Yes Apple has done well over the past 3 years but that's not my point. Neither is its rise or fall on a single day in a sector trend.
Analysts' price targets have a real impact on the intra-year, quarter to quarter fluctuations. Traders and hedge funds care about small changes in the short term (3-9 months). Individual and institutional investors care about performance over the medium and long term (>1 yr).
If you can get enough traction on a target (up or down) you can profit in the short term. Down and you shake out individuals and institutional triggers, up and you attract both. Either way you win if you know the trend in advance.
If you look at Apple's stock over the 8 quarters, you'll find it is particularly vulnerable to the effects of the analysts opinions. The price swings this year are a pretty good mirror of this. Every one of these analysts who talks about targets either works for or has ties to a hedge fund or investment house.
Note: Apple has become a significant psychological if not fiscal indicator in its sectors. Movement on Apple stock is no longer solely "with the sector" - it in fact determines the sectors to some extent (personal electronics, retail electronics, music, computers, so-called "lifestyle" purchases) This is because Apple sales are a often a decent barometer of leading consumer spending trends, irrespective of the actual dollars spent.
So, if you are an analyst, and you know this stock is vulnerable, when does a prediction become manipulation? Perhaps when an analysts' prediction's flies in the face of all available evidence, and DESPITE constant negatives, the stock and company continue to do astoundingly well. At that point you look at who stands to gain.
One other thing: Please understand that all the analysts that cover this sector know each other well, and each of them personally knows 2/3 to 3/4 of the "market makers" (big traders) in the sector, both in their own company and outside of it. As a consultant to hedge funds at one point in my career, I got to see first hand just how small the clique in each sector was. Everybody knows everybody - and talks with them all day long.
I have no proof of collusion, only suspicions, but if I were the SEC, I would look this over once or twice.
I don't agree with this analysis completely.
Many small investors are day traders. as very little stock from any one company is traded in any given day, their trades can, and often do, have an inordinate effect. Apple has almost 900 million shares outstanding that are tradable. But, generally, no more than 20 million are traded. If only 5% of those trades are from day traders, the stock can move.
Analysts do have an effewct. We know that. Even if they didn't want to, they would. But, in the long run of several months, it's the market that determines the price. That, and the performance of the company itself.
In addition, there is the expectation that investors have for a company. Meet those expectations, and everything is cool. Fall short, and boom!
Analysts raise their predictions in a rising market, and lower them into a falling one. It's sort of a trailing prediction. If you look at Apple's price over this year, you will see that. As Apple;'s price was rising, they were raising their numbers. As Apple's price started to fall, after a delay, they started to lower theirs.
They rarely lead the market. They predict into a trend.
In the '90's and earlier, once the government allowed banks to own brokerage houses again, by changing the depression laws against it, there were problems.
Analysts were required to predict up the stocks that the banking business were hoping to do business with, among other things. I used to discuss, with my broker, why I rarely listened to analysts. They were wrong so often.
Of course, also in the mid-late '90's (the go go years) no one was ever wrong. Everything went up. My brokerage account went up more than 2,000% during that time. Buy almost any tech IPO, and make mucho money. Use pin to select which one.
Naturely, it fell apart, and then there were questions, trials, etc.
I haven't seen much of that today. Most investor information supply companies today do NOT have holdings in the stocks they report on. And no banking business.
Analysts do work for companies that deal in these securities. Since 2000 every major brokerage house and bank (!st Boston, Solomon, etc) has paid fines to the SEC because there was collusion between traders and analysts and using this collusion to enrich the "house" - collusion sanctioned by management. It's as if the casino's had it's players gambling against you while also dealing and the setting the odds.
As a result many of these analysts have moved an "inch" away and work for private equity funds and hedge funds which are less scrutinized. Because of the close personal relationships and the the amount of money involved, the temptation for manipulation is very great.
Yes, the "market" determines the price. The damage and profit is done in the days (not months) following analysts predictions.
What's the difference between "leading the market" and "predicting" it? Possibly intent. And the analysts always make their predictions privately to paying customers before they make it public. So when you or I read it it has already been known by *some* traders for a while.
Also, the problem with Apple is not that the direction the trend and the analysts predictions were the same over the course of a few weeks, but that the analysts are so consistently wrong in the overall quarterly trend of Apple and in interpreting very public sales data. You can't be an expert in this field and be *that* wrong for *this* long with the amount of money involved. If Apple outperforms every analysts for 8 straight quarters and any kid off the street can tell that it's going to happen, something is wrong.
