Traps for Investors (1) - Kill with a borrowed knife

"The World is a dangerous place

to live, not because of the people who are evil,

but because of the people who don't do anything about it."

-Albert Einstien

There are so many traps in the game of investment . As most public are working hard striving for financial freedom, unfortunately, many will step on the traps because of the lack in investment education... and then they will be squeezed until dry!

So, when one discovers a trap, it is good to share it and alert others...

Here is a trap, let give it a name -
"Kill with a borrowed knife ( 借刀杀人)* ", which I came across from an out-of-print book.... And it happened in the past in Wall Street... before 1929...

When a greedy, rich and powerful person, say Mr. "BADGUY", discovers one of the stocks in his portfolio will become "Rubbish" in the near future due to some internal information, such as a drug company will fail some test in the new drug release or some technology can not be taken off, etc... Here are the steps he would do...

1) Packaging and Marketing... He would go to Investment firm/Bank to look for a fund manager, Mr. "Borrowed_Knife", to start up a "Investment Fund". Depends on timing, there will be many tricks, such as "Certain % Capital Protection", "Best Track Record Fund Management Team", etc... As long as the Public, Mr. "GOODGUY", feel safe and like it, they would package that way...

2) Distribution at Higher Price along with good forecasting Result... Normally, the fund would have a fixed term such as 3-5 years contract. (Worse of All, some need to pay them management fee for using the money..)
Once the fund is raised from the Public... Mr. BADGUY would, under his influence, had the company to publish excellent business forecast, such as pouring out the last bit of reserved from the "Cooky Jars", turning on the Rumors Factory 24 hrs for good news, etc.. what ever method it might be, just make sure it looks good... While Mr. Borrowed_Knife (Fund Manager) would start to buy the "Rubbish" from Mr. BADGUY, at higher price, with the justification, to the public, of such good reports and news...

3) Fire the Manager with Big Rewards... As long as the fund manager used up the cash in the fund to clean up the rubbish... He would later be "Fired" for his incompetence in poor performance on the surface... While a large sum of "kickback" would be given for the GOOD JOB (in the view of Mr. BADGUY), which would much more than the person continue to be a fund manager for the rest of his life...

4) The Public is still Confused or Happy... For some fund, the public is totally broke... and confused... For some other scheme, such as "Capital Protection" to certain %... The Public would even be very happy think that they are lucky to have such scheme protecting them... While not knowing that the Investment firm/Bank would just simply put it on paper as P&L...
In general, many Investment firm/Bank are public listed company and making much more money from loaning program... Extra profit would be distributed to Shareholders any way, and... Why not help some people that is "Politically Correct" in the future tense...

亡羊补牢,未为迟也 。

"It is not too late to fix the fence of the farm,
after one discovers that sheep been eaten by the wolf."
- A Chinese Proverb

Yes,it must fix the fence, and it is even more critical to Catch that Wolf!

* Ref:

to be continue...
* Loot a burning house 趁火打劫.
Openly repair the gallery roads, but sneak through the passage of ChenChang 暗渡陈仓.
* Defeat the enemy by capturing their chief
* Take the opportunity to pilfer a goat
And, how to stay in profit. :-)


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