Many people have wiped out their trading account due to naivety about
this exact point.
You might be a little angry at spending 20 seconds typing in the numbers
but it is cheaper than losing all your money.
Example No1 The Enron scandal
and collapse
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Enron plc
Showing a
minimum price of zero, was once a hugely popular investment
entity with the public and institutions alike.
False accounting
was going on behind the scenes and the company collapsed in 2001
Those in charge were running a systematic, creatively
planned accountancy fraud, which later became know as the "Enron
scandal"
Minimum price = zero
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Example No2 The Zimbabwe stock
index ZSE
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The (ZSE)
Zimbabwe stock index
Maximum price = 4,000,000 an
approximate 40,000 fold increase.
This is not infinite,
but it sure is a drastic increase from 1102 in 2006.
The
money printing of financial genius (sarcasm) Robert Mgabe lead
to hyper-inflation in Zimbabwe which in turn caused rocketing
stock prices.
Investors in stocks apparently faired
somewhat better than those who held cash. For the general
public, the outcome was not very good, as the price of
three
eggs reached 100 billion Zimbabwe dollars in 2007
See
videos of hyperinflation
Maximum price = 4,000,000 (not
infinity but very high)
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| Example No3 Polly Peck
collapse |
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Polly peck started off as a small
textile company, which under the leadership of Asil Nadir made
it all the way into the FTSE 100 index in the eighties.
The company went bust in 1990 having unfunded debts of £1.3 billion.
The Polly Peck scandal as it came to be known led to so
law changes in the UK to prevent such fraudulent companies from
operating again.
Many expert analysts were fooled by Mr Nadir
who impressed everyone with his "successful image" all the time
the reality was very different.
Michael Walters who wrote for
the Daily mail, was amongst those taken in by his silver tongued
approach.
Minimum price = zero
TThanks to
Peter for providing this chart
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| Example No4 Bernie Madoff and
infamous ponzi scheme |
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The smile would fool many people,
he looks like a nice man.
What happened to all the money?
Madoff ran a "ponzi-scheme" which is a fraudulent
operation so designed to create the illusion of wealth and
prosperity but in reality is nothing more
than using new
investments to pay off those who wish to make withdrawals.
Investors were attracted to his 12% annual returns and he played
hard to
get when taking on clients, making them believe he only
wanted money from a few select people. As a result they were
falling over themselves to invest.
When the stockmarket
became weak in 2008 Madoffs investors became jumpy and many
wanted to withdraw funds, Madoff had already spent most of
the
money and decided to confess to the authorities.
The SEC
were warned many times that his 12% interest growth was
physically impossible, but they failed to investigate the alarm
bells raised years earlier.
He is currently serving a 150
year prison sentence in USA.
What happened to all
the money?
Bernie Made-off with it |
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Example No5 The Long
term capital management collapse LTCM |
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LTCM Collapse LTCM (Long term
capital management)
The correct name would be long term
capital mis-management.
This company even won a nobel
prize for its expertise! LTCM had calculated maximum levels for
option volatility based on a comprehensive study of
historical
data.
Their model assumed that prices had upper
boundaries and should be short sold when at the upper boundary.
Their model also made a the fatal misjudgement to assume
that prices would move in orderly 0.25 increments with good
liquidity at each level.
They did not factor that
markets can gap in large amounts.
LTCM returned around
20% a year to clients until the Russian debt default of 1998
sent option prices soaring to previously un-seen levels.
As they were "short of volatility" their losses were
catastrophic.
Maximum price of option volatility
= infinity Therefore...
Minimum price of LTCM fund = zero
The moral of the story has to be this.
Just because its
never happened before, it doesn't mean it wont ever happen.
Many of the top cyrpto currency traders of the day are
stating the they are deeply involved in ponzi scams. Pump and
dump.
There is not a lot of substance to any of them in
the long term although there are many great trading
opportunities to be had.
Bitcoin BTC is generally
considered to be going to a million or to zero. Just as in the
example above. Interesting to bear that in mind.
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