The old pump-and-dump trick is so legendary even the newest investors know it. Some Wall Street fat cat talks up a stock, the masses run out to buy it thinking it’s a winner, and he sells on the strength, making himself a hefty profit. Then righteous indignation ensues. What Cramer wants to know is why fat cats who talk down a stock aren’t pilloried just the same.
Often times we think that a hedge fund manager or other big-money investors who’s negative on the market is more sincere and believable than their bullish counterparts – but that’s not the case. The bears’ motives should raise just as many questions. They may have short positions that need covering. They may have missed the beginning of a rally and hope to knock down stock prices lower in order to get a better entry point. There are countless possible reasons for their sentiment, many of which could be based on self-interest.
Cramer’s message: Don’t be duped. Even if it appears that a money manager holds no short positions or other investments – something they’d have to disclose when talking to the press – there’s no rule that requires them to say they’re underinvested and missing the market’s move. And in that case, they have just as much reason to want a decline in stocks.
Never underestimate the motives of hedge funds. Just one year of poor performance can set off massive client redemptions, and no money manager wants that to happen. Some of them will plant negative stories in the press to bring stocks down to a more attractive level. It’s sad but true, Cramer said, so investors need to watch for it.
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