Is This The End of a Badly Regulated Stock Market?
…and why it matters to you
Goal: Discuss how latest market manipulations and push backs should be addressed
The stock market is far from perfect. It is an illusion.
Why?
The market makers who control the strings really control the strings. The little guy, individual investor, might be able to collect some of the crumbs that fall off the table BUT never get invited to the table.
How is that?
I have written about the lack of reality in the stock market before but in this article I will try to explain some of the craziness or sanity that we have seen lately. The talking heads on the TV don’t know how to explain it.
A couple of people opened my eyes a bit during the last 48hours. One was Chamath Palihapitiya. Chamath is a savvy investor.
In an interview with CNBC, he said that the issue was that some of the market makers were shorting some of the companies by 140% of available shares that were being pushed up by individual investors. WHAT!!! That means that the market makers were selling more shares than what exists. THAT SHOULD BE ILLEGAL!!! It is like selling your car to a person while selling it to another person at the same time. They are printing company shares…. ILLEGAL!!!!
Market makers pick and choose their favorites. The TV talking heads could not understand why the little guy was willing to lose money to beat them. Well, the prices have been pumped up for some of these stock so much that the little guy got in and got out and paid their debts. It is not hard to understand. Although since there were 100% moves before the market opens, I doubt that only the little guys were moving these stocks up.
There is no reality to stock prices… They are not rational. People are not rational.
Take for example Apple, AMD,and Tesla. Apple has made their numbers and beat them significantly. Yet their stock regularly drops after earning reports. AMD is the same way. Both companies beat their estimates and then get beaten by the market makers using some excuse that they are not happy with something.
Tesla on the other hand is loved and loved and has been pushed up and up. I love the idea behind the car and I think Musk is a modern day innovation genius. BUT even he said last year that his stock was too high at 800+ before it went to 2000+ and then split only to double again. Tesla missed some of their numbers BUT the stock price went up.
All this proves that Wall Street/NASDAQ are no longer investment driven and truly reflects the value of a company. These markets have been trading places that are algorithm driven.
How can I say this?
Well, it is not difficult to understand why the market makers’ servers are placed as close to the markets as possible. Why have they invested in technology and infrastructure to make their trades faster and faster?
THE AMOUNT OF TIME THAT MARKET MAKERS OWN A STOCK IS 40 SECONDS!!!!
That means that someone decides the direction and the algorithms simply buy and sell into that direction to make it happen. The little guy can not place their trades that fast.
Another person that educated me was Mark Cuban. Mark is a maverick, a great thinker, AND he is an exceptional investor. He said that he was simply seeing the system being played with the current rules which are set up for trading and not investing.
He recommended something brilliant. Mark suggested that once a stock is purchased it has to be held for at least a day(or maybe longer). This would completely shift the trading mindset into more of an investment mindset. Anyone not holding for that one day should be severely punished with high taxes on profits.
One thing that I have pondered for a long time is why the market makers are allowed to buy and sell shares before market opens. By being allowed to do this, they take the profit off the table before the little investor jumps in and gets their head chopped off.
Fair? NOPE!!!
Volatility in the market is a perfect setup for algorithmic trading. When things move fast up and down most often the market makers and hedge funds are the ones that benefit the most.
So what should be done to get rid of this gambling environment?
- Have a hold period for hedge funds, professionals, and market makers that is at minimum 1 day. Allow the individual investor to move in and out quickly BUT force the people that can actually move the market to have to be intentionally slow.
- Any company shorting more than 100% of shares of a company should be closed due to criminal activity
- Stop after hour trading and freeze the price of stock from one day to another
- NO algorithmic trading to be allowed for first hour of market open
- NO STOCK SHOULD BE ALLOWED TO DROP by more than 10% in value or rise more than 10% in any one day. That is manipulation.
- NO STOCK THAT HAS MADE ITS NUMBERS should be allowed to drop for at least a week after the reporting positive results. This will eliminate the BS with companies doing good BUT some manipulative stock analyst saying that the stock is not worth what it is and pushing it down. If you make your numbers, then you are doing good and should be rewarded. If you MISS your numbers, there is a floor to what your company could drop to.
- BANKS should be banks and not be allowed to in investment game. They are there for savings, checking, home mortgages, and loans. THAT is it!!!
- DO NOT allow banks to create mortgages without having assets to cover those. They are creating paper money without having to back up the value.
As you can tell I have a lot of energy behind this topic…
My nineteen cents….(this is what I earned from Medium.com for Dec. 2020)
I gotta go…my future self alarm went off
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