Beware the Day Trader with a Stop-Loss Policy

Who knows whether he ever intended to abide by such a policy? The promise of it had the desired effect, drawing in investors who believed that they could participate in upward market movements, while being protected from steep declines.

I’ve seen it too many times not to be suspicious.  A fund manager attracts investors who would never come near a hedge fund by telling them that he applies a strict stop-loss policy, selling any position that declines in value by five percent or more.  But somewhere along the line, the stop-loss policy goes by the way side.  The manager never believed he’d ever need it, you see.  With his supposedly prescient understanding of the market, he’d never buy a loser. Who knows whether he ever intended to abide by such a policy? The promise of it had the desired effect, drawing in investors who believed that they could participate in upward market movements, while being protected from steep declines.  I actually represented a man who lost his inheritance to a supposedly whiz kid hedge fund manager who promised such a policy.  He lost everything.  The SEC believes it has caught another stop-loss whiz, this one in California.  According to the SEC’s press release: (more…)

The Teacher Turned Day Trader

Day trading does not work because of the transaction costs.

According to WRAL in Raleigh, North Carolina, former teacher Ronnie D. Rainey convinced several people that he was a skilled day trader, making big profits through in-and-out trading of stocks.  He offered people the chance to capitalize on his skill by giving him their money to trade.  When he could not generate the promised returns, he sent his investors phony account statements showing that they were earning the promised returns.  Authorities estimate that he lost $3 million of his investors’ money.  When they caught up to him, Rainey was in Oklahoma.  According to WRAL:

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