From: Olga Bourlin (fauxever@sprynet.com)
Date: Thu Jun 05 2003 - 23:48:33 MDT
From: "gts" <gts_2000@yahoo.com>
> Olga Bourlin wrote:
>
> > Au contraire, what Martha did was NOT intelligent.
>
> How can you say it is not intelligent to sell a stock when you have good
> reason to believe it is going to drop in price? If you had 4,000 shares of
a
> biotech stock like ImClone, and you had good reason to believe the FDA was
> about to reject its flagship anti-cancer drug, then wouldn't you do
> everything possible to get out of the stock?
I did not say it was not intelligent to sell a stock that may be dropping in
price. I said it was not a good idea (therefore not smart) to enter a stock
position without a stop in place (sometimes this is called a stop loss, or a
stop limit, although the latter will execute your sell order only at the
number you indicate, and not a penny over or under as with a the former
stop, which will turn your stock into a market sell at your specified
price).
That's what a stop is for - to limit your losses. Stops are not just for
stocks where you have reason to believe it is going to drop in price ... it
is a good idea to use stops when entering ANY stock position (after
determining what percentage loss one is willing to take on the stock).
Then, should the stock prove profitable, the stops can be moved up to trail
the profits until you are ready to sell.
> You can say it is never intelligent to break the law, but the law itself
is
> what is in dispute here.
There are many reasons why there are laws - for one thing, to protect
investors somewhat (and even with what laws we have, the market makers have
many more advantages than investors in manipulating stock prices and
"knowing" things earlier than investors and traders). But I was
specifically talking about investment strategies, and not disputing the law.
I trade for a living, so I'm a little more knowledgeable about what
investors need to do - and Martha failed to do them, it seems.
> > Too early to tell what the judgment will be, but from what I
> > understand there is NO RECORD of Martha's instructions to her broker
> > about the stop loss PRIOR to the day in question
>
> Yes, order entry should be completely computerized now at Merrill. It was
> half-way computerized when I left the firm more than ten years ago. Even
> before computerization the stop-loss order would have been on record with
> the firm's office at the NYSE.
But that's what I was addressing. If Martha used a stop loss the day or
night before the IMCLE drop, then it would look suspicious (especially,
considering she had other positions, if she was not in the habit of having
stop losses on her other stocks). If she put that stop loss in when she got
bought IMCLE, that would have been better. Then she could have said she put
that stop loss in as soon as she bought the stock - as a matter of course -
because that's how she practices money management. But Martha apparently
didn't, and her timing drew suspicion.
>
> A legitimate stop-loss order would be on the record somewhere -- not just
in
> the broker's handwritten notes -- but I'm not disputing the unethical
nature
> of the cover-up. I'm disputing the wisdom of the law that says she had
> something to cover up.
Again, I was talking mostly about stocks and investment strategies - as
that's my forte.
> > The burden of proof will be on Martha to prove that this transaction
> > was similar to her other stock transactions,
>
> The burden of proof is never on the accused.
Okay, I understand what you're saying. But what I meant was that if
Martha's stop loss was timely (on record before there was any talk of the
stock's dropping), and if there's an electronic record of it, then Martha
would have a good case that she was simply practicing good financial
management.
Olga
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