Either what you are saying publicly differs from your private advice OR money is a being made on the "gap" in your predictions. Markets are just too efficient at sorting truth from fiction.
Hedge funds do a much off their business outside of markets in private trades - you have to when you are moving the quantities of stocks they are involves with. Note: there is no law that says you have to trade on a market, only that if you trade on the market you must fulfill your contracts. Much of their work revolves around manipulating stock to a specific price.
Regarding day traders:
Individuals playing the market day to day do not set price, they are the "sheep".
It's the market makers that set the price and they are manipulated by the hedge / private equity funds.
I have watched the screens as traders in a single hedge fund move 5-10% of the NASDAQ volume in a single day by making phone calls to friends and partners around the world. All this to get to a particular price target for a small number of stocks. Why? Because they got a great price on millions of shares in a private trade and needed to orchestrate an orderly profitable reduction in the position.
A day traders as a group cannot not hope to compete against their coordination. Their time frame? Hours and days not weeks or months.
What then is the "market"? In the long term, the international community of investors and consumers. In the short term, a very small group of individuals.
This is all conjecture and of course I could have it totally wrong, but then the brokerage houses still deny any wrong doing despite paying millions of dollars to the SEC in collusion fines.
"While research of growth companies and deep domain expertise within our focus sectors are at the core of our business, ThinkEquity Partners LLC' institutional sales and trading capabilities are a major asset for us. Due to our proprietary research product, Firm focus and momentum, we have attracted an exceptionally strong sales and trading team. Currently, we have 22 senior salespeople, 14 senior sales traders, and nine market makers covering leading growth oriented instutional investors in the United States and Europe.
Due to the quality of our people and research product, we have established close relationships with senior portfolio managers at top institutions. Our knowledge of our investors and research universe has contributed to ThinkEquity having one of the highest percentages of "crossed trades" of the Top 50 firms, in 2004 as tracked by Autex. Underpinning this success, and all our sales and trading efforts, is our mantra:"
Analysts do work for companies that deal in these securities. Since 2000 every major brokerage house and bank (!st Boston, Solomon, etc) has paid fines to the SEC because there was collusion between traders and analysts and using this collusion to enrich the "house" - collusion sanctioned by management. It's as if the casino's had it's players gambling against you while also dealing and the setting the odds.
As a result many of these analysts have moved an "inch" away and work for private equity funds and hedge funds which are less scrutinized. Because of the close personal relationships and the the amount of money involved, the temptation for manipulation is very great.
Yes, the "market" determines the price. The damage and profit is done in the days (not months) following analysts predictions.
What's the difference between "leading the market" and "predicting" it? Possibly intent. And the analysts always make their predictions privately to paying customers before they make it public. So when you or I read it it has already been known by *some* traders for a while.
Also, the problem with Apple is not that the direction the trend and the analysts predictions were the same over the course of a few weeks, but that the analysts are so consistently wrong in the overall quarterly trend of Apple and in interpreting very public sales data. You can't be an expert in this field and be *that* wrong for *this* long with the amount of money involved. If Apple outperforms every analysts for 8 straight quarters and any kid off the street can tell that it's going to happen, something is wrong.
Either what you are saying publicly differs from your private advice OR money is a being made on the "gap" in your predictions. Markets are just too efficient at sorting truth from fiction.
Hedge funds do a much off their business outside of markets in private trades - you have to when you are moving the quantities of stocks they are involves with. Note: there is no law that says you have to trade on a market, only that if you trade on the market you must fulfill your contracts. Much of their work revolves around manipulating stock to a specific price.
Regarding day traders:
Individuals playing the market day to day do not set price, they are the "sheep".
It's the market makers that set the price and they are manipulated by the hedge / private equity funds.
I have watched the screens as traders in a single hedge fund move 5-10% of the NASDAQ volume in a single day by making phone calls to friends and partners around the world. All this to get to a particular price target for a small number of stocks. Why? Because they got a great price on millions of shares in a private trade and needed to orchestrate an orderly profitable reduction in the position.
A day traders as a group cannot not hope to compete against their coordination. Their time frame? Hours and days not weeks or months.
