By: admin | Date: October 5, 2011

The best, or perhaps rather the worst part about all good films is that their plots could happen in reality. And they do happen. Movies like American Psycho or Boiler Room may have been productions based on screenplays, but every now and then real psychopathic businessmen and dishonest stockbrokers dominate the headlines. Why? The researchers conducting a study at the University of St. Gallen in Switzerland claim to have found the answer. In just recently published results they state that stock traders are more heedless and obsessed with control than bona fide psychopaths. And they spent a lot of energy trying to damage their opponents, adds one of the authors, Thomas Noll.

Noll and his fellow researcher, Pascal Scherrer, used computer simulations to test intelligence and behavior of 28 professional brokers and compared the results with real cases of psychopaths kept in German facilities. What they found out was far more disturbing than what they had expected to discover.

Naturally one cant characterize the traders as deranged. But for example, they behaved more egotistically and were more willing to take risks than a group of psychopaths who took the same test, explained Noll in the interview for Der SPIEGEL. Shocking? Of course. Surprising? Well, it should not be.

In 1996 at least two people publicly expressed the same idea. A crime correspondent for The Independent, Jason Bennetto, stated that stockbrokers share many of the same characteristics as criminal psychopaths, while Lisa Marshall of Glasgow Caledonian University, commenting on the results of her own study on psychopaths, said that they are made, not born, and with the right parenting can become successful stockbrokers instead of serial killers. In 2005 Antoine Bechara, a professor of psychology at the University of Southern California, commented on the outcome of his own research and told the Wall Street Journal that its possible that people who are high-risk takers or good investors may have what you call a functional psychopathy.

Bechara, who conducted his study while being an associate professor of neurology at the University of Iowa, added that good investors dont react emotionally to things. In this light, penny stock traders are far from being labelled psychopaths. In fact, more often than not, it is them who, because of their untrained emotional endurance, fall victims of Ponzi schemes, rogue brokers and scam masters. While stockbrokers are trained professionals taught to keep their emotions in check even during the riskiest transactions, penny stock traders either do not have a sufficient stock market training or, for personal reasons, are unwilling to trade in mentally draining conditions.

Unlike professional traders prepared for high dozes of stress, penny stock investors are a different kind of people. Sometimes they are beginners only learning about the stock market or investors trying to diversify their portfolios. They may be students needing money for tuition, individuals trying to save for a down payment on a house or retirees focused on generating some additional income. In other words, penny stocks traders invest not only money but also emotions and that is why they are permanent targets of spammers doing whatever is possible to capitalize on this vulnerability.

In 2006 Laura Frieder, an assistant professor of finance at Purdue Universitys Krannert School of Management, conducted a study in which she analyzed more than 75,000 attempts to lure penny stock investors into buying worthless shares.

Most spam filters will pick up stock-touting schemes and put them in a junk mail folder or just reject them. But spammers become more and more sophisticated, and these spam schemes rarely make money for anybody but the spammer

explains Frieder. She and the co-author of her study, Jonathan Zittrain, professor of Internet governance and regulation at Oxford University both point out that out of more than 730 million weekly messages emailed to computers all over the world, about 100 million influence investors to purchase worthless penny stocks.

If a spammer can take a penny stock and turn it into a nickel stock, even for a few hours, he walks away with a significant profit, explains Frieder the reasons why penny stock traders so often fall prey to manipulative and devious scam artists. By the time an investor realizes that the increase in stock price is the result of a phony and orchestrated campaign, it is too late to get out without taking a loss, she adds commenting on the results of her research, which indirectly shows the difference between professional cold-blooded stock brokers and spontaneous penny stock traders.

NOTICE: This article was based on research of stock market information and other sources of information, found both online and in print media. Neither StockTips.com nor any of its owners, contributors, officers, directors, consultants, or employees take responsibility for the accuracy of the information contained in this article or the accuracy of the information on which this article was based. StockTips.com was not compensated by any of the companies mentioned in this article for the preparation of this material, nor were the materials approved by the companies which were mentioned.

We find that stocks experience a significantly positive return on days when they are heavily touted via spam, and on the day preceding such touting. Volume of trading also responds positively and significantly to heavy touting, says Frieder whose study clearly shows that despite all warning signs and available resources penny stock investors find it somewhat difficult to separate emotions from decision making. This weakness, which unscrupulous professional stock brokers do not have, may cost them up to 8 percent of their investment over the period of two days.

So, sociopathic stock brokers appear in the news, psychopathic traders are subjects of studies and inspirations for Hollywood screenwriters. Their mischievous nature and Machiavellian personalities undoubtedly place them on the dark side of the world of investing. At the same time, penny stock traders are regular people seeking ways to improve their financial situations. If they can be accused of anything, it may be only gullibility. Those who are taken in by these scams ought to experience a reality check before losing their money, even if one argues they knew the risks, warns Jonathan Zittrain.