Is my micro-cap really being ‘manipulated’?

A common theme I see on investing share market forums — usually on threads where small/micro caps are involved, with share prices that don’t move much — is a barrage of comments about “how and why our stock is being manipulated”. As with most market-related matters, I think applying the principle of Occam’s Razer works here: the most simple explanation is probably the better one (a very rough paraphrase of a more complex principle).

If indeed there are some “dark forces manipulating the share price in order to accumulate” then three simple questions need to be addressed for this thesis to ultimately hold true. Here they are:

1. What does the broker buy/sell data show? Broker data is usually the easiest way to deal with these allegations. You can see on a daily, weekly, monthly (or longer) basis which brokers are buying and selling the stock. Using ASX software like ‘DayTrade Scans’, it is pretty easy to run an aggregated report which shows a longer period of time to see overall net buyers vs. net sellers. If the share price is being “held down”, “capped”, “manipulated”, does the broker data actually show the institutional brokers taking large buying positions over a period of several weeks/months? The data does not lie. I hold a lithium stock which various institutional brokers have been building large positions (even after they got in on a large $50M capital raise), and the broker data clearly shows them building these positions — it can’t be hidden. Plus, their buying pressure has pushed the share price higher and higher to date. It’s all quite simple: supply vs. demand.
2. Where are the ‘becoming a substantial holder’ notices? If my favourite stock XYZ is really going to be the next Afterpay or Amazon, why is nobody building a large position (with the commensurate voting/dividend rights that come), after months of it being “capped” and “manipulated”? Remember, when it comes to micro/small caps under $150M market cap, it really does not take much money for a major fund to build a +5% position. So, where are these notices? Who exactly are these “big whales accumulating” when there’s never any notices posted to the ASX about positions larger than 5%?
3. Why is the share price not eventually appreciating? This is the most obvious point that to my mind is often overlooked. The vast majority (if not all) of professional ‘fundie’ portfolios get judged on an annual basis (with quarterly performance reports the norm in most financial sectors). Even if they absolutely love the company’s future prospects, they need to see a return for the investment of their client funds. It is crazy to think they will be able to sink client money into a microcap, “manipulate” the stock for quarter after quarter so “they can get our cheap shares” and then sit there with their big positions (which they haven’t declared to the ASX), earning no meaningful returns for 6–12 months. Meanwhile… their colleagues and competitors have cycled into a hot sector and are getting +300% returns. If a fundie really is building a position, even they need to start seeing returns. So why is the share price still sinking, quarter after quarter?

There is one final matter to address: the tiny trades that we all see go through the ASX. Like Occam’s Razer, in my opinion this has a pretty easy explanation — the ASX is known for its algorithm trading brokers. They do multiple small buys/sells for pips, churning away in the ASX data centre, making tiny returns but on a high volume basis. This too becomes apparent when you review broker buy/sell data. Some of the time it’s called ‘front-running’ the order. Don’t believe it? There’s a whole book about it, a great read: ‘Flash Boys’ by Michael Lewis. Check it out. It’s a common occurrence on global markets given trading is predominantly electronic. Incredibly, the average retail investor sees these tiny trades (which really mean nothing for the individual stock XYZ in the long run) and instead tell themselves, “somebody loves my micro/small cap! Look: the bot is working overtime to get the share price down so they can accumulate!” Just you watch: soon you’ll get the next comment: “eventually they will let it run….” and so on. Read a bit more widely, and you see these comments all over HotCopper and other social media stock pages. So, what — the bot is trying to sneakily cap/accumulate everything at once..?

Or… perhaps there is a more straightforward explanation, but one that is harder to stomach: your stock is not being “manipulated”, it is being sold down. Quit with the comfort food and focus on the real issues at hand facing your investment.

The thing is, if company XYZ is successful and delivers on what they have said they will, then the market will eventually value that and the share price will respond. It is far better to spend our time and conversation focusing on whether stock XYZ is delivering, than comforting ourselves with conspiracy theories about who is holding our stock back, or why.