Manipulation and the Innocent

The recent drop in equities is supposed to be a buying opportunity for the long term investor. Sadly, I have learned that it is not that easy.

One has to be extremely cautious and even more patient since the abundance of information out there makes it next to impossible to sort fact from fiction.
Not only analyst reviews are biased and self serving, the motives and loyalty of many journalists and financial bloggers are highly questionable. Favorable or unfavorable articles are constantly written to help the big guys get in or out of a position.

Part of their regular programming, CNBC, Bloomberg and Fox Business invite so-called investment strategists, stock analysts, fund managers and trading gurus to recommend or bash equities. Many new investors immediately trade the mentioned stock dismissing who these "TV stars" work for and what is the purpose of their 'buy or sell' recommendations.
Without proper homework, the new retail investor falls prey of these market movers by buying or selling hastily based on a quick "lightning round" tip from Jim Cramer in CNBC's "Mad Money" for example.

Other than the fact that following these TV recommendations can deplete one's portfolio in this market, this sheepish trading moves the stock in unpredictable directions causing trouble for fellow investors that did their due diligence.
High volatility only serves experienced traders such as the guys on CNBC's "Fast Money", guys who have the technical expertise to protect their assets with put and call options.
The other beneficiaries are the market makers, or the big institutions, investment banking groups and hedge funds.
Many hedge funds unfortunately have low business ethics as they do not have to comply with investment banking regulations such as Goldman Sachs. Their goal is to make money in any way possible even if it includes defrauding the retail investor with rumors or FUD (Fear, uncertainty and Doubt) about a company or the global economy. there is sometimes even a "rumor of a rumor" or what they call "market talk". hedge fund have deep pockets and can usually persuade journalists of big name publication such as the Wall Street Journal or Barron's of their manufactured rumors.

Side note: Recently, the SEC has been looking closely at Naked Shorting and the spreads of fabricated rumors in order to avert stock price manipulation. I do not believe it will make a difference to retail investors but at least they are trying.

Market Makers (MMs) or what many in the blogosphere call "Market Manipulators" take advantage of this sharp economic downturn to persuade you with charts, graphs and all sorts of numbers that it's the end of the World or at least the end of this fine company or that growing industry. They tell you "this time it's different" because there is "stagflation" or recession coupled with inflation. Once again spreading FUD.
most economists acknowledge recession as a healthy phenomenon necessary to rebalance the economy. It will eventually wind down and a new growth cycle will begin.
Inflation, the weak dollar, plus $200 oil and plus $1000 gold price are now the spellers of doom but could eventually be the catalyst for the next growth cycle. Think alternative energy, railways, online shopping, working from home, exports, tourism...etc. I plan to elaborate more about that topic in an upcoming blog.

There are many companies out there that will survive the storm. To find them, you have to weed out the noise.
Remember, for many companies, the "bad times" are already priced in and the stock's fair value might start to move up in anticipation of a brighter future. When panic hits the Street, it's time to buy (certain stocks), though be wary of value traps and do your homework.

In the near future, I will write about some companies that I think are undervalued despite the bad economy. i will also try to expose specific examples of FUD and misinformation. They're all over the place. Stay tuned...