Why Trading Stocks Is Like Losing Weight, Part 2: Bashers and Pumpers
In Part 1 of this blog post series, I talked about how there were many similarities between the worlds of weight loss and weight maintenance, and stock trading. From the poor long term success rates to the importance of hard work and discipline, both worlds can be considered skills that require consistent practice and time in the trenches. I really hadn’t planned on making a blog post series out of this topic, but the recent incident between CarbSane, Richard Nikololey, and Jack Kruse made me think about some more similarities between weight loss and trading that I hadn’t thought of before.
I am a short-biased trader. I primarily look for stocks that have run way, way up on nothing but hype, and then short them at the first sign of weakness. I also look for “pump and dumps“…mainly over-the-counter bulletin board (OTCBB) and pink sheet stocks that have been manipulated upwards (“pumped”) through email or snail mail message campaigns, getting naive investors to buy the stock (click here to read a blog post I wrote a while back about a company selling a natural sweetener that was involved in a pump and dump campaign). While the naive investors buy the stock, the pumpers and insiders are selling (the “dump”). Once they are done pumping and dumping the stock, there is nothing to support the stock price anymore and it crashes hard, which is why these stocks make excellent shorting opportunities if you time them correctly (and if you can find shares to borrow, which can be difficult).
At times, when I have found pump and dumps or stocks that have run on nothing but hype, I have gone to message boards such as Yahoo Finance and warned investors not to put their money into the stock. If they already have, I have warned them to sell as soon as they can. With a pump and dump, once the stock starts to crash, it is usually impossible to get out (imagine hundreds of people trying to get out one door at the same time) until the stock has crashed and hit a bottom, losing 30-50% of its value in a day or two. Naive investors who bought into the pump campaign end up losing their money, while the pumpers and insiders are laughing to the bank.
The thing is, however, when you warn people about buying into a pump and dump, you are not thanked. Instead, you are labeled a “basher”. People will accuse you of just trying to knock the share price down so you can get in at a cheaper price, or perhaps because you are short the stock. You can present all the facts and evidence in the world to these people, including SEC filings, the behavior of past pump and dumps, etc., but it will usually fall on deaf ears. If you are short the stock, people will think that automatically negates the evidence you have presented. Of course, being short is irrelevant to whether your thesis regarding a stock is correct; Jim Chanos was short Enron and that did not negate his case against Enron. Unfortunately, these people don’t listen to you and usually end up learning the hard way, just as people didn’t listen to Jim Chanos and lost a lot of money when Enron crashed. People become very emotionally attached to a stock that they are invested in, especially one where they have bought into the hype and excitement surrounding the stock. The excitement and emotional attachment are heightened if the stock has recently performed very well.
When the stock does crash, the emotional attachment doesn’t stop. People will still refuse to believe their high flying stock was nothing more than an artificially created bubble that had just popped. They will start to finger point, blaming “bashers” for causing the stock to crash, when in reality the stock crashed because it was artificially manipulated upwards in the first place. In fact, a perfect example can be seen in a back-and-forth conversation between an individual with the nickname Longviewer, and myself (with the nickname YngvaiMalmsteve). The company was Jammin’ Java (ticker symbol JAMN), and had been part of a massive online stock promotion campaign using Rohan Marley’s (Bob Marley’s son) name and face on the campaign. Over a period of months, the stock had been pumped from the pennies to over $6 per share before having a massive crash, followed by some dead cat bounces and further crashes. JAMN now trades for 18 cents. Anyway, the Street Sweeper came out with an investigative report on JAMN, revealing that it was a pump and dump and all the dirty details about it, including how the former CEO of the company was a stock promoter who had engaged in past pump and dump campaigns. ”Longviewer” tried to blame the stock price crash on the article, and was in disbelief that Rohan Marley would allow his name to be connected to a pump and dump operation. I pointed out to “Longviewer” that other celebrities, like Shaquille O’Neal, had been connected to pump and dump operations, and that there was no evidence linking the stock price crash to the article. I gave “Longviewer” many other pieces of evidence that JAMN was a pump and dump, but he continued to refuse to believe it. Of course, in the end, I was right; JAMN was eventually the target of an SEC investigation and is now trading in the pennies, and I’m sure “Longviewer” lost quite a bit of money on his investment.
