I Fleecing of the Small Investor As is often the case when stocks surge and then crash, it's the small investor who gets fleeced. At the same time that professional traders, sensing the inevitable top, fueled the bullish fires with positive statements, many insiders surreptitiously sold their holdings in a classical distribution pattern. Their task of unloading worthless stock on an unsuspecting public was facilitated by positive statements and buy recommendations from analysts who had a vested interest in promoting these shares. Investors who had missed the big moves, anxious not to let it happen again, finally gave in to their emotions, buying puffed up stocks at or near their all-time highs. Finally, when the stocks that "could do no harm" crashed, small investors were purged from the market. Taking their place were new and hopeful investors, inspired by low commissions, highly optimistic forecasts, and the belief that online trading would lead to success. And the newcomers were ultimately burned by the bear market as well, because their orientation was bullish, as is the orientation of most novice investors. They fought the trend all the way down by failing to follow the path of least resistance. The bear market continued. Brokerage houses suffered as well. Even one of the most sophisticated investment banking firms—JP Morgan Chase—saw its shares drop sharply from a high of over $67 in January 2000 to a low of $26.70 in January 2002. Without a doubt, the brokerage industry was in need of a shot in the arm. A declining market, damaged credibility, waning investor confidence, and a stagnant economy all combined to create the dire need for a new stimulus. Could that stimulus be single stock futures? I How the Experts Erred Apparently, the popular thinking was that SSFs could save the brokerage business (and perhaps even the markets). But procrastination, territorialism, and bureaucratic foot-dragging continued to delay the introduction of SSFs in the United States , and the brokerage community was dealt yet another blow. Adding to an already bad situation was the revelation that many of America 's top brokerage firms knowingly continued to recommend worthless stocks to their clients in order to keep the commission dollars flowing. Experts who appeared regularly on business television programs, such as CNBC, touted stocks that continued to decline, even though these experts were aware of the problems attendant on the stocks. Ultimately, an agreement was made with the New York attorney general whereby a large fine was paid by Merrill Lynch in compensation for the wrongs that had been committed. But, of course, investors didn't get their money back; instead, it went to the government. By late 2002, SEC investigations were rampant as investors and the government sought victims to be held accountable for losses so many investors suffered. Even the once highly respected Martha Stewart was implicated in a stock scandal. forex investments ~ forex hedging |