I started investing in some years ago and I have a special skill in picking stocks which are fraudulent and will quickly drop a lot. Some examples were:
- CLDR which dropped from $10 to $5 overnight
- AIMT which dropped hard after FDA approval
- INPX down 60-80% after reverse split news
What insurance or safety do investors have against rapid price movement, bear raids, or heavy shorting? Considering AIMT dropped from 36-38 to 20, beginning long before the Corona virus outbreak.
More precisely is there any safety or insurance for investors when this scenario is happening?
- Company A has a market cap of X with a stock price of Y
- Company B wants to buy out company A
- Company B starts to manipulate and spread false news about company A
- Company B collaborates with investment banks and hedge funds to bring the valuation down,
- Company A drops 1/2 to 2/3 of its original price Y
- Company B makes a generous offer and buys company A at this depressed price, perhaps at 1/2 the original valuation
While price is dropping, there is only good news about company A. In some cases, a company B board member could have insider information, timing the buyout before good news is released to the public (for example, a pending drug approval).
Investors were right:
- They invested their money in a good company
- Good news was released along the way (FDA approval, good sales numbers, new product pipeline, buyout news, more investments from companies)
- Any yet in the end they lost 50% of their investment
Something similar can happen with AIMT (A company) and Nestle (B company). AIMT is dropping price rapidly after a lot of risks went out from the picture.
Based on this video:
I believe that in the short or mid term that stock price can be easily manipulated with fake news and naked shorting. The SEC is unable to do anything about it (I have seen this in multiple cases).
I have come to believe that investing in small companies and not indexes for the long term is just gambling because price can be easily manipulated as explained above. CEOs and CFOs can lie without much consequence. They can use buzzwords which can generate high interest in the stock (pump and dump with secondary offering e.g. Corona virus stocks or INPX). However, I don't think that this is true for companies with huge market caps because it's harder to manipulate them.
Thank you very much for any insights or ideas that you have!