Learn to invest with Buffett

Chapter 80

Chapter 13 Section 6 How to avoid various investment traps

The risk comes from not knowing what you are doing.

--Warren Buffett
Many stock investors who lack calmness are blindly optimistic when they see that the stock market is profitable, and invest one after another.In fact, such investors often not only fail to succeed, but may also fall into investment traps and be deeply locked up.Buffett said: "The principle that extreme joy begets sorrow is also applicable to stock investment, especially for the rise of stocks. Don't be too optimistic, otherwise it will only lead to tragedy."

In actual stock investment, small and medium retail investors can easily fall into the trap set by large institutional investors for medium and small retail investors.Generally speaking, the financial strength of medium and small retail investors is quite limited, and their strength is weak, so it is difficult to form a climate in the stock market.However, big investors can rely on their strong financial strength to call the wind and fuel the flames, and can create some stock market traps, specifically waiting for medium and small retail investors to be fooled in order to reap high profits.The general methods used by large institutional investors to set traps include:

1. Spread rumors to confuse the public
Spreading rumors to confuse the public is the most commonly used method by large institutions. It is simple and trouble-free, and it is not easy to be caught.In the stock market, large institutional investors deliberately spread some groundless rumors in order to influence the buying intentions of medium and small retail investors.For example, in the top area of ​​the stock market, large institutional investors often create some negative rumors, thereby suppressing the stock index; and in the early stage of the bull market, large institutional investors often spread some bullish news, thereby attracting medium and small retail investors to follow up.

2. Insider trading
Insider trading is the operation and management personnel of listed companies take advantage of their positions or brokerages take advantage of their occupations to conduct illegal stock transactions to obtain huge profits.

At the end of one year, a listed company in the United States discovered a mine in eastern Canada and purchased the surrounding land. Then the company's management personnel and other "insiders" and their relatives and friends bought the company's stock one after another. It also released news to deny the reports of public opinion.In April of the following year, the company's secret was discovered by the public, and its stock price rose from $4 to $18 that day. Two years later, the company's stock price rose to $36. People took the opportunity to make a fortune.
3. Hoarding
Hoarding means that large institutional investors rely on their huge funds to buy a large number of stocks, and use this as a reason to request to participate in the management of listed companies or simply annex listed companies, threatening listed companies to withdraw them at high prices, so as to make a lot of money.

4. Concealing the sky and crossing the sea
Concealment means that a large institutional account opens two or more accounts with different identities, or a certain group uses the accounts of a branch company to reverse the transfer of each other, repeatedly make prices, and spend a small amount of handling fees and transaction taxes. To achieve the purpose of manipulating stock prices.

5. Throwing bricks to attract jade
Throwing bricks to attract jade means that large institutional investors continue to use small transactions to achieve the purpose of lowering or raising stock prices by means of "high in and low out" or "low in and high out".When the stock price is raised with a small amount of funds, the large institutional investors will take advantage of the opportunity of the medium and small retail investors to follow suit and sell them all, thereby reaping huge profits.On the contrary, when the stock price is suppressed with a small amount of stocks, they will be bought in large quantities.

6. Cooperate with dealers to ship goods and spread rumors to let retail investors follow suit
One year, for a listed company on the Shanghai Stock Exchange that mainly engaged in grain production, the market maker released a message at a high level of 8 yuan in order to ship goods: "XX organization wants to buy this stock..." Stimulated by the rumors, several All the big investors bought this stock generously, but later a few investors with a keen sense of smell found that the market didn't feel right, and cut their flesh and left the market. Set in high position.
If one plan failed, another plan was made, perhaps because the goods were not sold out. Later, the banker used the mouth of foreigners to make a statement in the media, saying that the company's stock had long-term investment value.Foreigners want to buy it, let alone ordinary investors.Later, under the call of foreigners, this stock really increased in volume, but it did not rise but fell. It is estimated that institutions were selling at that time, and retail investors who did not know the truth were receiving the goods. Now the annual report of this stock has also come out. It is not a profit. It is a loss. Investors who believed in the rumors and did not leave the market lost more than 70%.

Investment motto:

For the stock market trap, the following methods can be used to prevent: First, investors should not be credulous, and should rely on their own rigorous analysis and personal judgment to decide the buying and selling of stocks.The second is to stay far away, stick to your own principles and strategies in stock market investment, and don't be moved by the rise and fall of stock prices, and don't be confused by rumors.When the stock price reaches its own expectation, it will be thrown away, and when it falls to the investment value area, it will be absorbed, and it will not interfere with the big institutional investors.The third is to take a boat across the river, cross the river and demolish bridges, and use the market-making of large institutional players to make a profit.However, taking this method is generally risky, and it is difficult to grasp the measure in the operation. Among the medium and small retail investors in our country, most of them lose their wives and lose their soldiers.Fourth, the management should strengthen the intensity of information disclosure so that there is no market for all kinds of unfounded false rumors, and once the behavior of cooperating with dealers in spreading false information is found out, it should be severely punished.

(End of this chapter)