Anthony Elgindy – The Dumbass, The Day Trader, and the New Democracy
by Joey Anuff and Gary Wolf
In a San Diego office building where the air-conditioning runs full blast all winter, a man is yelling. “Art, your phone is haunted! Art, where are you? We’re losing fifty! Sell two the regular way! Run, Art, run!”
The guy doing the yelling is Anthony Elgindy of Pacific Equity Investigations. He trades the old-fashioned way, phoning orders in to a licensed trader who jumps into action at the sound of his voice. Art, his broker, is not the only one jumping. Two hundred and fifty amateurs each pay $600 a month to follow Anthony’s trades. When he moves, they move.
Anthony, who is 32, stocky, and bellicose, is respected for his rare ability to sift the complexities of the market and reduce his analysis of a company’s value to simple terms. He expresses himself in metaphors easily grasped by the layperson. Right now, for instance, he is looking at Ariad Pharmaceuticals, a company that trades on the Nasdaq under the symbol ARIA. Early this January morning, Ariad officials boasted that the company had received two gene-therapy patents, and its stock nearly doubled. Anthony shifts in his chair, glances at the stock’s history on his Bloomberg terminal, and issues a succinct bulletin summarizing his research. “ARIA is pure diarrhea,” he types. Then he punches the speed dial on his phone and screams at Art to short some shares.
Within minutes, the 250 traders, whose $600 per earns them the right to follow Anthony’s reports via email and real-time chat, respond to his burst of lyricism with collective action. Anthony and his followers are selling ARIA short, which means that none of them actually possesses any shares of ARIA to sell. Instead, they – like all short-sellers – are asking their brokers for a favor in exchange for a promise:If you have any ARIA lying around, they’re saying, lend it to me so I can sell it right now. I’m pretty sure I can buy you back those borrowed shares for a much better price in no time at all, and I’d sure love to pocket the difference.
Whether the stocks go down as predicted, or sail upward, the short-sellers are committed to buying them back. This is known as covering a short. Disaster for a short-seller comes when the price of the stock he’s borrowed rises so high that the cost of repurchasing the shares threatens to swamp the sum total of the cash and securities in his brokerage account. This will trigger a demand for more cash from his broker, known as a margin call. If the short-seller fails to come up with the cash, his short position is liquidated using all his available assets, leaving him on the sidelines with a terrible headache, helpless to profit if the stock drops back.
In the case of ARIA, however, there is no risk of a margin call. Independent of Anthony and his customers, professional and institutional traders with more than a passing familiarity with biotech stocks are taking their profits from the spike on the overhyped patent news. A selling frenzy soon develops, and the stock plummets from its high of 9¾ to less than 7. More than a quarter of its new-minted value has been washed away. The short-sellers are overjoyed, and Anthony congratulates them with a sequence of digital samples that play in his chat room. Out of computer speakers around the world, his subscribers can hear an eerie, high-pitched voice intoning the sentence: “Thank you, sir, may I have another?” over and over again.
When Anthony predicts the downward movement of stock prices, he’s often right. The thing is, even when he’s wrong in the medium term, he often makes money as other traders panic and dump the stocks they bought at the peak of a quick, crazy run. In the world of the amateur player, Anthony functions as a psychological terrorist. He’s the guy who makes bucks every day off everyone else’s lurking suspicion that the most recent five minutes of the bull market might have been just a bit too good to be true. He’s the guy who shouts “Fire!” in a crowded theater just to clear the popcorn line for a few minutes. If you are a stock buyer who got long on a press release, Anthony is the guy who proclaims the sky is falling and picks your pocket while you’re looking up.
