Pools And Manipulation. Examples Of Manipulation. Part 3

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This section is from the "Investment And Speculation" book, by Louis Guenther. Also see Amazon: Investment And Speculation.

Pools And Manipulation. Examples Of Manipulation. Part 3

It is a remarkable phase of human nature that prompts individuals to back with their money the claims of perfect strangers, for when it comes to buying even a pair of socks they will inspect them closely to be sure they are getting what they bargained for. Were this not a fact, no such schemes as the 520 per cent Franklin Syndicate operated by a clerk by the name of Miller, or the Dean Syndicate and the Storey Cotton Syndicate operated by ex-convicts, would be possible. These were all blind pools, so to speak. They advertised that speculation could be conducted profitably and without loss and would declare out of their supposed operations big weekly dividends. The Franklin Syndicate, while it lasted, paid 10 per cent weekly dividends. They secured some person in a community as a customer and it would not be long before the dupe would be telling all his neighbors about the fat dividends he was receiving. The result would be that the cupidity of others was aroused and they also fell victims.

Their schemes were simple. The dividends paid came from the money their dupes sent, and not from speculation. In the early stages of the crooked game, the dividends paid did not amount to very much and for every dollar distributed in this way they were sure of ten more coming back. Few of their victims ever got their money back, for they kept sending more money than they received so as to increase their large profits. A day must come when such schemes as these are raided or their operators decide to make a big clean-up. Then all their dupes find that they have not been speculating but have been swindled out of their money. '

Luckily, such discretionary pools, as they are styled, have ceased to exist. The authorities are now too watchful. But in their place have sprung up individuals who will handle speculative accounts for clients for a share of the profits. They catch their full measure of victims. These people are merely gambling with their clients' money. If they guess rightly, they take a share of the profits; if not, their customers, not they, lose money.

Rules Of Caution

In the first place, no person should speculate who has no knowledge of securities. One must not forget that intrinsic value and possible increase in income return are the moving forces behind a rise in the price of a security, and conversely, a depreciation in the intrinsic value and the likelihood of a reduction in the dividend, are behind a decline in the price of a security.

Such possibilities can be detected only by close study of prevailing conditions and by thorough analysis of the earnings statement, as published by corporations.

In fact, to be successful in speculation a person must devote as close study to conditions as he would to any profession he desires to master.

Speculation is a rich man's pastime, not a poor man's road to fortune. The latter has no business in it. A rich man is in a position to recuperate his losses by patient waiting. If he is a buyer, he can take his securities out of the market, put them away in his strong box and bide his time until they not only recover their price but go high enough so that there is a profit in them for him. If he is a seller, he can close his transaction and sell again at a higher level until the decline he anticipates takes place. But even then men who adopt this method are not always right in their conclusions.

The most successful speculators are the actual investors who buy their securities outright after a severe break in prices and store them away until a recovery occurs in which they can resell at a profit. They do not buy more than they can well afford to buy and as they own the securities outright they cannot be called upon for margin.