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Secret Ways of Buying Stocks (Part 1)

2 October 2007 - Features - Editor

Rampant discrimination prevails in the fascinating world of investing in stocks. While the laity is persuaded to acquire stocks through precious savings, solely for dividends and appreciation (often notional), financial institutions and powerful individuals are able to seize control of entire organizations (Baker, and Smith, 1998). The situation can be especially galling when a relatively new or unknown entity acquires controlling stocks of an enterprise you have helped start and grow. Acquirers may offer incentives to some groups of employees in attempts to secure operational control of corporations (Baker, and Smith, 1998). Small investors and blue collar workers tend to resign themselves to sudden buyouts of stocks without questioning how funds for such transactions were acquired, but the most amazing financial terms can lurk behind many of these deals (Thornton, 2007). Some transactions may be so highly leveraged that a smart operator may put up no more than 5% of the cash required for acquisition of stocks (Reed, and Lajoux, 1998).

The crucial difference between simpletons who cannot even use owned and liquid capital most productively, and others who become celebrities of the corporate world without every risking personal wealth, resides in knowing the holes in statutory financial reporting systems. How many of us know the meaning of off-balance sheet activities and their importance? Virtually anyone can raise money without any mention in a balance sheet through an interest rate swap or a forward rate agreement (Saunders, and Sondhi, 1990). This is just one example of finding money in entirely legal and respectable ways!

Financial Discretion in Funding Acquisition of Stocks

Strong undertones of moral sanction have been ingrained in generations of people, against the practice of aggressive leverage (Baker, and Smith, 1998). The acquisition of corporate stocks however, is a prime example of how borrowing can lead to exponential growth of capital, especially if effective operational control accompanies such acquisitions. Who would not like to receive funds to acquire controlling stocks of companies with interesting prospects? Perhaps assumptions that individuals cannot qualify for loans deter a majority of investors from aiming for controlling stakes. The reality, albeit not widely known, is that financial institutions have unchecked discretion in offering the most generous and flexible terms for their advances, given the right contacts and circumstances (Thornton, 2007).

All financial institutions wield incredible powers with respect to large transactions in stocks (Mintz, and Schwartz, 1985). They are not only active in all acquisition moves, but provide funds to others for purchases of stocks. They also earn twice on each transaction by selling debts for acquisition of stocks to other investors (Thornton, 2007). How can you become a part of this private club?

Secret Ways of Buying Stocks (Part 2)

 


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