Specialists, The True Owners Of The Stock Exchange: There are more than 125 million investors in the United States today. Most of them are losers. Not only do they loose their money, they loose their self-confidence, their security, and the chance they had at one time to use their money to make a killing in the market. Yet the fact is that to get the money needed to invest in the market, most of these investors had to be fairly successful in their chosen professions. Many of them had demonstrated an ability to think clearly, to make plans for the future, and to carry them out. Why then, using the same intelligence do they go so very wrong when they try to make money in the stock market? The majority of investors do research the stocks that they are considering purchasing in order to acquire the information that they think they need to make an intelligent investment decision. Unfortunately, although the information they researched might be useful in the business world, it will be of little or no use in the stock market. The acquired information lacks predictability. However smart the individual may be, if he or she attaches predictive potentials to the information that has no predictability, he is using the wrong set of data to forecast market events and is bound to foul himself up. It is understandable why an executive of a business might assume that the decision making process which provided him with results in his business has a specific relationship to the conclusions upon which he can base his predictions in the stock market. In each instance he uses what he thinks is the raw material from which he can make a valid prediction about the future. The conditions with a business differ from those with the stock market in two ways: ( 1) The owner of a business can lay claim to part of the assets of that business; an investor in the stock of a corporation listed on the Stock Exchange has no claim to any of the assets of
that corporation. (2 ( 2) The value of ownership in the business is totally dependant on the sales and earnings of the business; the value of shares in the stock market has only a theoretical connection with the sales and earnings of the company’s stock. Because good earnings can reinforce an investment in a business, the assumption is often made that earnings of a corporation listed on the NYSE tell the whole story about the conditions under which an investment can safely be made in a corporation’s stock. To think this way is a very large mistake, though it is a common one. Investors confuse words with conditions, not realizing that only identical initial conditions can lead to identical results. The critical point here is that words that are perfectly satisfactory for use in one environment may carry implications that are factually wrong in another. For example, the usage of such words as “good “ good earnings” earnings ” with the assumption implied that they are an aspect of rising stock prices, tends to warp judgment. Consequently, it is impossible for most investors to identify a contradiction between “right” right” thinking and “their “ their ” thinking when they buy stock. Because they equate words with conditions, investors come to be ruled by words. The average investor’s errors in judgment are a product of a distorted understanding of situations caused by inadequate and misleading verbal maps. His failures are a consequence of trying to use the same verbal maps that carried him successfully through one territory to carry him through another, altogether different territory. For practical purposes, therefore, if the investor wishes to change his emotional reactions to market situations so that he can profit instead of lose in the market, he must be able to discard his old verbal maps and acquire the skills and intuitions that allow him to make new maps. In order for him to do this,
the investor must learn to break with tradition. This will be difficult, since individuals tend to be ruled by tradition. What most investors have done is collect an inventory of routines and procedures that they associate with making money in the market. For instance, it is customary for the average investor to accept information secondhand from his stockbroker, a newspaper’s financial page, or textbooks. He “assumes “ assumes”” they are all well qualified to provide him with reliable information. Hence he fails to use his own senses to survey and research the environment in order to corroborate or discount the value of observations passed on to him by others. Customs such as this cause the investor to move through the market along a well-trodden path. It can be said, in fact, that virtually all the investor’s actions conform to the formulas of custom. This condition is of course marvelous for Stock for Stock Exchange insiders, since the more investors can be depended on to conform to the established routines, the easier it is for insiders to anticipate and exploit them. It is hardly surprising, therefore, that as investors charge into the market at a rally high, a Stock Exchange’s specialist is always there ready to ambush them. One of the investors’ main problems is that he has been trained to believe that he is investing in an “auction market”. For the whole of the twentieth century there has been a fundamental conflict between the theory of an auction market and the whole scheme of the NYSE. Playing according to the rules of a game that has been rigged against them, investors have failed to recognize that they are the victims of the Stock exchange insiders who, unknown to them, completely control the market. As the market is configured now, investors are involved in a system of financial relationships that are not mediated by the laws of supply and demand, but are instead controlled by forces beyond the investors’ control. Instead of being in an auction market, investors are confined within the framework of
