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How to Beat the Market Makers at Their Own Game: Uncovering the Mysteries of Day Trading by Fausto Pugliese

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CHAPTER 3 Going to the Next Level

In a famous scene in the film Wall Street, Michael Douglas's character, Gordon Gekko, tells his protégé, “Information is the most important commodity I know of.” While Gekko's ethics certainly fell short of what most people would construe as fair and proper, his statement was on the mark. In real estate, the most important factors are location, location, and location; in the stock market, the most important factors are information, information, and information.

Information is so important to the mechanical operations of the market that the sole purpose of the U.S. Securities and Exchange Commission (SEC) is to make sure that the information pipeline continues to flow. What most people aren't aware of is that the SEC does not regulate the conduct of public companies: their primary focus is to monitor the information that flows into the market.

Before a company can go public, it must register its stock with the SEC. This registration requires the preparation of a very lengthy prospectus that must then be approved by the SEC prior to the company selling any stock to the public. During the approval process, the SEC does not judge the merits of the company or its products. The SEC could not care less if the company produces supercomputers or pet rocks; its only concern is that the company presents enough information in its prospectus to allow investors to make a meaningful investment decision. Once a company goes public in what is called an initial ...

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