The Day I Met the Shorts
I first met the Internet’s most theatrical short-seller during one of those moments when daytraders like me are especially vulnerable: I had just put a big chunk of my life savings into a biotech stock that had announced great news near the end of the market day. My stock was EntreMed (Nasdaq: ENMD), a small drug company whose shares had been battered after its big-time partner, Bristol-Myers Squibb, announced it was dropping a codevelopment deal for an anticancer agent called Angiostatin. But then news flashed on the wire that EntreMed’s other protein in development, Endostatin, had shrunk tumors in mice at the National Cancer Institute. A medical breakthrough was at hand, and I was one of the first to know. I bought some ENMD, and in a few seconds sold it for a quick profit of around $2,000. This was easy. Give me another 500 shares to keep under my pillow, I thought, because tomorrow we cure cancer!
So I bought again. Then the market closed, and for the 17½ hours until the next day’s open, I was left alone with my awareness of my own biotechnical ignorance. For emotional support, I turned to the message boards on Silicon Investor, Raging Bull, the Motley Fool, and Yahoo! There, I hoped to find other investors in ENMD who were even more clueless than I was, whose willingness to buy the stock at an even higher price would comfort me until morning.
The first post I read was reassuring. “I feel sorry for anyone who is holding a short position over night,” wrote a confident ENMD fan on Silicon Investor. “Remember last time it gapped to 80?” Then Anthony piped up.
on 4 times cash). Let’s be realistic … they are years away from any thing that could possibly even come close to helping humans and are a decade away from any commercial use … We saw this before and we know what happened last time … The Bristol Myers news killed [ENMD] and should not be discounted … There are those on this thread who claim to know more than the powers that be at Bristol Myers … ENMD is nothing but a pipe dream at this point in time and I have initiated coverage of this stock at current levels with an immediate Sell/SHORT.”
Immediately, other shorts joined Anthony in beating up on my stock. They seemed to know one another, reciting a long list of the famous collapses he was said to have called before they happened.
Anthony views the competition among brokerages, market makers, and electronic traders as a staged showbiz feud.
Yeah, sure, I sneered. People bragged like this all the time on Silicon Investor. Anthony’s frequent, cruel posts bore a comforting resemblance to the hype that always popped up when something was happening with a volatile stock.
There was only one problem: What he and his pals were writing had at its core a horrible common sense. Alternating between facts and ridicule, they dug up every possible reason that everybody who jumped into ENMD was going to be punished for his or her egregious folly. By 10 pm, I knew I was sunk when another investor, made desperate by all the harping on EntreMed’s lack of revenue, started comparing the drug company to Yahoo! and Amazon.com. “Of course they are overpriced,” he whined, “but internet stocks trade on potential, not earnings. Why can’t a biotech stock do the same thing?”
I could practically hear Anthony giggling. “Internet[s] trade where they do because they are generating revenues and have a ‘potentially’ unlimited market,” he answered, claiming that EntreMed had zero revenue and no products to date. “Sorry,” he added, “but maybe you can find a ‘CANCERCURE.COM’ to buy.”
The next morning, as predicted, the stock collapsed. I managed to unload my position to some merry dumbass in the premarket hours, and my losses were negligible. Naturally, I was curious about Anthony.
A Lot of Suckers
“The public is there for one reason and one reason only,” Anthony said when I got him on the phone. “They are there to absorb the risk. Brokers, broker-dealers, professional traders, they are not interested in any kind of risk whatsoever. They’re interested in covered profits and arbitrage.” Anthony’s theory is that when stocks run up big, the brokers sell short on every jump and cover on every pullback. Since brokers don’t have to worry about margin calls from their broker, they can short fearlessly and with abandon. They can start shorting more as the buying pauses, watch the stock tick down, and start covering as it drops. The drop will shake out some overenthusiastic buyers who bought at the top, and these new sellers provide the shares that the brokers are buying.
