Paul Morton: ‘I just noticed CN went up over 6% today, from 80 cents to 85 cents a share. And the number of shares traded so far was 1,900. Which to my mind begs the question how many shares of a stock have to be purchased before it sends the price up? I mean, I could afford to buy 1,900 shares of CN. I know it’s illegal to manipulate the stock by buying shares to send its value higher, and then dump them once the value is higher. But isn’t it possible to buy shares in a stock hoping it would go up. Then noticing it HAS gone up, perhaps unaware it has gone up because of YOU. Or maybe you’re aware of what caused the shares to go up after the fact, but that wasn’t your intention on buying the shares initially. So you dump the shares at a nice profit. Sort of premeditation versus temporary impulse? Anyway, Calton seems in a place where one could almost single-handedly send the price up with little investment. It’s a chicken versus egg thing. Who is the finger to be pointed at and when?’
☞ Well, the first thing to say about this, though off the point of your question, is that the big 71% profit in CN I was gloating about – for those of you who bought the stock a few weeks ago at $5.80, got that $5 return-of-capital dividend shortly thereafter, and then saw the stock open at $1.40 a day or two later (thus effectively turning your 80-cent risk into $1.40 in just two or three weeks) – that awesome profit has now shrunk to zero with the stock back around 80 cents. I know at least one of you did sell at $1.40. Mazel tov. For the rest of us, we’ll just have to see how this speculation turns out.
But that’s not what you were asking. The answer to what you were asking is: forget it! In the first place, as you point out, stock manipulation is illegal. More practically, your plan would not work.
Yes, by buying 1,900 shares of the stock, you could boost its price, paying (in this example), 85 cents for most of it . . . plus a commission, which can be as low as $13 on a limit order at some deep discount brokers, plus another $13 to sell, but as much as $38 each way – $76 total – at other discount brokers that charge a 2-cent-a-share minimum. (That would be a 4% handicap to overcome.) The problem comes in when you go to sell. Just as a purchase of 1900 was enough to drive the stock up, so you would have paid 85 cents for most of it, a sale of 1900 shares is likely to drive the price down. You might sell the first 100 or 200 or even 500 shares at 85 cents, just as you bought the first 100 or 200 or even 500 at 80 cents. But the balance might well get sold at 80 cents, just as most of your purchase was completed at 85 cents.
So what have you accomplished? You bought the stock at 85 cents plus commission and sold it at 80 cents minus commission. You had the fun of seeing your transactions move the market. But you lost money.
What some people do attempt to do is ‘paint the tape,’ perhaps in secret concert with a pal or two. They create a flurry of unusual activity in a stock, which attracts the attention of folks who sit mesmerized by such things (in the old days, a narrow ribbon of ticker-tape spewing out of a machine; these days, a narrow ribbon of type dancing across the TV screen or computer monitor), and who think, ‘Gee, something must be going on. Someone must know something. I’ll jump on board.’ That makes the activity and upward spike in the stock price even more noticeable, attracting other momentum players, chart readers and assorted riff raff who care nothing about value and are just in it as a video game – and before you know it, there’s a full-fledged little rally going on in this stock (and maybe some short-covering, too, by nervous, soon-to-be-panicking, short-sellers). So now the stock is really on a roll, CNBC commentators are trying to come up with knowing one-line explanations (‘expectations of street-beating third quarter earnings’), and it’s easy for you and your pal(s) to sell the shares you traded back and forth to get this going.
But your buying 1,900 shares of CN, and driving it’s price – $1.40 a couple of weeks ago – up to 85 cents from 80? Nah. Not gonna attract any interest at all. Rarely, even if you made a concerted, illegal effort like the one above, would you be able to ignite enough of a rally to justify your costs and economic risks – let alone the criminal liability.
Fun to think about, though, isn’t it? In an earlier millennium, much the same sort of thought was put into turning baser metals into gold.
Rejected Hallmark Card (or so the spoof goes):
My tire was thumping….
I thought it was flat….
When I looked at the tire….
I noticed your cat… Sorry.
Quote of the Day
Market economics as currently practiced often ... includes only what's countable, not what counts.~Rocky Mountain Institute
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