The Bull Hunters Guide

As we mentioned last time, we’re going to talk about the various kinds of scams that you might run into the world of investing; scams designed to separate you from your hard earned cash with false promises. The internet has given the people who perpetrate these scams a new lease on life by providing them with the anonymity needed to operate in secret and the technological means to target a much wider number of people than ever before.

However, just because the technology has advanced, the basic scams themselves are still fairly old. That’s the one thing that we have going for us when it comes to spotting investment scams: there are really only a few basic types of scam out there, and they just tend to get repeated over and over. Here are the most frequently seen:

The Pyramid Scheme

This is a scheme wherein money is solicited from investors in order to pay off previous investors who are now expecting to receive a return. Of course, such a scheme will eventually implode when the money coming in from new investors is insufficient to cover what is owed to the old investors.

Pump and Dump

This is a practical wherein a group of people purchase a stock, almost at random. They buy a large number of shares, and then they go about recommending that stock to as many as they can, usually thousands of other investors. When those people buy the stock, there is a sudden spike in the value of the stock. The duped investors will lose when the spike is followed by the inevitable fall, but those in the know will sell their holdings during the high point of the stock, thus making off with lots of profit.

In general, one should also beware of trades that take place in off shore accounts, because this is usually done to avoid operating in the jurisdiction of local law enforcement. They almost always are looking to hide something.

Next time, we’ll begin to take a look at some of the schemes in greater detail, beginning with the bulletin board scheme.

See you next week for part 3 of Investment Scams.

Sean Rasmussen
The Bullhunters Guide
Universal Wealth Creation © 2004 - 2008

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Up until now in this blog, we’ve mostly been talking about different strategies that you can put to use to make yourself a more versatile trader. This is all well and good, but all the strategies in the world won’t do you any good if you’re so unfortunate as to fall victim to an investment scam.

Scams Are Everywhere

These types of scams are, unfortunately, all over the place. No matter how savvy you think you might be about this sort of thing, some of the scams are quite sophisticated and easy to fall for unless you know exactly what you’re looking for.

To those ends, we’re going to spend the next several entries here going over many different types of investment scams and how to keep an eye out for them. It pays to know the enemy, right?

Internet Is Popular For Scams

It should comes as no surprise when we say that the majority of the investment scams going around are perpetrated on the internet. The nature of the internet allows for a great deal of “safety” and anonymity for thieves and con artists, so it makes a popular venue for taking advantage of the unwary.

No doubt you’ve seen at least one type of scam already, if you’ve spent any time at all looking at investing online, or joined any investment discussion sites. This is the email spam scam, wherein someone invites you to take part in his or her brand new scheme for making “guaranteed” investments. They use a lot of hyperbolic language touting their new system and claim that they’ll let you in on their amazing secrets for just a few hundred dollars.

Of course these types of scams are quite transparent, but believe us when we say that they get a lot more sophisticated than this. We’ll begin our discussion next time with an overview of the different types of scams out there.

See you next week for part 2 of Investment Scams.

Sean Rasmussen
The Bullhunters Guide
Universal Wealth Creation © 2004 - 2008

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Over the last several entries in this blog, our topic of focus has been short selling. We’ve covered what short selling is, when it might be useful to you as an investor, how to conduct the transaction. We also discussed what risks are involved in the trade, and the lengths that some individuals go to in order to use short selling in a dastardly and destructive manner that goes a long way towards earning it a terrible reputation. In this entry, we’re going to do a brief review of what we’ve discussed in order to put a capstone on the short selling subject once and for all before we move on to a new topic next time.

Summing Up Short Selling

To reiterate, short selling is when one investor sells shares that he or she does not actually own, on the agreement that he or she will actually buy the shares at a later date. They make money on the transaction if the value of the stock falls in the interim, enabling them to buy it at a lower price than they sold it for. Of course, when the shorted share actually increases in value, the short seller loses money.