What then is the "market"? In the long term, the international community of investors and consumers. In the short term, a very small group of individuals.
This is all conjecture and of course I could have it totally wrong, but then the brokerage houses still deny any wrong doing despite paying millions of dollars to the SEC in collusion fines.
There are numerous theories about the market. Some differ considerably from others. All are correct, and none are correct. As always, there is a subtle combination of all the theories.
I have found, over the years, that my trades alone, in smaller, slower traded stocks were enough to affect the price, as the market makers scrambled to adjust.
Market makers work on fractions of a point in an individual trade, rarely do they affect the overall price over the course of a day, and never, over the longer term.
Problems with market makers, and their equivalents in other markets, is their "skimming" that fraction of a point from the trades price for their profit. Something which has been difficult to stop, not matter how the rules are changes.
I don't really begrudge them that, as it doesn't materially affect my intent.
You seem to think they can manipulate prices on a broad swath. They can't. Their affect on pricing, even when large volumes of shares are traded in a single private deal, is small.
And, even if that were true, they would still be responding to market forces that are well beyond their control. When a sell-off is in progress, they have to follow it down.
There has also been analysis of day trading in the late '90's when they were at their peak, that showed a strong effect on pricing. Day traders have a herd mentality, when they act in unison, during a short period of the day, as they tend to do, after hearing news, they do have an efect.
Sometimes institutional investors are no more sophisticated than the average day trader. They will sell too quickly, or hold for too long. I try not to get stuck in that mode, though I did hold, and buy more Apple during the drop this year.
Most of those fines are from problems dating all the way back to the late '90's and the first couple of years after 2000.
"While research of growth companies and deep domain expertise within our focus sectors are at the core of our business, ThinkEquity Partners LLC' institutional sales and trading capabilities are a major asset for us. Due to our proprietary research product, Firm focus and momentum, we have attracted an exceptionally strong sales and trading team. Currently, we have 22 senior salespeople, 14 senior sales traders, and nine market makers covering leading growth oriented instutional investors in the United States and Europe.
Due to the quality of our people and research product, we have established close relationships with senior portfolio managers at top institutions. Our knowledge of our investors and research universe has contributed to ThinkEquity having one of the highest percentages of "crossed trades" of the Top 50 firms, in 2004 as tracked by Autex. Underpinning this success, and all our sales and trading efforts, is our mantra:"
Yes, I'm aware of it, but the major problems shown during hearings and trials, were from BANKING, not this.
Yes, I'm aware of it, but the major problems shown during hearings and trials, were from BANKING, not this.
Actually, there have been several large fines in the past 6 years against Brokerage House and private equity groups regarding their pump & dump analyst trader collusion.
There are numerous theories about the market. Some differ considerably from others. All are correct, and none are correct. As always, there is a subtle combination of all the theories.
I have found, over the years, that my trades alone, in smaller, slower traded stocks were enough to affect the price, as the market makers scrambled to adjust.
Market makers work on fractions of a point in an individual trade, rarely do they affect the overall price over the course of a day, and never, over the longer term.
Problems with market makers, and their equivalents in other markets, is their "skimming" that fraction of a point from the trades price for their profit. Something which has been difficult to stop, not matter how the rules are changes.
I don't really begrudge them that, as it doesn't materially affect my intent.
You seem to think they can manipulate prices on a broad swath. They can't. Their affect on pricing, even when large volumes of shares are traded in a single private deal, is small.
And, even if that were true, they would still be responding to market forces that are well beyond their control. When a sell-off is in progress, they have to follow it down.
There has also been analysis of day trading in the late '90's when they were at their peak, that showed a strong effect on pricing. Day traders have a herd mentality, when they act in unison, during a short period of the day, as they tend to do, after hearing news, they do have an efect.
Sometimes institutional investors are no more sophisticated than the average day trader. They will sell too quickly, or hold for too long. I try not to get stuck in that mode, though I did hold, and buy more Apple during the drop this year.
Consider what you observed about your own small trades in quiet sector: You (in effect) made the market - that is set the price. Now apply the same concept to much larger deals.
I have watched as traders directly manipulated the price of stock on a given day and week by moving large numbers of shares in coordinated efforts. They use the day traders as "gas pedals" (accelerate/decelerate) and the institutional investors as "gears" (up shift/down shift)
It was absolutely clear to me on many occasions that the market for a given issue was being made (that is the price was being set) with great precision by a single person in a hedge fund.
