My life as a day trader has been thus far insightful and remarkable. My investments began with little known stocks such as McDonalds and Amazon.com, jk. These stocks, enormous, well known, and made me some nice pocket change. I then branched out to lesser known investments such as cloud computing, chinese social media stocks and then so far as to invest in the company that issues my credit card, Discover. Discover, I must admit is one of my favorite stocks, simply because I love the company philosophy. Its gives you a penny or more for every dollar you spend. That penny you earn can then be redeemed for gift cards for stores (these gift cards are bought for 5-20% their face value). I then use these gift cards (basically these gift cards obtained free of cost for me since we pay our credit card statement monthly) at stores online, such as gap.com. When I get to gap.com there are promo codes that I can redeem for 10-20% off my purchase, which I purchase with "free money" which was obtained at a discount. So I receive a discount on a discount of free money, now if you don't like the sound of this, then you don't understand the beauty of winning in a capitalistic country, how I love America. So when I trade Discover in my brokerage account, not only does this company give me free money, but when I trade Discover and then sell it a few hours later, I can quickly make 100-2000 dollars, not bad for basically just believing in a company's philosophy.
However, like I sometimes do, I deviated from my path, and tried to explore paths of greed and what I will label as intricacies of what I consider intellectual superiority. However the joke was on me. Not only was I not taking a path of intellectual superiority and esotericismal monetary reward, I was stepping into what I did not realize was a trap of brilliant and simplistic scope. I became involved in Pump and Dump. Now what pump and dump is for those of you who are unaware, pump and dump is a term used to describe a scheme in which a ring of criminal investors will send out email messages to investors such as myself touting the prospects of a startup company. These investors will send out fabricated press releases and will setup a front company with a front board, CEO, press releases, and will put this company on the OTC:BB. I did not realize that securities traded on the market were unscrutinized to the extent that they are. So what happens is these criminal investors will send out these emails pumping up the ticker and numerous unwitting investors will buy the stock driving its price up, the criminals have large quantities of the stock which they bought for pennies, once the stock is driven up the criminals then "dump" their stocks at the inflated price, thus causing the stock to plummet. Unwitting purchasers of the stock at the overly inflated price begin to notice a drop on price, however there are no longer any new purchasers of the stock, so when you try to sell something no one now wants to buy? Fire sale, the price plummets and you lose whatever money you put into the stock. So to simplify, the criminals buy the stock, say 50,000 shares for $5,000, next they email investors about the company and its recent large contracts and the likely expectant increase in stock price. Investors clamor for the stock, the stock value increases (lots of buyers, with few sellers, so the price escalates). This is where the criminal investors begin dumping stock and the price begins to fall, to prevent its complete collapse a few more investors are targeted with emails in a staggered fashion, so these new investors begin buying and the criminals sell. Once the unwitting investors try to sell their stocks at the inflated price they realize there no longer are any buyers and the price drops dramatically. So the criminal who bought 50,000 share for $5,000 is able to sell that same amount of shares for $250,000, meanwhile the investor who bought 50,000 shares for $25,000 can now only recoup perhaps $10,000. Again the scheme is simple however to set this fraudalent illegal activity up I would assume would be complex as the government, I would hope, would be policing such fraud.
Have I learned my lesson? Yes, I have. I have learned to invest in what I know and what I trust and to stay away from schemes promising quick profits. I also learned that criminals are operating in the stock market very openly and brazenly, which I did not realize the extent of the criminal activity on the stock market. I guess it was a tuition of sorts, instead of paying a semesters tuition, I paid to learn what to invest in by experience and what to avoid. I hope if you are a day trader you will learn from this and avoid the expensive experience that I have been a part of.