I began to keep track of Anthony’s trades as he posted them on his short-selling thread on Silicon Investor. When something interested me, I called him. Anthony always had his eyes open for stocks that earned buy recommendations from brokerages. “Today a major broker put out a buy recommendation on six stocks,” he told me one afternoon on the phone. “You know they were shorting all of these stocks, and I know that tomorrow eToys, which was one of them, will be down at least two bucks. I know that for a fact. I don’t even have to worry about it. I don’t have to write it down. I don’t have to put up any money. I don’t have to bet. I don’t have to pray. I just know it will happen because they were shorting into the rise. They are on the other side of your trade. The person who bought eToys this morning at $48, his broker sold it to him and did it happily with a smile and he probably thanked him for it after he bought it.”
I checked the stock the next day. EToys (Nasdaq: ETYS), which had made a quick two-week run from 30 to reach 48 the day of our interview, hit 48 once again the next day and then dropped, not just two but eight gut-wrenching points, back to 40. I presume Anthony made a lot of money. He continued to short eToys in the pre-Christmas months as it climbed to 86, and then to make oodles more money as it dropped, and dropped, and dropped back to its current level – which, when I last checked, was 20.
Anthony’s view of the market is uniformly black. He believes that corporate accounting is bogus, that press releases are untrue, and that Wall Street is “the most manipulated scam and corrupt marketplace on earth right now.” The more disorderly the markets, he says, the easier it is for the big players to take advantage of the amateurs.
The big players are the Nasdaq market makers, brokerage firms that belong to the National Association of Securities Dealers (NASD) and have been licensed to trade in certain stocks under advantageous rules. In exchange, the brokers promise always to be available to trade these stocks (or “make a market”). Many market makers are also retail brokerages, with research divisions that analyze the stocks they are trading and recommend them to customers. Anthony’s method is to identify the most outrageous runs on the most hyped stocks that brokerages are selling. He believes that their trading desks will use their market power to manipulate the price back down, at least temporarily, in order to make a profit.
I recently went back and looked at the price moves on EntreMed. The day I took my losses, the stock posted its high of 23 9/16 at the open, though it showed much lower prices in the electronic premarket trading that goes on before the bell rings. The fact that the stock’s high for the day came at the open means that somebody – probably a market maker – sold ENMD to somebody else – probably a retail customer whose order was waiting in line from the night before – at 23 9/16. Anybody who places a trade order with a retail broker after hours is setting himself up to be the victim of this somewhat unequal transaction.
There are plenty such victims available. “Farmers and schoolteachers and plumbers are taking responsibility for their own investments,” says John Yost, whose San Francisco firm, Black Rocket, created the famous TV commercial for Discover Brokerage about the tow truck driver who bought his own private island from his stock-trading profits. “If you really care about your health, you have to be more involved in learning about medical care,” says Yost. “If you really care about your financial health, you have to be more involved in investing your own money.”
Harvey Houtkin, the CEO of All-Tech Direct, a pioneering daytrading firm, has long argued that the more people there are who actively trade for themselves, the more liquidity and competition the market has. He believes that the new, high-volume daytrading scene is producing so much volume that the traditional exchanges will soon be obsolete. “Why do you think the New York Stock Exchange and Nasdaq want to go public?” asks Houtkin. “To bail out on the public. You’ll be able to enter orders through an electronic mechanism, so what does the New York Stock Exchange do? ‘Hmm, well, there’s a lot of suckers out there; we’ll go public.'”
But while advocates of the Internet stock market see the growth of amateur electronic trading as a popular triumph, a stream of greedy and ill-informed newcomers shoring up the bottom layer of the pyramid is also helpful. Anthony laughs with scornful delight at the notion of a fair and massively popular stock market. He views the competition among brokerage firms, market makers, and the new electronic trading system merely as a staged showbiz feud, and he pictures the Nasdaq market as an evil partnership: The online brokerages lure new herds of sheep into the game and collect the admission fees while the market makers do the shearing. “Right now,” Anthony says, “people just get wild hairs up their ass, and all of a sudden a whole sector will move and there is no rhyme or reason to it. Take online banking. Net banks are at 20 or 30 bucks and then they shoot up to 200 because everybody is talking about how people will do more banking online, and over a four-month period they drop back down to 20 bucks. The more volatile the market, the more risk associated with it, and undoubtedly the more losers. You have the public versus the professional, and the public is going to lose in the end.”