Think of it this way:
On any given day, very few people and institutions actually trade stock. In a given trading concern, generally only one person at a time trades in any given issue to avoid the having the house trade against itself. Most buy and sell orders are bundled together in one fashion or another into larger deals brokered by these people.
It is in these aggregate orders that real prices are set and the market makers do the deals before they appear on anyone's screens - with phone calls, e-mails and in the rare NYSE, open pit. I'm not going to move millions of shares until I know I have a buyer.
Example: (this I witnessed first hand)
A sector trading group within an institution needs to free up $2 billion in a couple of days to make a move. For bonus/performance reasons the group does not want to use the "house" credit line (the internal cash reserve).
So it plans to sell a 20 million shares of an issue that has overshot its target. They've already made their money, but they don't want to drag down sector by selling them in the open market - this house is influential and its moves are closely watched. And it is not a full divestment, so they want to protect the remaining shares.
Solution: They contact a buddy at hedge fund who will take it off their hands for 500 basis point ($5 below market) in a private deal. Fine says the institution, since they already made far more than $5 on these shares.
If the hedge fund drops these shares all at once and alone, they will lose more than $5. It does not want to trigger a sell off. So it does a few things... They sell some to other private equity groups at discounts from $1-$3 off market price.
They line up some friends to time their aggregate trades in the same sectors to their moves on this one issue - stalking horses. And they buy option contracts (sort and long) on the a parts of the shares at different times - to make money on their every move.
Over the next two days, the hedge fund sells off enough to get attract the day traders, then sells against them to maximize their profit. The option contracts are gravy and bait for the other "velocity" program traders. But they don't create so much price swing as to attract movement from the institutions. They rinse and repeat.
In the end, the stock is up $5 over the market price when the did the first deal and they hedge fund has made $2-10 per share and most of the contracts. They have also triggered 80% of the volatility in the sector and 5% of the volume on the NASDAQ.
It does not take much to see how analyst information can be used to support such transactions.
Comments
Yes Apple has done well over the past 3 years but that's not my point. Neither is its rise or fall on a single day in a sector trend.
Analysts' price targets have a real impact on the intra-year, quarter to quarter fluctuations. Traders and hedge funds care about small changes in the short term (3-9 months). Individual and institutional investors care about performance over the medium and long term (>1 yr).
If you can get enough traction on a target (up or down) you can profit in the short term. Down and you shake out individuals and institutional triggers, up and you attract both. Either way you win if you know the trend in advance.
If you look at Apple's stock over the 8 quarters, you'll find it is particularly vulnerable to the effects of the analysts opinions. The price swings this year are a pretty good mirror of this. Every one of these analysts who talks about targets either works for or has ties to a hedge fund or investment house.
Note: Apple has become a significant psychological if not fiscal indicator in its sectors. Movement on Apple stock is no longer solely "with the sector" - it in fact determines the sectors to some extent (personal electronics, retail electronics, music, computers, so-called "lifestyle" purchases) This is because Apple sales are a often a decent barometer of leading consumer spending trends, irrespective of the actual dollars spent.
So, if you are an analyst, and you know this stock is vulnerable, when does a prediction become manipulation? Perhaps when an analysts' prediction's flies in the face of all available evidence, and DESPITE constant negatives, the stock and company continue to do astoundingly well. At that point you look at who stands to gain.
One other thing: Please understand that all the analysts that cover this sector know each other well, and each of them personally knows 2/3 to 3/4 of the "market makers" (big traders) in the sector, both in their own company and outside of it. As a consultant to hedge funds at one point in my career, I got to see first hand just how small the clique in each sector was. Everybody knows everybody - and talks with them all day long.
I have no proof of collusion, only suspicions, but if I were the SEC, I would look this over once or twice.
I don't agree with this analysis completely.
Many small investors are day traders. as very little stock from any one company is traded in any given day, their trades can, and often do, have an inordinate effect. Apple has almost 900 million shares outstanding that are tradable. But, generally, no more than 20 million are traded. If only 5% of those trades are from day traders, the stock can move.
Analysts do have an effewct. We know that. Even if they didn't want to, they would. But, in the long run of several months, it's the market that determines the price. That, and the performance of the company itself.
