Big Guys Vs. Little Guys: The Untold Stories from a Former Insider

Hello, everyone, welcome to “Inconvenient Truths”. I am your host Jennifer Zeng.  

In the past two weeks, the unprecedented battle surrounding GameStop and a few other stocks, has caused a great amount of interest from all over the world. Many Chinese netizens excitedly call it an epic battle between the chives and the sickle, while westerners say it is a battle between ants and the elephant. Whatever terms you use, if ants can beat the elephant, if chives can launch a fight back against the sickle,  that is really usual, exciting, and encouraging.  

How will the on-going battle end? Will the little guys in China also have a chance to defeat the big guys? What are the reasons behind this “madness”? I will discuss these after I tell everyone some untold secrets of the big guys in the stock market. I think it is important that I tell these stories now for us to learn more about the darkness of the stock market, how little guys can be totally in the dark, and how the stock market is never a level playground for the little guys. 

Two High Profile Workplaces

But before I go on with my story, please make sure you subscribe to my channel, and share my videos as widely as you can. It is very obvious that YouTube is suppressing my videos. Many of my friend’s channels have been recently demagnetized. In such a difficult time, I do need your support and help. 

Now, let’s go back to my story. You know, after I graduated from Peking University, and before I left China, I only worked at 2 workplaces, both of them were very high profile. The first one was the Development Research Center of the State Council of China. It is the highest level government policy research and consultant body directly under the State Council.

The second workplace was the Tsinghua Unigroup Securities Investment Consultant Company. One of its main shareholders is Tsinghua Unigroup of Tsinghua University.

In China, Peking and Tsinghua University are the absolute top 2 universities. No other university can compete or come close. 

In the 1990s,  Tsinghua Unigroup Securities Investment Consultant Company was one of the only 5 companies in China that gained a license to provide financial consultant services to public companies. So we can say it is a very high-profile company too. I was once the assistant to the General Manager, as well as the manager of the department of securities investment of this company. We once worked inside the Diaoyutai State Guest House. Let’s show several pictures here. You can see that the Diaoyutai State Guest House is quite magnificent. It is often used by Chinese state leaders to offer receptions to visiting foreign leaders. And our office was inside this very beautiful and magnificent complex. 

Diaoyutai State Guest House .

Diaoyutai State Guest House.

4.jpg

A Lottery Mechanism in IPOs

I am not talking about these to boast about my past, but to let everyone know that I do have some inside knowledge and information; and the secrets I am going to share for the first time ever are real, and I am sure you haven’t heard about them from anywhere else. 

Well, in the 1990s, China had just started its “experiment” with learning from the west and opening up its own stock market. In the beginning, only a handful of companies were allowed to be listed in the market. So there were very few stocks. Because the demand was far above the supply, every time when a company launched its IPO, which is, initial public offering, it was very hard to buy any, as too many people rushed to buy. Because the supply was so lacking, whatever original stocks you could get, you would certainly make a lot of money after you sold them when stock was traded at the market. 

Because the competition was so hot, it became a question as to who could buy, and who could not, and how to ensure that the little guys could have a fair game in this battle. 

So, in the end, the authorities came up with an idea. Let’s adopt a lottery mechanism to determine who could buy the original shares. First of all, everyone who wanted to buy can place their orders, and the computer system would generate an order number for each order, and then according to the ratio of the total number of orders to the actual quantity of shares, a so-called “winning rate” was set. And then the computer would decide which numbers “won”, and people with the winning numbers could then buy the shares.

And, in order to make sure that everyone had a fair chance, every investor could only buy a maximum of 1000 shares.

You think this is fair enough, right? The truth is, you are absolutely wrong!

Fake Cards of the Big Guys

First of all, the institutional players figured out ways to own more than one shareholder’s card or securities account card. Usually, every investor could only apply for one securities account card, and one securities account number. Let’s show a picture a securities account card from the Shanghai Stock Market. You can see there is a number on the cover, and then other information inside, including the person’s name, address, National ID card number, date of when the account was opened, etc. 

A securities account card from the Shanghai Stock Market

A securities account card from the Shanghai Stock Market

So how could you own more than one card? These are several channels I knew of: some institutional players just bought a lot of dead people’s ID cards from the Public Security Bureau. As dead people’s ID cards were supposed to be returned to the Public Security Bureau, so they had a lot to sell.

