Sunday thoughts on how the market really functions - An ethical dilemma

Its Sunday again, and though I haven't done this for a while I think its time again to contemplate those things that daze and amaze, astound and confound, the market tricks that both amuse and confuse a lot of retail investors.

Of late I've been doing a fair bit of negative posting on StockTwits (username growacet) on a company called Vuzix, trading under the symbol VUZI.  I had a position on the short side that has been closed for almost 3 months now, but still I chime in fairly regularly expressing a very negative point of view.  Why?  A big part of the reason is all the pumping that goes on, pumping that in my opinion is almost criminal.

Of course VUZI isn't the only stock that gets pumped in this fashion, but because its on my watch list I see it and it gets under my skin.  What am I talking about?  I'm referring to social media posting that paints a highly speculative stock as a "no brainer" type investment.  Here's an example of what I'm talking about:

Oct. 15 at 1:15 PM

joodles33

judy buckey

@jmcekc It will be rewarded! Vuzi really is a no brainer to be invested in. Great company, owner and fantastic products.

That was in October on the 15th, back when the PPS was still around $7, having collapsed after trading up well over $9 in September.  A "no brainer"???  Really???  A company that discloses a lack of long term commitments from its customers in its own SEC filings among a whole page of risk factors that could cause the stock to absolutely crater in value.  This is a sure fire winning investment?

Pumpers must think some investors are complete morons.  Well, sorry to say, a lot of investors are, (as the expression goes) dumber than a sack of hammers.  

The same thing happened with Ziopharm early in 2015 when its PPS shot up like a rocket to almost $15, and I was called an idiot and a moron for not seeing that this was a gold star winner destined to go to at least $20 and almost definitely, much, much higher.  One idiot was on twitter touting ZIOP as a #miraclecure.  

Sell $ZIOP for a mere $13+???  I had to be brain damaged.  

Why do pumpers engage in such reckless, and as I opined earlier, almost criminal behavior?  Because a lot of investors have more money than brains.  But there's more to it than that of course, they also understand basic human psychology at some level.  They know that people will follow strength, conviction and certainty.  If someone is wishy-washy, if they take note of the risks involved, then people aren't going to feel confident about clicking on the buy button and forking over their hard earned cash on an extremely risky stock.

You see it in all facets of life, take religion for example.  H.L. Mencken once quipped that:  

"A church is a place in which gentleman who have never been to heaven brag about it to persons who will never get there".  

Why are some Fundamentalist Evangelical Churches bursting at the seams on Sunday mornings? Because often times the Pastor in the pulpit has "absolute certainty" about what God wants and expects of people.  How does the Pastor know this?  Because he has read and studied the Bible and he KNOWS what God wrote in there and how it is to be read and understood.

Does the Pastor really know?  I don't think so, but that's neither here nor there.  My own personal view is that it takes far more strength and courage to acknowledge doubts and uncertainties, and that many who claim to be experts are simply intellectual cowards who can't face the prospect of not knowing something.  Even something as unknowable as God.

Okay I've covered religion.  Now what's that other taboo topic nobody is supposed to talk about for fear of offending people?  Oh yeah....politics.  The same principle of attracting the brain dead sheep applies in the political arena as well, the voting sheep also follow strength, conviction and certainty. Not everyone, but enough to fill a lot of churches and enough to get someone of dubious distinction elected President of the United States.  Just check out this video:

If you believe 'The Donald' nobody is better at: 

The military, building walls, treating the disabled, on equality, on being Pro-Israel, respecting women, attracting the biggest crowds, understanding the horror of all things nuclear, trade, infrastructure.....and on and on and on and on.  There's nobody better than Donald Trump at all these things.  He's the best at everything, just ask him.

You don't get to be the most senior elected politician in the world's most powerful country without getting an awful lot of people to vote for you.  You don't need a majority, but you still need to inspire confidence in a mass of people to get the job.  And you're not going to inspire that confidence in the minds of the people who behave like sheep if you give thoughtful nuanced answers, it ain't gonna work.  You have to sound like that Pastor who knows exactly what God wants and expects....the sheep will come.  

So what's the ethical dilemma?

While I do my utmost not to engage in this type of pumping, I have profited from it.  By buying stocks in speculative companies when they've been quiet and lightly traded I've been able to sell for higher prices when the herd moved in.  I'm not writing this to toot my own horn, there have been times where I've bought in when things were quiet on speculation that a stock might attract attention, but it hasn't happened, LMD.V qualifies in that regard.

I do write about speculative stocks here, RVX is a prime example.  However if/when a stock I've written about starts attracting wider attention, that's when I typically stop writing and liquidate at least some and often all of my shares...making note in the comment section of the original post and on the social media sites I frequent.

As I'm getting older I'm taking my Christian faith far more seriously, and the core belief of my personal faith is the so called "golden rule" of doing unto others as I would have them do unto me. But I also play the market where the golden rule is more "those with the gold make the rules", that or "do unto others BEFORE they do unto you".

Everyone wants to buy low and then sell high.  But you can't buy low unless there are others willing to sell at those low prices.  And likewise you can't sell high if there aren't buyers willing to pay the inflated prices.  The market machine is highly skilled at getting retail sheep to do the opposite of what the smart money players do.  Lambs get slaughtered by buying high and selling low.  

I reconcile my conscience (perhaps rationalize would be a better way of putting it) by knowing that no matter what I do, the market game will go on and on.  The machinery that entices retail investors to buy highly speculative stocks at grossly inflated prices will continue as it has regardless of whether I play the game or not.  

And I also realize that I'm a bit of a hypocrite, I can see the log in my own eye in other words.  If the market game were more above board, and retail investors weren't enticed to risk money on dubious investments the way they are and have been for ages....then the market machinery itself would break down.  The investment banks, the market makers and analysts....the promoters and chop shop players, they'd have to find other endeavors to earn a living.  And that's to say nothing of the entitled corporate executives and insiders who run these companies that are losing millions of dollars every quarter and yet earn 6, and sometimes 7 digit incomes.

That's enough for now....happy Sunday everyone.