To Fix,
Do you?
Short selling can be divided into two categories, declared and undeclared.Undeclared short selling has damaged many dynamic growth companies. Created by market professionals, the practice consists of creating stock that doesn't exist. It isn't borrowed but created and it creates enormous negative pressure on a stock price.
The mechanics of undeclared short selling are as follows:
Nonexistent stock is sold short. This nonexistent stock increases a
company's float. The nonexistent stock makes it difficult for investors to
profit from their risk capital speculations. The short sellers make the
profit. The practice hurts the public companies, themselves. It adds massive
costs to maintaining a market in a stock and it reduces a company's business
options.
The basis of declared short selling is borrowed stock. A short seller
provides 50% or more of the value of the stock to his or her broker. This is
done in a margin account. The margin protects the broker against any
increase in the share price. The broker borrows the stock from a depository
trust company. He then sells the stock and adds the money to his client's
margin account. Later, the client buys stock (covers) to replace this
borrowed stock. The difference between the price the client sold the
borrowed stock and the price the client paid to replace the borrowed stock
(covered) is the profit or loss from the transaction.
Most declared short players are institutional money managers and fringe
group market professionals, not small capital public investors who seldom
participate. Declared short positions risk being squeezed. If the company
can double its share price, the short seller will be forced to increase his
margin collateral in order to maintain the short position. At such time, the
short seller may elect to buy (cover) the stock instead of adding to his
margin. This adds to the upward movement of the share price.
Undeclared short sellers don't borrow stock. They don't margin the sale of
their short position. Because they are market insiders they can use various
techniques to sell stock short that doesn't exist.
Is there money to be made by undeclared short sellers? Estimates are that
undeclared short sellers make multi- millions of dollars annually.
Complaints to regulatory agencies haven't stopped the practice of undeclared
short selling. However, one way companies can protect themselves is to
recommend to shareholders that they take physical delivery of their stock
certificates. When physical delivery of stock certificates is demanded by a
significant number of shareholders, the creators of non-existent stock can
be squeezed. The short sellers won't have stock certificates to deliver and
thus they will be forced to go into the open market to buy the stock. This
will cause losses for them and will cause them to move their undeclared
short activities elsewhere.
How can short sellers get away with their activities in a company that is
otherwise healthy and growing? This question brings us to the principle that
is fundamental to understanding how the stock market works. It is important
that you read the ENTIRE section to follow.
The price of stock is strictly a function of supply and demand. Nothing
else. Price is not affected by sales, earnings, news releases, prospects,
positive or negative analyst reports, management or contracts, but by the
buying or selling that results from these events. The stock market is the
biggest pyramid scheme on earth. As long as there is a greater real volume
of buying than selling, the price of the individual stocks (and therefore
the Dow average) rises. The instant there is a greater volume of selling
than buying, prices fall and the market heads south. Take, for example, one
of the wealthiest, most powerful, best-known corporations on earth -
Microsoft. Microsoft enjoys a steadily-increasing share price and market
capitalization (market cap being the total number of shares multiplied by
the market value of a single share). But if on any given day, everyone tried
to sell Microsoft stock and there were no buyers, the price would fall to
zero in an instant. The public market and individual stocks are sensitive to
every purchase or sale of stock, and react accordingly. Bill Gates is the
wealthiest man on earth, ON PAPER. If he tried to unload in the public
market $38 Billion worth of stock, the price of the stock would plunge.
It is imperative that investors in the public market understand this basic
concept. Unfortunately, it is the one issue that it seems everyone involved
in the securities industry conveniently forgets.
All this may be obvious to most of you, but it is a valuable education to
those who don't understand why a company can make a positive news release
and see it's stock price fall in the same day. This is the case with Casmyn.
The undeclared shorters have embarked on a systematic campaign to undermine
the stock price of CMYN, thereby destroying investor confidence. The goal of
undeclared shorters is to ultimately "cover" their position by repurchasing,
at a lower price, the shares sold at the higher price. The shorters then
keep the difference as profit.
As part of the short campaign, the sellers have made a point of selling
greater volumes of stock on days of positive news releases, to neutralize
the effect of any buying in the market. Indeed, they have done such a good
job at this that most of Casmyn's news releases came with a corresponding
DROP in share price at the close of trading.
Another part of the short campaign is the psychological effect of posting a
sale at the close of the market. With every sale, in this case just 100
shares at a time, the price drops just a bit. The day's trading activity
could see a steady exchange of shares and a neutral share price for
50,000-250,000 shares, with a final small sale to record the closing price
as being off a sixteenth for the day. To the casual investors who does not
check the closing price versus the trading activity for the day, the
psychological effect of this type of manipulation is tremendous. However,
with ten institutional investors pledging up to $1 million in buying apiece,
there is no where for the short sellers to go. The price will not again drop
below $5.
Anytime you are bullish on a stock, make it a point to register your shares.
This is a very simple process that ensures that shares purchased with your
own hard-earned cash cannot be used against you.
Call your broker, or in the case of an online trading firm, contact the
firms customer service department. Tell him that you want to take physical
delivery of your shares, that you want your certificates delivered from the
brokerage house to you, in your own name. Most likely, the broker will tell
you that this is not necessary, that it can't be done, or that it is against
company policy. To be succinct, this is all a bunch of crap. The broker
wants you to keep your shares in "street name" (meaning, held in common in
the name of the brokerage house) to ensure that when you wish to sell your
shares, they get the commission. They may even tell you that if you hold the
stock certificates yourself you cannot easily sell them when the time comes.
This is also not true. All trading accounts have a three-day "grace period"
in which to settle. This means you have three days to deliver your shares to
the firm.
HARLEY.
PS.Does that answer your question. |
