Rorshach - indeed.
If you can exploit market movements as a single investor, morepower to you.
The Wired article describes an orchestrated effort to short a stock - and the intended effect was recorded in the text as well. I'll quote directly from the article and embolden the parts I found to be most interesting.
I also found it interesting that Anthony Elgindy and Bill Lerach are both in San Diego and both interested in damaging companies they claim to be frauds. It would not surprise my at all to find out that there was some sort of behind-the-scenes symbiosis between the two.
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The Dumbass, The Daytrader, and the New Democracy
Anthony Elgindy, the Mad Max of Wall Street, has seen the revolution: thousands upon thousands flooding into the electronically liberated stock market. "The public is there for one reason and one reason only," Anthony says. "They are there to absorb the risk." And guess who will drive you to maximum absorption?
By Joey Anuff and Gary Wolf
In a San Diego office building where the air-conditioning runs full blast all winter, a man is yelling. "Art, your phone is haunted! Art, where are you? We're losing fifty! Sell two the regular way! Run, Art, run!"
The guy doing the yelling is Anthony Elgindy of Pacific Equity Investigations. He trades the old-fashioned way, phoning orders in to a licensed trader who jumps into action at the sound of his voice. Art, his broker, is not the only one jumping. Two hundred and fifty amateurs each pay $600 a month to follow Anthony's trades. When he moves, they move.
Anthony, who is 32, stocky, and bellicose, is respected for his rare ability to sift the complexities of the market and reduce his analysis of a company's value to simple terms. He expresses himself in metaphors easily grasped by the layperson. Right now, for instance, he is looking at Ariad Pharmaceuticals, a company that trades on the Nasdaq under the symbol ARIA. Early this January morning, Ariad officials boasted that the company had received two gene-therapy patents, and its stock nearly doubled. Anthony shifts in his chair, glances at the stock's history on his Bloomberg terminal, and issues a succinct bulletin summarizing his research. "ARIA is pure diarrhea," he types. Then he punches the speed dial on his phone and screams at Art to short some shares.
Within minutes, the 250 traders, whose $600 per earns them the right to follow Anthony's reports via email and real-time chat, respond to his burst of lyricism with collective action. Anthony and his followers are selling ARIA short, which means that none of them actually possesses any shares of ARIA to sell. Instead, they - like all short-sellers - are asking their brokers for a favor in exchange for a promise:If you have any ARIA lying around, they're saying, lend it to me so I can sell it right now. I'm pretty sure I can buy you back those borrowed shares for a much better price in no time at all, and I'd sure love to pocket the difference.
Whether the stocks go down as predicted, or sail upward, the short-sellers are committed to buying them back. This is known as covering a short. Disaster for a short-seller comes when the price of the stock he's borrowed rises so high that the cost of repurchasing the shares threatens to swamp the sum total of the cash and securities in his brokerage account. This will trigger a demand for more cash from his broker, known as a margin call. If the short-seller fails to come up with the cash, his short position is liquidated using all his available assets, leaving him on the sidelines with a terrible headache, helpless to profit if the stock drops back.
In the case of ARIA, however, there is no risk of a margin call. Independent of Anthony and his customers, professional and institutional traders with more than a passing familiarity with biotech stocks are taking their profits from the spike on the overhyped patent news. A selling frenzy soon develops, and the stock plummets from its high of 9¾ to less than 7. More than a quarter of its new-minted value has been washed away. The short-sellers are overjoyed, and Anthony congratulates them with a sequence of digital samples that play in his chat room. Out of computer speakers around the world, his subscribers can hear an eerie, high-pitched voice intoning the sentence: "Thank you, sir, may I have another?" over and over again.
When Anthony predicts the downward movement of stock prices, he's often right. The thing is, even when he's wrong in the medium term, he often makes money as other traders panic and dump the stocks they bought at the peak of a quick, crazy run. In the world of the amateur player, Anthony functions as a psychological terrorist. He's the guy who makes bucks every day off everyone else's lurking suspicion that the most recent five minutes of the bull market might have been just a bit too good to be true. He's the guy who shouts "Fire!" in a crowded theater just to clear the popcorn line for a few minutes. If you are a stock buyer who got long on a press release, Anthony is the guy who proclaims the sky is falling and picks your pocket while you're looking up. |