In addition, there is the expectation that investors have for a company. Meet those expectations, and everything is cool. Fall short, and boom!
Analysts raise their predictions in a rising market, and lower them into a falling one. It's sort of a trailing prediction. If you look at Apple's price over this year, you will see that. As Apple;'s price was rising, they were raising their numbers. As Apple's price started to fall, after a delay, they started to lower theirs.
They rarely lead the market. They predict into a trend.
In the '90's and earlier, once the government allowed banks to own brokerage houses again, by changing the depression laws against it, there were problems.
Analysts were required to predict up the stocks that the banking business were hoping to do business with, among other things. I used to discuss, with my broker, why I rarely listened to analysts. They were wrong so often.
Of course, also in the mid-late '90's (the go go years) no one was ever wrong. Everything went up. My brokerage account went up more than 2,000% during that time. Buy almost any tech IPO, and make mucho money. Use pin to select which one.
Naturely, it fell apart, and then there were questions, trials, etc.
I haven't seen much of that today. Most investor information supply companies today do NOT have holdings in the stocks they report on. And no banking business.
Analysts do work for companies that deal in these securities. Since 2000 every major brokerage house and bank (!st Boston, Solomon, etc) has paid fines to the SEC because there was collusion between traders and analysts and using this collusion to enrich the "house" - collusion sanctioned by management. It's as if the casino's had it's players gambling against you while also dealing and the setting the odds.
As a result many of these analysts have moved an "inch" away and work for private equity funds and hedge funds which are less scrutinized. Because of the close personal relationships and the the amount of money involved, the temptation for manipulation is very great.
Yes, the "market" determines the price. The damage and profit is done in the days (not months) following analysts predictions.
What's the difference between "leading the market" and "predicting" it? Possibly intent. And the analysts always make their predictions privately to paying customers before they make it public. So when you or I read it it has already been known by *some* traders for a while.
Also, the problem with Apple is not that the direction the trend and the analysts predictions were the same over the course of a few weeks, but that the analysts are so consistently wrong in the overall quarterly trend of Apple and in interpreting very public sales data. You can't be an expert in this field and be *that* wrong for *this* long with the amount of money involved. If Apple outperforms every analysts for 8 straight quarters and any kid off the street can tell that it's going to happen, something is wrong.
Either what you are saying publicly differs from your private advice OR money is a being made on the "gap" in your predictions. Markets are just too efficient at sorting truth from fiction.
Hedge funds do a much off their business outside of markets in private trades - you have to when you are moving the quantities of stocks they are involves with. Note: there is no law that says you have to trade on a market, only that if you trade on the market you must fulfill your contracts. Much of their work revolves around manipulating stock to a specific price.
Regarding day traders:
Individuals playing the market day to day do not set price, they are the "sheep".
It's the market makers that set the price and they are manipulated by the hedge / private equity funds.
I have watched the screens as traders in a single hedge fund move 5-10% of the NASDAQ volume in a single day by making phone calls to friends and partners around the world. All this to get to a particular price target for a small number of stocks. Why? Because they got a great price on millions of shares in a private trade and needed to orchestrate an orderly profitable reduction in the position.
A day traders as a group cannot not hope to compete against their coordination. Their time frame? Hours and days not weeks or months.
What then is the "market"? In the long term, the international community of investors and consumers. In the short term, a very small group of individuals.
This is all conjecture and of course I could have it totally wrong, but then the brokerage houses still deny any wrong doing despite paying millions of dollars to the SEC in collusion fines.
(emphasis added by me)
"While research of growth companies and deep domain expertise within our focus sectors are at the core of our business, ThinkEquity Partners LLC' institutional sales and trading capabilities are a major asset for us. Due to our proprietary research product, Firm focus and momentum, we have attracted an exceptionally strong sales and trading team. Currently, we have 22 senior salespeople, 14 senior sales traders, and nine market makers covering leading growth oriented instutional investors in the United States and Europe.
Due to the quality of our people and research product, we have established close relationships with senior portfolio managers at top institutions. Our knowledge of our investors and research universe has contributed to ThinkEquity having one of the highest percentages of "crossed trades" of the Top 50 firms, in 2004 as tracked by Autex. Underpinning this success, and all our sales and trading efforts, is our mantra:"
A few things:
Analysts do work for companies that deal in these securities. Since 2000 every major brokerage house and bank (!st Boston, Solomon, etc) has paid fines to the SEC because there was collusion between traders and analysts and using this collusion to enrich the "house" - collusion sanctioned by management. It's as if the casino's had it's players gambling against you while also dealing and the setting the odds.
