How to Play the Market Cynically

If you know how to play the market, and ride market sentiment, running a listed company is one of the easier ways to make money.  For example, when the economy is expanding, take advantage of cheap credit, and borrow from the bank to build something.  Anything.  It can be a warehouse, or a multi-storey carpark.  Create a tangential reason for that, and call it capital investment.

The market will anticipate growth, because they think you are building for new business.  They will then buy your stocks, and the share price would rise, creating "growth".  As a director, you can then borrow against the stock, pledging it as collateral to the bank.  This means, should the stock drop, the bank is left holding it, but you got the money.  And when the economy drops, you arrange the sale of the warehouse or whatever you built.  You then book it as a profit on your books, and this encourages the market to buy your stock, again raising share price in a depressed market.

Another method is to book a piece of technology at a valuation you decide, creating capital growth.  Who is to say that this gadget is not worth $100 million?  This is especially useful in industries that are the flavour of the moment, but not easily understood by small-time investors.  Examples would include telecommunications, and renewables.  They will see this on the book as capital injection and imagine there is revenue growth forthcoming.  You then amortised it and issue bonds, making even more money, when there is actually no new money coming in.

You can do this several times until someone calls you bluff.  You then seek creditor protection for the business and then leverage a bail out.  In the meantime, you have already taken out all that money, and made your fortune.  Your wealth is distinct from the company, and is held in trusts, which are distinct legal entities, out of the reach of creditors.  These are simplistic scenarios, but variations of it happen all the time.  All of this is perfectly legal.  Think Enron and Hyflux.