Bashers in the Health Field
So what’s this stuff about bashers got to do with CarbSane’s recent exchange? In a recent post on his blog, Dick Nikoley led off with the following comment:
While “femmes importantes” are now setting their sites on the “sins” of the great Robert Lustig…because, hey, that’s what happens when you have no value to add to anyone, pretending instead you offer value by tearing down value…I’m off on a different track, and will continue to do so. It was fun engaging the c*** while it lasted
Of course, the irony here is the hypocrisy, or should I say dick-pocrisy, of criticizing someone for having “no value to add to anyone” and “tearing down value”, while simultaneously using slurs against that person as well as others (just read some of Dick’s comments through that post, as well as some past posts). It’s pretty hard for me to take this guy seriously with such blatant dick-procrisy. But I digress on that point. What is more on point is how Dick is claiming CarbSane adds no value, and does nothing but tear down value. Some of his followers make the same claim. Of course, nothing could be further from the truth. Individuals like CarbSane are exposing bad science; this is a noble effort to help prevent “gurus” from spreading false information to the masses. Dick will claim that that individuals like Taubes and Naughton have “done far more to educate people on the science of diet, weight loss, insulin resistance, etc.” Ummm, I fail to see how “educating” people with bad science (and I mean REALLY bad science) is somehow beneficial. Dick acknowledges that Taubes et al. have some “errors”, but what he fails to see is that they are MAJOR errors, so major that they essentially invalidate their primary theses. For example, there is nothing valid about Taubes’s “carbohydrate hypothesis.” It was built on a house of cards and there are very good reasons nobody in the world of obesity science takes him seriously. Taubes will claim it’s because the “establishment” is too entrenched in their ideas, when in reality is simply because Taubes’s science is plain wrong.
The problem when you spread such inaccurate information, is that it does not help people, but instead hurts them. For every person who claim Taubes’s book helped them (when in reality a low carb diet simply helps you eat less, mainly due to the high protein intake), there are going to be many more who develop an irrational fear of carbohydrates, or who will struggle with weight and fail to understand why, even though their carb intake has been reduce to almost nothing. These people will believe Taubes in that they are simply too “metabolically damaged”, when in reality they are simply being fed incorrect information.
Like the basher who is simply pointing out that a stock is a pump and dump, and like Jim Chanos coming out and warning there is something wrong with Enron’s financial filings, individuals like CarbSane are exposing the bad science that is put out by people like Taubes. But individuals like Dick will have none of that. Like the investor who has become emotionally attached to his stock, these individuals have become too emotionally attached to the ideas put out by their gurus. Thus, when the bad science gets exposed, they get an emotional, visceral reaction; nobody likes their sacred cows being exposed as un-sacred. So they will label people like CarbSane as a “basher.” Exhibiting the tribalism described by Muata Kamdibe and the defending the hive behavior described by Matt Perryman, they will circle the wagons and defend their treasured gurus, just as investors on a Yahoo Finance message board will circle the wagons and defend their stock. They will point out how Taubes has helped people, while failing to realize that for every person helped, there are dozens more who are hurt; similarly, investors will point out that people made money on the stock, while failing to realize that the only people who made money were the insiders, pumpers, and people lucky or wise enough to sell before the stock crashed.
Taubes and other “gurus” are like the stock pumpers in this situation. They build a legion of followers through spreading simplistic misinformation that resonates with people, getting them to buy into it. And all the while, they are making money off of these followers through book sales, talks, etc., just as stock pumpers are making money by selling their stock to the investors who have bought in. Unfortunately, unlike a stock mailer, there is no legally required fine print to warn you that you’re being fed B.S. If there was such legally required fine print, I would think it might read something like this:
Good Calories, Bad Calories (or insert any other guru’s book here) is a collection of stories and/or cherry-picked research to advance an idea that is not scientifically correct. The author has written the book in such a fashion that it can appear quite convincing to someone without the scientific background to critically analyze the information presented. The author earns royalties of an undisclosed amount when you purchase this book; the author will also earn undisclosed fees for presenting his ideas in public forums. The author’s living is dependent upon selling you his ideas, even if they are incorrect. The author is also utilizing the fact that creating controversy and being “anti-establishment” helps sell. The author has failed to include many references that do not support his claims; many of the references cited in his book also do not support his claims. It is recommended that the reader investigates the references. While the information presented in this book might help you lose weight, it is more likely to lead to continuous weight struggles like that experienced by Jimmy Moore, as well as irrational fears and bewilderment as you fail to understand why you continue to struggle. Read this book at your own risk.
Proud to Be A Basher
In the stock world, I, Michael Goode, Timothy Sykes, Janice Shell, and others will continue to expose pump and dumps wherever we can. And in the health and fitness world, I, CarbSane, Alan Aragon, Jamie Hale, Lyle McDonald, Anthony Colpo, Bret Contreras, Matt Perryman, Brad Schoenfeld, and others will continue to expose bad science wherever we can. Whether it’s junk stock or junk science, we need the “bashers” to keep the “pumpers” from spreading false information, and I am proud to be one of those bashers.