Big Guys’ Advantages – Stock Invest (6). If you want to understand the advantages of the big guys, you need to look at your own frustrations as a small investor. There are so many things that you don’t have: no cash to buy more stocks at lower prices, no winning option except praying for the stock to rise after your purchase, no relevant information except what is designed for public consumption, not enough time to win if you trade in options. In other words, you are a sitting duck with just hopes and dreams. Don’t get the illusion that you own a piece of the company whose stocks you’ve bought. The true owners are either invisible or sitting on the company’s Board of Directors. Trading Records of Small Guys. One thing you do have is your trading footprint. However, it will sadly work against you rather than for you. Your brokerage company keeps a record of your cash and share holdings. They know at what price you bought your stocks. They also know your pain when the price comes down especially when you buy on margin. For those who sell short, they know your pain too when the price goes up. For those who play options, they know your anxiety when the expiration date draws near. They can make you lose if they push the stock price the other way. For those who put in a limit order, they know exactly at what price you want to buy or sell. Brokerage companies have a tremendous advantage because they possess daily records of millions of small players. You are too naïve if you think that they won’t make use of your “private” data. I suspect that they aggregate their clients’ accounts on a daily basis, analyze the pattern of behavior, and plot against them. It’s a sure win because they know where their clients stand. I even think that they share the data with other brokerage or finance companies for a joint killing. Remember, when there is plenty of money to make, people will get very creative. Cash and Share Holdings Aplenty. With enough cash on hand, a big player can continue to buy through a period of several months to create a price surge. The important thing is to quietly buy at the beginning when the stock price of a company is low. The purpose is to accumulate a heavy bottom and a dominant share holding. A heavy bottom means less risk during the price surge. A dominant share holding means more control of the price. As the big player buys up the stock price, its asset continues to grow due to its big holdings at the bottom. When millions of small players are gradually seduced into the game, the big guy will quietly unload its share holdings. If a big player does not want to invest that much to push up the stock price, it will try to find one or more partners for a joint venture. Sometimes a big guy may want to get out of a venture halfway because it has spotted a better opportunity elsewhere. In this case, it may try to find another big player that wants to take over its share holdings at a negotiated price. The transaction can quietly be done without going through the stock exchange. The buying and selling of big players are invisible because they don’t want their identities known. As a result, they hire a web of agents to put in the orders for them on a daily or hourly basis. The orders have to be relatively small but frequent if they want to remain discrete. Two Phases of Stock Game. The stock game consists of two phases for the big players. The investment phase requires acquiring more stocks at low prices initially, then continuing to buy up the price to the target level. The cash-out phase comprises two joint actions: short sales at higher prices, and gradual unloading of their share holdings. The unloading, while generating profits, also guarantees profits for the short sale because the stock price must come down when they unload their big holdings. Short Term Considerations. To push up the price of a stock from the bottom target to the top, it takes at least several months to excite the small investors to participate. Many things can happen during this interval beyond the big guys’ control. To insure against the risks to their large share holdings, the big guys may short-sell the stock at higher prices during the surge. When the price of the stock falls temporarily, the big guys will buy back their shorts, thus making additional money on the way up. For more information, please email stockfessor@comcast.net