an internal operation manipulated by Stock Exchange insiders purely for their own profits. Its functions and limitations established it as an institution whose processes are actually the opposite to those of an auction market. Thus, when the public buys stock, their demand is turned into a self-defeating financial weapon that beats down stock prices. Public buying has enabled Exchange insiders not only to divest themselves of their inventories of stock but also then to employ practices that enable them to drop stock prices profitably in order to re-accumulate an inventory of stock at lower prices. Conversely, when the public sells, they sell to insiders who, firmly anchored in their own self interest, will once they have “filled “ filled their accounts” accounts ” with an inventory of stock, raise stock prices in order to set the process in motion that will allow them to divest themselves of their stock inventories profitably. Obviously, such an institutional process such as this in no way remotely reflects the structure of an auction market. Once specialists have established their stock’s trend, their control over stock prices is such that “neither” the government, the corporations whose stock they supervise, nor their customers have the economic muscle to alter the internally controlled direction of the trend. Indeed, the specialist system is like a giant cartel whose members have divided among themselves the proprietary ownership of the American corporate complex along with the exclusive rights to determine the upward and downward movements of these stocks in the interests of their own merchandising objectives. Most investors will probably never make money in the market over the long run unless they learn to look at the market as a giant merchandising operation in which specialists manipulate stock prices in order to sell at retail what they had purchased at wholesale price levels. If investors wish to preserve their savings and see them grow, they must scrap
their traditional approaches to the market and learn how to time their transactions so that they buy when these insiders buy and sell when they sell. It is necessary to begin with a brief description of who these specialists are and how they totally dominate the market. The role of the specialist would be easier to define if he had only one function. As it happens, he has two, and neither is consistent with the other. In one he is according to theory, a fiduciary with all of the obligations and responsibilities pertaining thereto. He acts as your broker’s broker to facilitate the execution of your transactions. If you wish to buy or sell shares of stock you would place the order with your broker. Your broker would then communicate your order to his firms broker on the floor of the Exchange. He in turn would then proceed to the post where the specialist registered in the stock you wanted to purchase was located. Since the specialist presumably does not know whether your broker wants to buy or sell, his response to your broker’s request for a quote is to give him the highest bid, ((to to sell) sell) and the lowest offer (to (to buy). buy). Rules and regulations supposedly circumscribe the specialists’ conduct as he functions in this capacity. But the specialist, as it happens has another role in which he is happily free to abandon his responsibilities as an agent with its specific fiduciary obligations to the public in order to trade or invest for himself, in direct competition with the public. There are few investors who trade with him when he serves them as an agent who are not beaten into the dust when he invests for himself in competition with them. To the specialist his role as a broker’s broker is in many ways a by-product of his function as an investor for himself. He looks upon his responsibility as a fiduciary as a side issue, all be it a highly profitable one, that is conducted in order to grant a semblance of legitimacy to his more profitable activities as an investor
and trader himself. When they learn of his dual functions, there are few investors who do not immediately express the wish that they would like to spend the rest of their lives as specialists. Thus, on first learning of his existence, almost the first question the investor asks is: How do you become a specialist? The answer is never to encouraging: By being born the son or daughter of a specialist. The financial activities of specialists are exceedingly diverse. Some operate their businesses as individuals, others as partnerships, corporations, or other kinds of joint ventures. Subject to the same market conditions or situations, they will often react in different ways. But always, in the pursuit of profits, the specialists have one thing in common: They are the owners of the “ Stock Exchange”. Exchange ”. This means they are the owners of the institutionalized system that, more than do stockholders, directors, or officers of the companies under their jurisdiction, determines the overall direction of these companies’ most important profit making instrument, their stock prices. Only under the most extraordinary circumstances would one specialist ever impair the financial interests of another specialist. Thus, while the specialist conducts his affairs as he pleases, he conducts them according to the direction of the syndicate of which he is one of the principle members. Published 09/09/07 Richard W. Wendling www.bearfactsspecialistreport.com Send your comments to:
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