This one, from Larry Jensen, pretty much speaks for itself:
“I was a witness to some interesting day trading manipulation recently, in one of the stocks I own, Smith Corona (SCCO).
“[Full disclosure: I was employed by Smith Corona for nine years. I was given my 60-day layoff notice in May, 1995, and then — a week before it took effect in July — the company appointed a “turn-around expert” as its new CEO. His first action was to file for Chapter 11. In February, 1997, the reorganization was completed, and I finally got 70% of my severance pay in new Smith Corona stock. (The other 30% in cash mostly went straight to Uncle Sam, to pay the taxes on the imputed value of the stock.) Although, rationally, I’ve never had any confidence in the reorganization or the future of the company, I continue to hold the stock. I consider it my license to continue speaking out as the “loyal opposition” to management. I was the only “outside” stockholder at the 1997 annual meeting, and one of three at the 1998 meeting. All of us were vehemently negative!]
“Since emerging from Chapter 11 in February, 1997, Smith Corona has racked up heavy losses, while trying to market a new line of products. Its stock has fallen precipitously over the past year, from 6 to as low as 5/8.
“Last Wednesday, a day-trading web site, www.great-picks.com, selected Smith Corona as its pick of the week. Within hours, the stock jumped from 1 3/8 to 2 1/4, with a total volume of over half a million shares for the day (many times the average). But by the afternoon, the price started slipping, and it was back to 1 3/8 by Friday.
“Reading all of the disclaimers on the great-picks web page, they (the sponsors of the page are essentially anonymous, with no identification beyond an e-mail address) make no effort to hide their purposes:
‘Our picks will have a small float, will be trading under $3.00 and will offer tremendous upward gains . . . Great-Picks, Inc., its executives, representatives or employees will invest in all posted picks and/or hold positions in the companies profiled, and these positions are obtained prior to announcement and publication of the Great-Picks.com pick on the web-site. Great-Picks.com, Inc., its executives, representatives or employees reserve the right to liquidate all or portions of these positions immediately after announcement of pick on the Great-picks.com web site.’
“In other words, they are touting a thinly traded stock, in order to make an instant profit off of those who take their advice! I can hardly find fault with manipulators who are so honest about their intentions.
“But the big question is, why do they attract such a large following? Nobody day-trading a stock on their vague recommendation is holding it for any fundamental reasons. Pure herd mentality will cause a spike in the stock, and the participants must be engaging in the ‘greater fool’ theory, thinking they can get out before everyone else. But in this case, the time frame for the fools to catch on in measured in mere hours or minutes!”
I went to the site and it really is sort of breathtaking. At the top, in large type: “Please read our disclaimer at the bottom of this page. This type of trading is only for experienced, seasoned traders.” But isn’t that sort of like the warnings to kids that smoking and sex and drinking are only for grown-ups? Does it deter? Or merely tempt?
The disclaimer itself is much longer than the piece Larry quotes above, and it is all jammed together in a single, dense 474-word paragraph. But the site makes a big show of urging people to read it. Boiled down to its essence: “We decide on a stock to recommend and quietly load up on it. Then we make it our pick — and, if we like, sell it to you idiots.”
Larry is right. This has nothing to do with investing. This is naive people playing musical chairs — against players (the executives of great-picks) who control the Victrola.