggest financial scams of the century. Those investment bankers “created something from nothing”, and took away from the banks billions of dollars in bonuses (and they are still paying themselves very hefty bonuses), while leaving banks with astronomical holes that the taxpayers must fill. The earnings are fake, but the bonuses are real. (They made people believe that “the gains were real”, until the thing collapsed). Here, even if you don’t enter the stock market, you, as a taxpayer, still lose to those unscrupulous bankers !

When you know that some stock is absolutely worthless, the market will still try to deceive you (or other people) into believing that the stock is worth something. GLTMQ (Motors Liquidation –i.e. the bankrupt old General Motors) is an example. Even though the stock is intrinsically worth zero (they are in the process of liquidating the company completely, and their assets are not enough to pay even for a small fraction of their debt, leaving the stockholders with nothing) the market still managed to “walk” the stock price up almost 3 times, from 0.40 to 1.15 last month ! Of course some traders made money on the way up, but most people who followed them and bought, have lost. On the other hand, when you find a very high quality stock with low valuation, then the market may try to make you believe that it’s a dead dog which can’t move up. For example, a stock with 40% long-term earnings growth and P/E = 10 is very cheap by any fundamental measures. But after you buy it, it may go down and lose 50%.  If you get out at a big loss, because “the stock can’t move up”, then you are wrong again, because just after kicking you out, the market takes your stock up 10 times during a short time ! Such things actually happen from time to time on Wall Street.

etc. etc.

I’m a bit tired now, so I’ll stop here. But keep thinking about what tactics can they use to lure “average” traders into the traps and take the money from them, and maybe those “misterious” price movements will become more clear to you.

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