Enemies: A Love Story
Recently, Anthony has been following the stream of buy recommendations from Vik Grover, the Internet analyst at the brokerage firm Kaufman Bros. When Grover recommends a stock, Anthony puts it on his list as a possible short. Soon after the turn of the year, Grover’s enthusiastic reports drew Anthony’s attention to eGlobe, a “75% owner of a Pacific Rim focused business-to-business (B2B) Internet company, with an initial presence in China.” These were magic words, because business-to-business is the latest craze, and China offers a big, untapped market about which amateur traders know nothing. (This allows them to dream freely.)
Grover’s January 5 recommendation of eGlobe stated that other companies focused on the Internet market in China “have achieved multi-billion dollar valuations despite their relatively nascent business plans.” In this context, Grover continued, “we think EGLO’s evolution into a ‘Internet stock’ will result in significant incremental interest in the company’s story.” By Friday, January 7, when CNBC reported that Grover had raised his recommendation to a “strong buy,” daytraders and other eager beavers had concluded that the only problem with his price target was that it was too low. The stock opened at 6 1/8 and ran to above 9. On Monday, it hit 15. I was scheduled to visit Anthony in his office on Tuesday, and he called me on the phone that night to share the good news. According to Anthony, a $2 or $3 stock – which is what EGLO was back in December – that has been hyped up 500 percent in a month and has a strong buy from Kaufman Bros. is as close as you’re going to get to a sure thing. Anthony called the stock a short at between 12 and 18, and intended to start covering at about 8½.
On Tuesday, as the stock fell below 9, Anthony got the director of the trading desk at Kaufman on the phone and tried to get him to admit that they were dumping EGLO stock. “How much EGLO you guys dump in the last two days?” Anthony crowed. “We’ve been active in it,” Kaufman’s trader answered warily. Later Anthony told me, “I call Vik Grover all the time to yell at him. He’s so stupid!”
When I reached Grover, he calmly insisted that while he’d heard of Anthony, he’d never had a single conversation with him. “If he’s trying to short my recommendations because he thinks we’re getting paid to write them, he’s going to end up losing all his money,” Grover said. “We’re not here to bullshit people, and there are no bankers or traders writing reports for us.” As for EGLO itself, Grover remained an inexhaustibly passionate advocate: “The B2B portal was a nice surprise, but it’s obviously not driving my recommendation on the stock. EGLO is a true next-generation telco play, with the largest voice-over-IP network in the world, an excellent management team, and blue-chip customers like Qwest and SBC. There’s simply no justification for a short on the stock, barring a technical play, which is not my side of the business.”
As a daytrader, it is not necessary for me to clear up the controversy over whether EGLO is a thriving, next-generation telco or a noxious bubble on a stream of hype. All I need to know is the psychology of my fellow traders. After Kaufman Bros. pitched EGLO via CNBC to the television audience worldwide, there were thousands of traders who, bloated on EGLO shares, were feeling as queasy as I felt after my ENMD binge. Momentum became counter-momentum as Anthony punched the fools in the stomach and they commenced disgorging their purchases back onto the open market, lowering the price and unleashing additional waves of selling.
The rhythm of punch and counterpunch can be tracked with great precision on the Internet. Grover may be able to defend EGLO as a long-term play, but in the world of the daytrader it is momentum that matters. There are legions of players who add to the mania – or panic – when a stock runs on news. Some add to the momentum by buying and selling; others contribute by posting buy or sell recommendations on Yahoo! or Silicon Investor.
