Kirk: Re: "Ponzi... you mean. buy, buy, buy then spam, spam, spam then sell, sell sell followed by short, short, short?"
The analogy is subtle. Ponzi operated in the early part of this century in Boston and was first and foremost a confidence man. He offered people to double their money in a few months through some purchase of postal coupons. Of course, he made no such purchases. But when his investors came around to collect their money, he had it for them. He banked on the fact that his investors would by and large let the money ride again. So, in essence, he could keep going because very few claimed their investment winnings and were content to let it ride. After all, he just doubled their money and so why not do it again. And if someone did want their money plus return, he would pay it out because he could afford to pay it out so long as there were enough people willing to keep their money with him. And paying it out was very important because investors saw that he did pay it out when asked and so they had a great deal of confidence in him and did not make a run on his company.
The internet penny stock pumpers are similar. They choose a stock with a small float and promote that issue every day. So long they get enough followers, the price will go up because of simple supply and demand factors. Fundamentals do not matter. I could pump stock in a company that turned manure into gold and if enough people bought it the price would go up. Then other people see that the price is going up and they invest their money in it and so on until an Investment God is born. Like Ponzi, people put a lot of confidence in the stock promoter who has just coined money for him and will let their money ride in that issue and will make other investments with him. And if one wants his money, it is there for the taking from the market. So long as the promoter keeps pimping the stock and more people come in than leave the price of the stock will continue go up and as long as it continues to go up more people will be drawn in pushing it even higher. |
