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Weizhen Tang: Recouping the Losses

Author:ÌÆì¿Õé Date:2009-12-05 19:43:40 Readers:715 reads

Summary

--translated by Michael Wu; molded by Allan Gould

December 5, 2009

People hardly understand why I, Weizhen Tang, once nicknamed the God of stocks and the Chinese Warren Buffett, all of a sudden fell into a deep abyss of trouble. The entire Chinese world was shocked – not to mention those startled and desperate investors/clients of mine, who were hit by the adverse development of the situation and left completely at a loss. What the investors don’t see or understand is that success requires a process, that there are prices to pay and hardships to go through before one can get there. The key to successful investing is the future rather than now; the investments were made in me as a person rather than in a few stocks. It was with the future in mind that I issued future values to my investors, for whom I have always viewed myself as their instrument of investment. As their investment is in me and my actions, the current loss is only temporary and full of implications, which some of the investors have seen. People should realize that I was only pursuing a unique way of market operation, rather than defrauding them in any way. In fact, I am a responsible, honest person, dedicated to working for the best interest of my investors, as I have since the mid-1990s. The current troubles are unquestionably due to my mistakes made in operations, and I take full responsibility for them. It was clearly my actions which got me into trouble, but it was always for the sake of my investors.

Having been active in the stock market for more than a decade, I am fully aware of the hardships and secrets that this involves. The financial market is nothing but a gambling hall, where only the dealer is the permanent winner, and all personal investors are frequently losers. Only a small handful of them, perhaps just one in a hundred or one in a thousand, are able to make regular and consistent profits from the market. Based on my experience of more than ten years as a private investor, I finally made up my mind to become a dealer myself, so that my clients and I could secure an invincible position, and reap consistent returns. I knew such change of status would require outstanding market ability, a decent fund size, and recognition of my skills by the public, and I was determined to be successful.

One of my strategies was to do real time demonstrations which showed quality performance and promise future returns in advance, so that I could raise sufficient funds and become a true market dealer. Meanwhile, I made tremendous efforts to showcase my trading competence. Then, from the position of a virtual dealer where risks were reduced, I sought continuous and steady returns to attract more funds from a growing number of clients. Without the involvement of large sums of money, a virtual dealer’s position can reduce the daily fluctuation range from ten times to scores of times, requiring only approximately one percent of risk and returns. In this way, many personal investors can also reap consistent investment returns, just like a dealer. With my experience, I thought it would be no problem for me to get to the dealer’s position, which is why I did not care very much about losses in the initial stages. I was determined to take all responsibilities on behalf of the investors.

In order to get to the ideal market position as quickly as feasibly as possible, I adopted some unconventional approaches in the operation, including not disclosing true performance in the account reports. The purpose of doing so was to convince the investors that I would repeat the success that I had achieved in mutual fund operations of the past, and to put this market dealer’s philosophy of one per cent weekly return in practice. More important, I wanted to raise funds through trading demonstrations. Without disclosing true performance, I was also able to eliminate interferences from the investors. Only those who could afford the minimum investment of CAD$150,000 and have the ability to take risks were invited to join my investing club. (This is indeed a large sum for many, but you might find it of interest that Gluskin Sheff + Associates has a minimum for new investors of $3 million!)

Not surprisingly, investors liked my philosophy and my solid market experience. They found my trading skills and performance amazing, which is a key element that enabled me to attract so much money into my investment fund. Through demonstrations and referrals made by my investors, I attracted more and more new clients with posted future values. Without even showing these newcomers any transaction records or explicit fund operations, I successfully financed nearly US$60 million within three short years.

Seeing so much money rolling in, I got carried away and could not refrain from trading individual stocks once again, at the major market turnaround in 2005. Unfortunately, I sustained a huge loss, as I had earlier. Later, when some investors asked me to show my transaction records and called for more strict supervision of my work, my problems became exposed. In 2005, the Ontario Securities Commission started an investigation into my business. Though a good lawyer eventually got me out of trouble, the loss completely ruined my crucial plan to test out the one percent strategy. In early 2006, I organized the first Overseas Chinese Wealth Summit in Toronto, which brought in a number of new clients for me. When a senior investor came onboard in September of that same year, another wave of new clients chose to climb on board. However, my target of one percent weekly return did not seem adequate at that time, because the stock markets of the world were skyrocketing madly in those days. In addition, I was under the stress of previous losses that had been incurred. So, I picked a few volatile stocks to trade, in the hope of recouping the losses. In April of 2007, I purchased in haste a stock named Dendreon Corp. (DNDN), which had plummeted all the way from US$20 to between US$4 and 5. My idea was to take advantage of the wide fluctuation range in order to make millions of dollars of profits for my clients—if I was lucky. Then, I planned, I would stop taking these riskier chances, and strictly follow my one percent principal. Unfortunately, I lost millions of dollars in this new attempt once again.