This is a shady business, for there is no guarantee that the person yelling “Buy!” on Yahoo! isn’t actually attempting to sell the stock to one of his or her credulous correspondents. The sneaky tactic of hyping a stock while secretly selling it is known as a pump-and-dump, and the most famous pump-and-dump tactician of 1999 was Tokyo Joe, aka TokyoMex, aka Paku Matsudai (born Yun Soo Oh Park). Like Anthony, Tokyo Joe offered a stock-picking service for which subscribers paid a hefty monthly fee. Unlike Anthony, Tokyo Joe was usually long, trying to make money from the upside of the volatile market. Anthony and Tokyo Joe were rival stars in the daytrading firmament, each presiding over an opposite side of the parabolic rise and fall of a crappy stock. It is impossible to exaggerate the hatred between the longs and the shorts when a speculative battle gets hot. All through 1999, Anthony and Tokyo Joe spoke nothing but ill of each other.
“I don’t consider him a human being,” says Tokyo Joe. “Have you noticed that all shorts have the same physical characteristics? They all have mean eyes, a crooked mouth line, and their shoulders are never even. This is because they look at the world in a twisted way.”
“Have you noticed that all shorts have the same characteristics?” asks Tokyo Joe. “Mean eyes, crooked mouth line, and their shoulders are never even. This is because they look at the world in a twisted way.”
But Anthony had the last laugh in this battle of the gurus. Right after the new year, the SEC sued Tokyo Joe in federal court in Manhattan for fraud, alleging that he claimed to have a better track record than he actually did. According to the civil complaint, Tokyo Joe culled his winning trades after the fact and posted them on his Web site as evidence of his skill as an analyst and as a fraudulent inducement to traders to subscribe to his Web site. For months before the suit, Anthony had been asking his fans for incriminating stories about Tokyo Joe, and before the complaint was issued he volunteered more than 2,000 pages of critical testimony to the SEC. Tokyo Joe’s lawyer-spokesperson has been quoted complaining that his client is really a victim of antiquated SEC regulations, but when I spoke with the great tactician himself, he was nonchalant. “The stock market is all hype,” he told me, “whether you are a daytrader or Merrill Lynch. One hypes on the Internet, one in a Brooks Brothers suit.”
On the question of hype, at least, Anthony is in complete agreement with Tokyo Joe, for he used to be on the other side of the equation himself. Anthony was a college student with a part-time job selling cars – new and used – when he first went to work trading stocks. “The big firms weren’t hiring guys like me,” he says. “I had no MBA. I was 19 years old.” One day he sold a car to a broker. He remembers being impressed with the guy’s lifestyle, and, soon enough, Anthony went to work pitching stocks to clients over the phone. He says he is ashamed of the way he operated. “I was a good salesman. I could call you on the phone and get you to buy any stock. I hurt hundreds of people. I worked with some of the biggest criminal firms on Wall Street, including Blinder Robinson. Meyer Blinder went to jail.”
Anthony’s story is typical of a certain kind of small-time market professional who lacks the polish and the pedigree required to make the really easy money at the blue-chip Wall Street brokerages and banks. Though he is only 32, he has had time to check out the workings of the stock market from several angles. He worked for three firms in rapid succession, and within four years of getting into the business Anthony was running his own retail brokerage. Later he worked for major market maker Bear Stearns. A few years ago he appeared on national television, telling ABC’s 20/20 that the Nasdaq market was full of organized criminals running up stocks and defrauding the public. (This theme has lately been elaborated upon in the HBO mob dramaThe Sopranos, as the family expands from its traditional “waste management” competencies into the lucrative pump-and-dump brokerage business. OneSopranos episode opened on a classroom scene, a group of aspiring brokers taking their licensing exam. This scene is true-to-life: You don’t need an advanced degree to become a licensed broker; you don’t even need an undergraduate degree.)
