Sigh . . . Silly me. I have been reporting on marijuana stocks recently and have mentioned their volatile trading without giving much thought to why they have been so volatile. Or why some money managers are speaking out against them right about now.
Well, in the course of my online journeys today, those questions were answered — in part, at least, thanks to message boards used by investors.
First, there are those who short stocks. That is, they sell shares they don’t own and cover the short later by buying the same number of shares, hopefully at a lower price. Which accounts for sudden spikes in stock trading, apparently, and sudden dips, i.e when a lot of people are shorting — which they have been doing with some of the hot marijuana stocks these days, apparently.
Then, there are the money managers who, say, bought a stock at $3 (for example) and sold at $7. They thought the stock would fall back, and they could buy in again. But, alas for them, the stock soared and they missed out. Now, they want to see it fall again so they can buy back in — which accounts for some of the negative things they are saying publicly in the hope of scaring investors into selling at lower prices.
Of course, not all money managers would attempt to manipulate markets, right? I certainly couldn’t point any fingers at anyone.
Then there are people who pump and dump stocks: they encourage investors to buy shares in a particular company in order to inflate the price artificially, and then sell their own shares while the price is high. There is a lot of that happening, which is why investors really need to do their homework before they buy a stock. Check out the company, make sure it is legitimate.
Ultimately, it boils down to another fundamental of stock investing: if you really believe in a company, stick with it no matter the short-term ups and downs.
But it saddens me that there is so much scheming, manipulating and basic dishonesty in the market. Call me naive, I guess.
Photo credit: Cartoon, “Wall Street bubbles – Always the same.” 22 May 1901, Puck (magazine), Vol. XL, No. 1264, centerfold. Author: Udo J. Keppler (a.k.a. Joseph Keppler, Jr.; 1872-1956) From Wikimedia Commons