Quick Note on Market Manipulation

Dan posted an old video in our research chat this morning featuring an ex-hedge fund manager explaining how he, and others, used to manipulate the market for their own short-term benefit (the "others" of course still do).

Here you go: 

https://youtu.be/VMuEis3byY4

Me: That was great!

Thoughts:

1. With all of that manipulative prowess, hedge funds have, in the aggregate, been underperformers (in raw terms, as well as when adjusted for risk) for years.

2. While shorts often get the blame, viable companies are never killed by short sellers. Their stocks of course can take hits when shorts pile on, but if the company’s sound the shorts ultimately get killed.

3. Reminiscences  (my all-time favorite) illustrates how this stuff happened like crazy in the 20s. It’s fascinating to read or listen to Livermore discuss how he and others manipulated and tested stocks and commodities through targeted trades. Although he refused to make up stories for the press. They would assume things based on his big trades (if they figured out it was him), and he’d exploit that, but, again, he refused to make stuff up (like Cramer and others) to feed the press.

Here's Livermore on his own development into one of the best "operators" who ever lived:

Emphasis mine...

"Tape reading was an important part of the game; so was beginning at the right time; so was sticking to your position. But my greatest discovery was that a man must study general conditions, to size them so as to be able to anticipate probabilities. 

In short, I had learned that I had to work for my money. I was no longer betting blindly or concerned with mastering the technic of the game, but with earning my successes by hard study and clear thinking. 

I also had found out that nobody was immune from the danger of making sucker plays. And for a sucker play a man gets sucker pay; for the paymaster is on the job and never loses the pay envelope that is coming to you."

Of the literally hundreds of books on markets I've digested over the years, Reminiscences of a Stock Operator has, ironically (it was written in 1923 [still in print!]) been the most impactful.