That means that short selling is a very high-risk transaction. On the one hand, the value of a stock can’t go below zero, so the amount that you stand to earn is limited, but there is no ceiling to how high the value of the stock can rise, so the amount you could lose on the transaction is theoretically limitless.

Many people consider short selling to be a dishonest or unethical approach to investing because of the necessity of “voting against the home team” that comes with it. Despite the criticisms, however, short selling is definitely here to stay, so it pays to know all that you can about it. In doing so, you can add it to your stable of strategies and use it in a responsible way that brings value to your portfolio.

Thank you for joining me for Short Selling you next time when we begin an all new discussion.

See you next week for part 1 of Investment Scams.

Sean Rasmussen
The Bullhunters Guide
Universal Wealth Creation © 2004 - 2008

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Lately, we’ve been talking a lot about short selling in this blog. In particular, we’ve been talking about the pros and cons of short selling, and last time I mentioned that there was a distinct dark side to the practice that causes many to cringe when they even hear the term. This time, we’re going to talk about exactly that.

Short and Distort

Short selling is a somewhat cryptic process that is rarely understood all that well by the amateur investor. Because of this, it creates a ripe opportunity for unscrupulous traders to take advantage of short selling and twist it into a market-harming “money making machine” that doesn’t respect the true meaning of free commerce and investing.

When this happens, investors resort to using a tactics known as the “short and distort”. The way it works is this. Imagine that you have a bear market. The prices of stocks are almost universally down, and prospects all around aren’t so great. Traders might take this opportunity to buy a bunch of short options in a stock. Of course, that in itself is perfectly normal and ethical. However, what makes the “short and distort” such a terrible practice is that the investors then go on to spread slander and lies about the businesses that they’ve bought shorts in.

Slander Is Believable

Obviously, in a bull market, everyone is already nervous and pessimistic. Slander is thus easily believed, and it’s easy for investors to cripple a company through these means. When that happens, they walk away from the smoking wreckage with a handy profit, purchased at the cost of their integrity as real business people.

Of course short selling has its dark side. So do all forms of investing. It’s the ease with which short selling can be exploited however that makes it a particular target for scepticism.

See you next week for part 8 of Short Selling.

Sean Rasmussen
The Bullhunters Guide
Universal Wealth Creation © 2004 - 2008

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Last time in this blog, we started discussing the ethics of short selling. We mentioned how it’s often the case that short sellers are looked up with something of a blend of derision and skepticism simply because their own profit is dependent upon the losses of others. However true this may or may not be, there are more pressing accusations being leveled against the short seller that demand our attention; namely, the accusation that short sellers actually harm the market.

Controversy Surrounding Short Sellers

Many of you might remember the huge stock market crash back in 1987. While there were a lot of contributing factors to that fiasco, such as the sharp increase in program trading around that time, there are many who are eager to blame the entire situation on short sellers. While there’s not a ton of evidence to support this claim, there’s enough of a correlation between spikes in short selling and downturns in the market for market regulators to have enacted certain guidelines and limitations that inhibit the short seller’s ability to actually affect the direction of the market.

Contribution To The Market

Of course, for all these claims of being bad for the market, there is one aspect of short selling that undeniably makes a contribution to the market that can’t come from anywhere else. It provides a sense of liquidity to the market, keeping trades fluid, and while it tends to drive down the price of stocks overall, it also tends to drive down those that are actually overpriced and should be driven down. In this sense, short sellers can be seen as a fail safe measure against those who would seek to commit fraud by introducing securities that they know are unstable and will soon crash on hopeful investors.

All in all, short selling is a give and take kind of situation. While many aren’t fans of it, they allow it to stick around because of the undeniable benefits that it offers the market in general. Next time, however, we’ll need to take a look at one aspect of short selling that is all-around negative: those investors who make use of distinctly unethical tactics in order to facilitate their short selling.

See you next week for part 7 of Short Selling.

Sean Rasmussen
The Bullhunters Guide
Universal Wealth Creation © 2004 - 2008

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