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Reminiscences Of A Wall Street Market Maker: Short It To Oblivion

The firm I worked at was predominately short sellers. Short sellers are often times viewed as the villains and bullies of the market. Selling a stock short means you sell it first, hoping it goes down, then buy it back at a lower price. Shorting a stock in theory is much riskier than buying a stock. When you buy a stock you know exactly how much money you can loose, the stock could go to zero. When you short a stock it can keep going up. In theory you can loose an unlimited amount of money.

Back in the mid 1990's, there were a lot of so called chop shop brokerage firms around. These firms had reputations for promoting companies that were not quality companies. In other words, junk companies, barely worth anything. They bought these stocks for their clients with the hope of making big commissions. Think, an off shoot of Boiler Room. These chop shop firms could pump these small junk company stocks astronomically, unloading to unsuspecting investors, usually at the highs. Most traders on Wall Street knew who the chop shops were and knew which stocks they were pumping. This allowed the top trading firms to recognize which stocks would not stay up once the bids were pulled. The key was to begin shorting these stocks as the investors were buying at the highs. It was almost a game on Wall Street for certain firms to pick the tops and ride them down. As soon as one of these chop shops came out with a new stock and it ran up on hype, we could just pile on and drive it back down. With no fundamentals behind the companies, they would crumble. In addition, as a market maker, I had a huge amount of money to utilize. The other market makers and I could pummel the stock, driving it into the ground as sellers dumped left and right. Our reputation grew with leaps and bounds. We became known as the firm that could spot these pumped plays as we would drive them into the ground making millions. Whenever we went on the offer, meaning that we wanted to sell/short the stock, our phones would ring off the hook from firms all over Wall Street. They would ask us what we knew about the stock, if we had any specific information. Our reputation grew to where other Wall Street firms would see us on the offer of a stock and just assume we were shorting it. They would follow and push it down for us. In reality, this made our job even easier. At this point, we had the best reputation on Wall Street for short sellers. We would even hear stories about chop shop brokers who would panic as soon as they saw us on the offer of their stocks they were pushing.

With our reputation for being short sellers came major recognition. In 1999, Forbes Magazine contacted our firm to particulate in their annual stock picking contest. They wanted us to give them a stock that would be a short with huge downside. I had the honor of choosing the stock for the Forbes contest. After doing a lot of research, I decided to pick a stock called FOR KIDZ ENTERTAIMENT (KIDZ). It was the hot stock at the time. They were the makers of the Pokemon cards. This was all the craze with the kids. The stock had jumped recently and as an outgoing fad, could not sustain its valuation. After picking it, the stock came tumbling down, crashing. That pick landed my firm as the winner of the contest and I was mentioned. The following year Forbes came back and asked us for another pick. Again, I chose a fad stock that the individual investor gets caught up in but never stays up. This time I chose Krispy Kreme Donuts. This once again was a craze for a short amount of time, but let's face it, it is just a donut. The stock came tumbling down, my firm again on top of the calls. Our reputation only grew from there.

A lot has changed since then. Back in the 90's, everyone knew each other. Each firm on the level II had a symbol. You knew who the buyers were and who the shorters were. Now everything is done by ECN'S (electronic communications network). With this network it is now impossible to know if the buyer/seller has 100 shares or 100,000 shares to trade. The one thing that has not changed and will never change is the greed and fear. This will always rule the market and will always remain the same.

Source: Lou Cardinali,
www.InTheMoneyStocks.com
The Leader In Market Technical Guidance

About the Author

Lou Cardinali has worked on Wall Street since 1993. He was a major NASDAQ market maker for a prominent Wall Street firm. He worked in this capacity until 2003. While trading for this firm he earned his Series 7, 55, 62, and 63 licenses. In the year 2000 he won the Forbes 500 Stock Contest. He has been mentioned in Forbes as well as other publications. In 2003 he began to trade his own capital and consult for affluent individuals and hedge funds. In 2007 he decided to partner with his fellow traders and colleagues Gareth Soloway and Nicholas Santiago to form InTheMoneyStocks.Com.

Does anyone remember the TV show 21 Jump Street?

The romour is that Jonah Hill (Superbad) Might produce a 21 Jumpstreet movie!

yep. it was on fox. it introduced the world to......
peter deluise.
sure, let 'em make it into a movie if they want.

Pozen losses jump but come in under Street expectations
Get the latest news alerts: Follow LTW at Twitter. CHAPEL HILL, N.C. – Fourth-quarter losses at pharmaceutical development firm Pozen (Nasdaq: POZN ) grew but were lower than the amount forecast by Wall Street analysts.

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