Then you could use dead people’s ID cards to apply for securities account cards.

This was the less direct channel.

A more direct channel was just to buy fake securities account cards from the black market. 

I’ve seen a lot of these fake cards. How did I know they were fake? Let’s show an ID card from China.

A national ID card from China

A national ID card from China

You can see on this card, there are 18 digits at the bottom of the card. That is the ID number of this person. The first 6 digits represent her city code, where she lives. Then the next 8 digits represent her date of birth. Like this girl, she was born on Oct 9, 2002, so you can see the 8 digits on her card are 20021009, they are the year, month, and the date of her birthday. 

So, if you see an ID card with 13 as the month, or 35 as the date of someone’s birthday, you know this is fake, as there are only 12 months in a year, and there is no 35th day in any month. 

I guess because too many fake securities account cards were produced, and the people who produced them were not very careful, they made quite a lot of these low-level mistakes when faking the ID card numbers. 

A Special Program for Institutional Players

However, owning a lot of fake cards was only part of the game. The next step was, the dealers provided special services to the institutional players. They actually developed a special program for these institutional players. 

How did the special program work?

For ordinary investors, the little guys, and the real people, everyone had only one ID card, one securities account card, and one fund account in which to deposit their money with one dealer. So they could only place one order when buying original shares. The so-called winning rate at that time was usually only a few thousandths, which means, out of 1000 orders, there were only a few, maybe 1, 2, or 3 “winners”.

So for the retail buyers, their chances to win were almost zero, as there could be only a few IPOs in the entire year. You needed to place the order for maybe 1000 or 500 times to ensure one winning bid. 

However, for the institutional investors, the dealers allowed them to connect as many securities account cards as possible to their fund account, and developed a special program for them to place “bulk” orders. If they had 1000 securities account cards connected to their fund account, they only needed to place one bulk order, and the program would automatically transform this one bulk order into 1000 individual orders for each securities account card connecting to the sole fund account. And, because these 1000 orders were created almost at the same time, their order numbers were continuous. So, if you do a lottery, because these institutional investors owned over 1000 numbers, they would surely win. If the “winning rate” was 3 per 1000, they would surely have 3 winning numbers, so that they could always buy the original shares, and make huge profits.

So in this game, the little guys, although they placed orders every time, could never have an equal chance to win, as the big guys.

That was the situation with IPOs.

A Real Case: Profiting 75% by Buying and Selling Its Own Shares

And how about the normal, daily trading?

Let me tell you another real case I knew. There was a company in Shaanxi Province in China, which launched its IPO in the late 1990s. Let’s call it Q company. 

Usually, on the first trading day after the IPO, most investors who “won” the original shares via the lottery system I just talked about, would sell their shares to lock their profits. At that time there was virtually no risk to buy original shares. You could always sell them on day one when they were traded on the stock market.  So many institutional investors specialized in doing this, or doing only this. 

So, on the first day when the shares of Q company were traded, this company, which already had a large number of fake securities accounts, quietly bought a significantly large portion of its own shares, with the money they just received via the IPO. But these shares were under the fake names on the fake cards, so in theory, their shares were bought by many enthusiastic individual investors. That’s what their public information would tell you.

Anyway, this company bought its own shares at an average price of a few yuan on the first trading day. Little by little, the share price climbed up. As the company owned a lot of its own shares, it was very easy to control the price. You can just buy and sell the shares to yourself, especially right before the market was closed. In such a way, you could control at what price the share ended for that day, and thus create a perfect technical pattern for your share.

Several months later, the price went up to around 15 yuan. For a manufacturing factory of its kind, that was about how high its share price could go.

Then, the company suddenly announced that it would acquire a high tech company in ShenZhen city, and thus transform itself into a high tech company. 

So the market became very excited. If you could call yourself a high tech company, your share price went up to another territory, which was at least over 30 yuan.

In China, it was very easy to buy over several so-called experts or market analysts to have them talk on TV or in the newspaper about how much more this company’s shares would be worth. So the deceived little guys kept buying, while the company itself quietly sold the shares it held for nearly one year.

After this round of operation, this company made a profit of about 75% by buying and selling its own shares. 