As a result many of these analysts have moved an "inch" away and work for private equity funds and hedge funds which are less scrutinized. Because of the close personal relationships and the the amount of money involved, the temptation for manipulation is very great.
Yes, the "market" determines the price. The damage and profit is done in the days (not months) following analysts predictions.
What's the difference between "leading the market" and "predicting" it? Possibly intent. And the analysts always make their predictions privately to paying customers before they make it public. So when you or I read it it has already been known by *some* traders for a while.
Also, the problem with Apple is not that the direction the trend and the analysts predictions were the same over the course of a few weeks, but that the analysts are so consistently wrong in the overall quarterly trend of Apple and in interpreting very public sales data. You can't be an expert in this field and be *that* wrong for *this* long with the amount of money involved. If Apple outperforms every analysts for 8 straight quarters and any kid off the street can tell that it's going to happen, something is wrong.
Either what you are saying publicly differs from your private advice OR money is a being made on the "gap" in your predictions. Markets are just too efficient at sorting truth from fiction.
Hedge funds do a much off their business outside of markets in private trades - you have to when you are moving the quantities of stocks they are involves with. Note: there is no law that says you have to trade on a market, only that if you trade on the market you must fulfill your contracts. Much of their work revolves around manipulating stock to a specific price.
Regarding day traders:
Individuals playing the market day to day do not set price, they are the "sheep".
It's the market makers that set the price and they are manipulated by the hedge / private equity funds.
I have watched the screens as traders in a single hedge fund move 5-10% of the NASDAQ volume in a single day by making phone calls to friends and partners around the world. All this to get to a particular price target for a small number of stocks. Why? Because they got a great price on millions of shares in a private trade and needed to orchestrate an orderly profitable reduction in the position.
A day traders as a group cannot not hope to compete against their coordination. Their time frame? Hours and days not weeks or months.
What then is the "market"? In the long term, the international community of investors and consumers. In the short term, a very small group of individuals.
This is all conjecture and of course I could have it totally wrong, but then the brokerage houses still deny any wrong doing despite paying millions of dollars to the SEC in collusion fines.
There are numerous theories about the market. Some differ considerably from others. All are correct, and none are correct. As always, there is a subtle combination of all the theories.
I have found, over the years, that my trades alone, in smaller, slower traded stocks were enough to affect the price, as the market makers scrambled to adjust.
Market makers work on fractions of a point in an individual trade, rarely do they affect the overall price over the course of a day, and never, over the longer term.
Problems with market makers, and their equivalents in other markets, is their "skimming" that fraction of a point from the trades price for their profit. Something which has been difficult to stop, not matter how the rules are changes.
I don't really begrudge them that, as it doesn't materially affect my intent.
You seem to think they can manipulate prices on a broad swath. They can't. Their affect on pricing, even when large volumes of shares are traded in a single private deal, is small.
And, even if that were true, they would still be responding to market forces that are well beyond their control. When a sell-off is in progress, they have to follow it down.
There has also been analysis of day trading in the late '90's when they were at their peak, that showed a strong effect on pricing. Day traders have a herd mentality, when they act in unison, during a short period of the day, as they tend to do, after hearing news, they do have an efect.
Sometimes institutional investors are no more sophisticated than the average day trader. They will sell too quickly, or hold for too long. I try not to get stuck in that mode, though I did hold, and buy more Apple during the drop this year.
Most of those fines are from problems dating all the way back to the late '90's and the first couple of years after 2000.
The main problem was the banking business.
From the ThinkEquity Website: http://www.thinkequity.com/brokerage/index.html
(emphasis added by me)
"While research of growth companies and deep domain expertise within our focus sectors are at the core of our business, ThinkEquity Partners LLC' institutional sales and trading capabilities are a major asset for us. Due to our proprietary research product, Firm focus and momentum, we have attracted an exceptionally strong sales and trading team. Currently, we have 22 senior salespeople, 14 senior sales traders, and nine market makers covering leading growth oriented instutional investors in the United States and Europe.
