“Fleecing of the flock” steals investor confidence

Recent "fleecing of the flock" in the financial market has made investors lose not only money but also something bigger - confidence.

In finance, the term “fleecing of the flock” is used to describe how the majority of investors or institutions are sophisticatedly "robbed" of money by a few "sharks" capable of dominating the market.

Over a certain period of time, the rich usually get richer and the poor get poorer. This can be attributed to "fleecing of the flock" after an economic cycle.

This process could be clearly seen during the 2008 economic crisis, 1997 Thai economic crisis, and most recently, the Vietnamese stock market plunge.

During the economic crisis in Thailand in 1997, skyrocketing foreign capital inflows, along with the wrong policy of the Thai central bank in regulating foreign loans while domestic production capacity did not increase commensurately, devaluated the baht by 50%.

As a result, individual real estate investors and factory owners were miserable because they had to bear the high exchange rates, while revenue from real estate and goods dropped, leading to bankruptcy.

This caused a domino effect that put commercial banks under pressure to withdraw money from the people while debts could not be recovered, leading to closures. Consequently, the Thai people lost their undrawn deposits, workers became unemployed, and production stagnated.

In this process, the Thai people and real estate investors or factory owners that had to close down were "sheep" that had been fleeced by a few "sharks" who could dominate the market using huge capital flows.

Looking back at Vietnam's stock market, recently the VN-Index, which tracks the performance of the major bourse - Ho Chi Minh Stock Exchange (HoSE), plunged from the peak of about 1,500 points to some 900, equivalent to a decrease of 40%. Its trading value fell from an average of VND26-28 trillion ($1.13 billion) per session to about VN10 trillion ($403.7 million), or a drop of 60-65%. According to statistics, individual investors in the recent downtrend period were hardest hit.

In addition to the fact that the majority of individual investors were new, inexperienced investors called F0s who mostly bought and sold shares based on exhortations or sentience, there were also sophisticated traps created in the market to "fleece" such investors. These traps were set up based on the rules of human psychology and disguised very discreetly through the process of stock price gaining, with the aim of "cutting" as much "wool" as possible.

Therefore, during the period when the VN-Index plunged from the 1,500-point territory to about 900, the market prices of stocks fell sharply, even some that were bought by many investors at their peak prices lost 90% of their value, while some others were delisted. That was also the time when the "fleecing of the flock" completed.

What is "fleecing of the flock"?

First, “shark” investors collect a company's shares, until the number of shares is large enough for them to have the right to join the management board or access internal information of the business, thereby starting the process of "stock price-setting".

Profits of manipulated businesses will be "cooked" on financial statements while accounting skills or owners can draw up potential projects that in fact are not legally complete, making investors misjudge the companies’ business situation.

With the "nicely-cooked" data, by many official and unofficial information channels, they start to "magnify" market prices of the stocks.

Initially, inexperienced investors in the stock market spend a small amount of money to buy shares. When they profit from stock price increases, which are expected to continue, they will put more money down.

During this time, social media groups are set up to promote these stocks and key opinion leaders (KOLs) constantly talk about the potential of these stocks. Investors start whispering "internal news" and "confidential information" about the stocks and gradually increase the amount of money to buy shares. The "sheep" are raised until they have "thick and smooth wool" (investors have spent a lot of money buying shares at high prices), which is when the "fleecing of the flock" process begins. Few initial “shark” investors start selling shares at high prices discreetly.

When all the shares they hold are sold, the market price of the stock does not go up anymore and demand begins to fall. Investors suddenly realize that they are holding the shares at high prices and start selling them off in panic. But at this time, supply exceeds demand, leading to a sharp drop in stock price. When stock prices fall to a low enough level, a few “shark” investors or business owners who already sold shares at peak prices will start buying back shares, ending a "fleecing of the flock" cycle.

A typical example of this process is the case of FLC Faros Construction JSC’s ROS, a stock of the FLC family, which saw the trick of increasing virtual capital from VND1.5 billion ($60,557) to VND4.3 trillion ($173.6 million). This trick was repeatedly reported by the press. But only when the former chairman of FLC Group Trinh Van Quyet was arrested and the market price of this ticker plummeted, did investors learn about the story. Currently, ROS has been delisted.

A stock coded Lxx plunged from VND400,000 ($16.14) per share to VND20,000 ($0.81) per share, and another coded Dxx nosedived from VND100,000 ($4.04) per share to VND10,000 ($0.4) per share. Earlier, the two stocks were promoted with rumors like "having huge land funds and huge profits in the future", making many investors suffer great losses.

The VN-Index dropped from some 1,500 points to about 900. In recent days, there have been bottom-fishing cash flows from foreign investors. Maybe a new "fleecing of the flock" cycle is forming.

In reality, sheep shearing takes place once a year. During the recent "fleecing of the flock” process in the financial market, investors lost not only money but also confidence. It will take them a long time to heal this "wound".