As to its high tech “transformation”, sorry, it never intended to do so. And as to those little guys who bought their shares at the highest price, sorry, that’s your own bad luck.

So this was just one of the true stories I knew. There were too many similar stories in the market every day. After working in this sector for two years, whenever there were friends or relatives who asked me for advice regarding the stock market, I always said to them, “My only advice is: never touch it.”

Well, that’s the situation in China. I never advised anyone not to touch stocks in the US, or any other countries.

Will The Chives in China Have a Similar Chance? 

While many people in China also became very interested and excited about what was happening surrounding GameStop, some of them couldn’t help asking: What could the little guys in China learn from the little guys in the US? Can they do the same thing?

My answer is, no. In China, the CCP has absolute control over every sector of the society. It is hard to imagine that 2 million people could discuss or organize something on the Internet without interruption. The CCP will shut down this kind of discussion before it attracts maybe only 200 people. Any group activities that are not allowed by the CCP can be regarded as dangerous. 

 How do I Look at the GameStop Phenomenon? 

The next question is, how do I look at the GameStop phenomenon? 

For those who don’t know much about GameStop, or things surrounding it yet, let me do a short introduction first.  

GameStop is an American video game, consumer electronics, and gaming merchandise retailer. It is the world’s largest video game retailer, and has 5,509 retail stores throughout the United States, Canada, Australia, New Zealand, and Europe. In recent years, its business has not been good, and its share price dropped a lot. 

And because some hedge fund managers believed that the share price of GameStop would continue to fall, they shorted it by 140%, which means if GameStop had 100 shares, they had borrowed 140 shares and sold them. They sold something they didn’t have or own.

Some people found this out, and thought that because GameStop was over shorted, its price could bounce back. 

And then, through the coordinated effort by a Reddit community called  WallStreetBets or WSB, which already has over 8 million members-please show the screenshot of the community (show pic 9) -so through this community, more little guys, perhaps millions of them, started to buy GameStop’s shares. This resulted in a 1,500 percent increase in GameStop’s share price over the course of two weeks, reaching an all-time intraday high of $483.00 as of January 29, 2021. Let’s have a quick look at its price chart. (Show Pic 10)

And because of the quick and sharp price rise, several large hedge funds that shorted it suffered heavy losses. Some had to close out their positions, and there were also rumors that some were talking about filing bankruptcy.

So it seems that for the first time ever, the little guys, by acting together, were able to beat the big guys. 

In China, netizens often call the little guy chives that can only be cut, or reaped by the sickles repeatedly. Isn’t it exciting that now the chives are actually cutting, or defeating the sickles? 

Experts would say, oh, no, it was crazy, it was not rational. GameStop’s share could never hold up at such a high price, and those who rushed in late would suffer great losses, etc.

Yes, all these arguments are true and have some value in them; but they failed to explain why the GameStop phenomenon happened.

Although the stock markets in western countries are fundamentally different from the CCP’s stock markets, there are also quite a lot similarities. For example, the rules are created by the big guys, and big guys sometimes change the rules to benefit themselves. In terms of information, inside knowledge and the services they can enjoy, just like the examples I mentioned earlier, the big guys have a lot more advantages. That’s why the chives are always reaped by sickles, not the other way around.

In some sense, the GameStop phenomenon not only reflects problems with our financial systems, but is also a manifestation of little guys’ anger and resentment towards the political system. Let’s take a look at the WallStreetBets or WSB’s logo (show pic 11) . I think everybody can get the message here. That logo with a Trump hair style has become a symbol, and many people are using it as their social media profile photo, too. 

In one of my previous shows, I talked about the cycle of “formation-stasis-degeneration-destruction-emptiness”. That is the Buddhist theory of how the universe evolves and operates. Perhaps we are really in a historical moment when the previous cycle is ending, and another cycle is about to begin. 

So looking forward, more unusual, surprising, or even shocking things could happen. In such an uncertain time, I think the most important thing for us to do is to uphold the truth and principles, stick to our conscience, and do what we can to spread the truth and good messages.

That’s all for today. Thank you very much for watching. Please do subscribe to my channel if you haven’t, and share it with your friends and families. 

Thank you. See you next time.

2/2/2021 *

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