Anthony claims that after his criticism of NASD for allowing organized criminals into the brokerage business, he was harassed out of business by regulators. (NASD says he was suspended from the association for failing to pay a fine for several NASD violations; Anthony says he quit.) In any case, he was suddenly out of the brokerage business and began playing the market as a retail customer. His trading equipment now includes a loaded gun, he says, to defend himself against death threats. A bigger worry, perhaps, is the federal indictment he faces in Dallas; prosecutors charge that he fraudulently collected disability insurance from MassMutual at the same time he was collecting salaries from two brokerage firms. (His trial is scheduled for this month.) Like a cashiered naval officer who turns privateer, Anthony has converted his personal battles in the brokerage business into a righteous and lucrative campaign of revenge. He does very well. Fees from his short-selling tips alone earn him nearly $1.5 million a year.
One Friday morning last fall, very early, I went to the ballroom of a San Diego hotel to watch the first day of the trading seminar Anthony organized for about 200 devoted followers. He rushed the podium amid a flurry of spotlights and a decibel-crunching sampled medley of dance-floor hooks and professional sports jingo (“Y’all ready for this?!” “Let’s get ready to rumble!!”). The stage was flanked by two large screens, showing the buy and sell orders for a select list of stocks. Equipped with two telephones and a mike, Anthony put on an amazing performance that combined stand-up comedy with real-time moneymaking, complete with a guest appearance by Verne Troyer, costar ofAustin Powers: The Spy Who Shagged Me. While trading quips with Mini-Me, Anthony, who is a bit of a bully, presented a made-to-order comical victim to the audience.
The victim was Stamps.com (Nasdaq: STMP), a company seeking approval from the US Postal Service to sell postage over the Internet. It went public on June 25 at 11 and soon jumped to 22¾. A day later, the stock ran up again, pushed to above 30 by a meaningless public relations announcement of a marketing partnership with another frothy darling of daytraders, MySoftware. At 30, Stamps.com, an untried company that had yet to sell a single stamp online, had a valuation of more than a billion dollars. (Later, when I looked up the press release touting the partnership, I discovered that MySoftware’s claim to fame was not its products but its stock price. The company announced itself as “the 9th best performer on all U.S. capital markets in 1998.”)
The Monday after Anthony’s San Diego seminar, the USPS was expected to announce that commercial Internet companies like Stamps.com would be granted permission to sell postage online. To Anthony, the last trading day before the announcement was the ideal moment to short the stock. Because Stamps.com was still in its startup phase and had no customers, no sales, no revenue, and therefore no profits, the owners of the company’s stock needed other benchmarks by which to judge its success. In this context, the expected USPS announcement counted as fantastic news – from Anthony’s point of view.
“This has got some of the best ingredients in the world for a trade,” Anthony told his audience, speaking rapidly as he watched the price rise on his Bloomberg screens. “You’ve got a magic day, you’ve got a magic number, we’ve got magic. We’ve got a definite target. We have a climax point, what everybody is shooting for. Everybody is looking for some specific thing to happen, and when it happens, the world will be great, the sun will shine, Saturn, Jupiter, and the moon will all be aligned properly, cancer will be cured, and all wars will stop. And when it happens, they all do the same thing.” He paused to set up the punch line. “They all run for the exits.”
We had seen STMP open that morning at 26¾. As the minutes of the session ticked by, the price soared. Five minutes before the close, Anthony shorted 2,000 shares at 36. He was watching the screens. “Take a look now,” he grinned. “On the bid you have only ECNs,” he observed, referring to the electronic communication networks, used primarily by daytraders to trade with one another. This made him happy. “No market makers. 200 shares. 300 shares. 200 shares. They do not represent the Mensa society.”
Every once in a while a huge bid for 10,000 or 15,000 shares would appear on the screen, then quickly evaporate. But since no huge trades were showing as prints – completed sales – Anthony surmised that what we were seeing were wise-guy daytraders flashing offers they never intended to keep in order to create an illusion of buying interest. With his broker on the phone, Anthony announced his intention to sell to one of these clowns (sell short, of course) if he had a chance. Besides delighting the crowd, such a move would have two additional benefits: It would allow him to swing a very large line (to the tune of 10,000 or 15,000 shares) short on STMP, which he was looking to do, while also leaving some fidgety daytrader with many thousands of unwanted shares that he would doubtless seek to unload at the first sign of weakness, adding to the massive “selling interest,” also known as panic. Sadly, the big bids flashed too quickly to grab and Anthony ended the day – and his stage routine – short a mere 2,000 shares. “OK, that’s all we’re going to get,” he sighed.