Due to the quality of our people and research product, we have established close relationships with senior portfolio managers at top institutions. Our knowledge of our investors and research universe has contributed to ThinkEquity having one of the highest percentages of "crossed trades" of the Top 50 firms, in 2004 as tracked by Autex. Underpinning this success, and all our sales and trading efforts, is our mantra:"
Yes, I'm aware of it, but the major problems shown during hearings and trials, were from BANKING, not this.
Yes, I'm aware of it, but the major problems shown during hearings and trials, were from BANKING, not this.
Actually, there have been several large fines in the past 6 years against Brokerage House and private equity groups regarding their pump & dump analyst trader collusion.
There are numerous theories about the market. Some differ considerably from others. All are correct, and none are correct. As always, there is a subtle combination of all the theories.
I have found, over the years, that my trades alone, in smaller, slower traded stocks were enough to affect the price, as the market makers scrambled to adjust.
Market makers work on fractions of a point in an individual trade, rarely do they affect the overall price over the course of a day, and never, over the longer term.
Problems with market makers, and their equivalents in other markets, is their "skimming" that fraction of a point from the trades price for their profit. Something which has been difficult to stop, not matter how the rules are changes.
I don't really begrudge them that, as it doesn't materially affect my intent.
You seem to think they can manipulate prices on a broad swath. They can't. Their affect on pricing, even when large volumes of shares are traded in a single private deal, is small.
And, even if that were true, they would still be responding to market forces that are well beyond their control. When a sell-off is in progress, they have to follow it down.
There has also been analysis of day trading in the late '90's when they were at their peak, that showed a strong effect on pricing. Day traders have a herd mentality, when they act in unison, during a short period of the day, as they tend to do, after hearing news, they do have an efect.
Sometimes institutional investors are no more sophisticated than the average day trader. They will sell too quickly, or hold for too long. I try not to get stuck in that mode, though I did hold, and buy more Apple during the drop this year.
Consider what you observed about your own small trades in quiet sector: You (in effect) made the market - that is set the price. Now apply the same concept to much larger deals.
I have watched as traders directly manipulated the price of stock on a given day and week by moving large numbers of shares in coordinated efforts. They use the day traders as "gas pedals" (accelerate/decelerate) and the institutional investors as "gears" (up shift/down shift)
It was absolutely clear to me on many occasions that the market for a given issue was being made (that is the price was being set) with great precision by a single person in a hedge fund.
Think of it this way:
On any given day, very few people and institutions actually trade stock. In a given trading concern, generally only one person at a time trades in any given issue to avoid the having the house trade against itself. Most buy and sell orders are bundled together in one fashion or another into larger deals brokered by these people.
It is in these aggregate orders that real prices are set and the market makers do the deals before they appear on anyone's screens - with phone calls, e-mails and in the rare NYSE, open pit. I'm not going to move millions of shares until I know I have a buyer.
Example: (this I witnessed first hand)
A sector trading group within an institution needs to free up $2 billion in a couple of days to make a move. For bonus/performance reasons the group does not want to use the "house" credit line (the internal cash reserve).
So it plans to sell a 20 million shares of an issue that has overshot its target. They've already made their money, but they don't want to drag down sector by selling them in the open market - this house is influential and its moves are closely watched. And it is not a full divestment, so they want to protect the remaining shares.
Solution: They contact a buddy at hedge fund who will take it off their hands for 500 basis point ($5 below market) in a private deal. Fine says the institution, since they already made far more than $5 on these shares.
If the hedge fund drops these shares all at once and alone, they will lose more than $5. It does not want to trigger a sell off. So it does a few things... They sell some to other private equity groups at discounts from $1-$3 off market price.
They line up some friends to time their aggregate trades in the same sectors to their moves on this one issue - stalking horses. And they buy option contracts (sort and long) on the a parts of the shares at different times - to make money on their every move.
Over the next two days, the hedge fund sells off enough to get attract the day traders, then sells against them to maximize their profit. The option contracts are gravy and bait for the other "velocity" program traders. But they don't create so much price swing as to attract movement from the institutions. They rinse and repeat.
In the end, the stock is up $5 over the market price when the did the first deal and they hedge fund has made $2-10 per share and most of the contracts. They have also triggered 80% of the volatility in the sector and 5% of the volume on the NASDAQ.
It does not take much to see how analyst information can be used to support such transactions.
Does anyone think Apple will split the stock again if it goes over a 100?
Eventually.