By Monday, the longs and the shorts were going at each other on the Internet message boards with the rhetorical subtlety of World Wrestling Federation wannabes screaming their lungs out in the parking lot of a tavern in Fresno. “MAN I hope you got your Tissue ready, how much did you short??? God man … burn city,” wrote one long on Silicon Investor, where Anthony and his friends were unleashing their usual schoolyard taunts. When the market opened, the stock quickly ran up over 40, and Anthony called another short on the stock at 42. By the end of the day, it was the shorts who were crowing. “Meltdown!” screamed one when the stock dropped below 34. “I have my tissue ready,” gloated another, answering the earlier post. “I use it to wipe turds like STMP off the bottom of my shoe.”
A good number of Anthony’s students had whipped out their cell phones and sold STMP along with their teacher. Others made their trades on Monday morning when the stock rose a few more points. They had won the game by anticipating the profit-taking by market makers, who were beating the daytraders to death again. Slower traders, and ones not attuned to the short-selling game, had perhaps wandered home from a job on Friday night and found STMP on the list of the day’s gainers, and blithely bought in anticipation of the good news. Then, as the stock collapsed, they sold in a panic. As a group, they’d lost millions.
Anthony’s pose of righteous outlawry is perfectly pitched to rattle the nerves of these new Internet traders. In the last few years, anybody who bought AOL or Microsoft and held on tight made plenty of dough. But for every lucky AOL or MSFT shareholder who watched these stocks’ charts climb and climb into the stratosphere, there are a thousand others who watched the charts without ever taking the time to buy a few shares, believing themselves too late to join the party. This makes for a frustrated mass of would-be investors, eager to find the next big thing, the next AOL or MSFT they can buy today for $2 and sell tomorrow for $2,000. I’ll get it next time, they promise themselves. And next thing they know, they’re reading about this morning’s hot Internet or biotech stock, still a steal at 8 15/16, and, by God, this time they won’t be too late, because they’ve just bought 2,000 shares of EGLO at 10 3/8, which is still more or less a bargain compared to where it’s bound to end up. This is a fairy tale so timeless and pervasive among dilettante traders that Anthony can choose each day whether to drive his Hummer, his Ferrari, his Jaguar, or his Benz.
It’s certainly possible that market makers are short-selling into buy recommendations and manipulating the prices all over the place. They are professional traders and they want to win. But the fact is that Anthony isn’t really competing against the market makers. Instead, he’s picking his profits from the pockets of the legion of small-time plungers who are forever lured back to the market by the dream of a fast ride to the penthouse from the ground floor.
An old-time trading adage holds that “the sucker is always long.” Some boob bought 2,000 shares of EGLO from Anthony at 10 3/8, when everybody who owned the stock at two bucks two months ago – whether they be speculators, market makers, portfolio managers, employees, or directors – knew that it was time to sell, sell, and sell some more. This is the only thing that distinguishes Anthony and his followers from ordinary retail traders. They also knew it was time to sell, and they didn’t even own the damn thing.
Adapted from Dumb Money: Adventures of a Daytrader, by Joey Anuff and Gary Wolf. (Random House) Reprinted with permission of the publisher. Joey Anuff (email@example.com) is editor in chief of Suck.com. Gary Wolf (firstname.lastname@example.org) is a contributing editor at Wired.
[In 2005, Anthony Elgindy was convicted of conspiracy, securities and wire fraud, and extortion, along with a former FBI agent who had been feeding him information about companies under investigation, information which Elgindy both used for his own trades and fed to his subscribers.]
Wired Issue 8.04, April 2000