In my original plan, fund raising and trading operations were separate practices. I had planned to concentrate on fund accumulation to achieve a certain size of fund at first, and then start trading. However, due to the losses incurred in the early stages, I had to combine the two processes into one. The year of 2007 saw the global stock markets blooming, and my plan of one per cent return did not seem appealing enough to investors (even though most funds could not even promise a one per cent growth per month, and here, I was promising one per cent per week!) Attracted by prospects of higher investment returns and better fund security, some experienced and influential investors considered transferring their funds to China. Faced by such a compelling situation, I had to make another risky move in the stock market: in the middle of 2007, I bought thousands of Dow Jones Index futures contracts, which were valued at over US100 million. I dreamed of making millions of dollars from the deal to balance my position. However, it turned out to be just the opposite: I lost millions of dollars again. Furthermore, due to lack of account transparency and the excessive expectation of the investors, I failed to satisfy several clients, who decided to withdraw their invested funds from me. Meanwhile, I had to raise my return commitment to 94% a year, to better compete with rivals in the market. I cannot deny it: the market peak of 2007 drove me crazy. Eventually, I made up my mind not to pursue any more speculative practices or greedy dreams. I just wanted to restart my plans by remaining true to the the fundamentals I always believed it, and be surefooted and more protective of both my investors’ money and my own. The experience taught me a good lesson about how important the fluctuation of investment instruments is, in the judgment of risks.

To a certain extent, the markets of the world often seem like a casino, where any gambler is subject to loss, including myself. Without supervision and strict disciplines, anyone can be guilty of gambling in the market. Fortunately, I had finally made up my mind to put a full stop to my flawed actions. To my investors, it was a good showcase of my ability of self-control. I learned a lesson from what happened in 2007, and discovered that the best way to control risk is to control the fluctuation of the fund’s portfolio. I needed to confine the fluctuation range of risks and return to one percent for each week, which translates to 0.2% for each day. Since I started following this strategy in business, I had never lost again in the market.

This understanding might not be significant to investors, but it seemed to me a huge accomplishment. From that point on, I put the focus on accumulating funds, and moved from concrete market trading to macro market operations. I registered my business with the Securities & Exchange Commission in United States and the Ontario Securities Commission in Canada, and launched an extensive publicity project for my business. By 2008, my business was finally truly healthy, and was firmly on the right track, so that even though a major global financial crisis hit us (and tens of millions of other investors around the world in that year, I successfully avoided further losses. However, under the impact of such stunning market volatility, some investors once again raised the issue of fund safety to me. In early 2008, investors withdrew nearly ten million dollars from my fund. Then, after the Madoff scandal was uncovered in US, which understandably became a hot topic in the media, more and more investors became worried and requested withdrawal of part or all of their funds. To cope with the tense situation, I started another round of publicity and live trading demos, which worked quite effectively. By early 2009, I had almost regained control of the entire situation, when one investor, who had originally requested redemption of $100,000 from my fund, suddenly changed his mind and demanded ten times that amount: $1,000,000. It caught me off guard completely, and eventually developed into a redemption crisis for my company. I had tried my best to navigate through this agonizing financial tsunami—surely the worst since the great crash of 1929, but God seemed determined to put me to a test.

The 2nd North American Overseas Chinese Wealth Summit and the Canadian Chinese Lunar New Year Gala were the best showcase of my social and market abilities. At that critical moment, these events allowed me to gain more than a month’s valuable time. Unfortunately, my demonstration of market trading to the public and media failed to reach the expected target. To make things worse, it even triggered more massive withdrawals of investment funds from the investors, and it became a media circus. At this point, no one cared about my trading abilities and the skills I had displayed for most of the previous decade-and-a-half: all they wanted from me was money. They demanded a clear answer from me regarding the whereabouts of 99% of the funds. The truth was, most of the funds had been withdrawn by the investors; a merciless fact of life. Most people thought I had failed. But in essence, I am still full of energy and overflowing with the potential of success. I promptly made an unprecedented commitment to my clients and investors: I would pay back all of their invested money as soon as I conceivably could.

Within one week, before and after the North American Overseas Chinese Wealth Summit in February of 2009, my clients from China and the US were amazed to see me trading in the market and reaping gigantic profits, successfully growing one million dollars to 2.1 million in eight days—a hundred times faster than my promised one per cent a week. Even in this chaotic and stressful situation, I still managed to grow one million dollars to five million, with an average weekly return rate of one million dollars. What an amazing accomplishment that was!

Before the Ontario Securities Commission issued a cease trade order against me in March of 2009, I conducted a three-day trading demo under the close watchfulness of most of my clients. Through my successful operation, the account balance grew from $350,000 to $440,000 in three days—a return rate of 25%. After the cease trade order was put in effect, hundreds of investors convened a meeting, a stunning 90% of whom signed a petition requesting the OSC to lift the cease trade order against me, so that I could continue to trade, in their belief that I could soon recoup the earlier losses. Many people requested that I open a training class to teach them the trading skills and techniques which had so often worked for me and for them in earlier years. There are many investors in this world, some business people, but perhaps only one God of stocks. The real God of the market is actually a person with talent, plus his market practice, his time, and his determination. My successful fund accumulation was achieved because of the foundation of my philosophy, way of thinking, market awareness and operational skills. These had always been the core of my trading skills.

As you all know, my losses were incurred in past market and business operations. My trading abilities are the very legitimate hopes for the future. If I am allowed the opportunity to start over again, I would rely on my market competence and accountability to operate my business in a completely transparent and open manner. Now that my burdens and pressures have been removed, I can concentrate on making money and repaying my investors. What an excellent opportunity this would be!

Strong reaction is expected from the investors after they read this article: after all, why did I not tell the truth about the investing situation sooner? Why did I deceive the investors? In fact, I did it all for the benefit of the investors. I understand that no one likes to have facts hidden from them, and to sustain loss. But there are too many traps in the investment world; no one can completely avoid falling into one. As long as I do my investing out of goodwill, and share the benefits and risks with the investors, I am the ultimate protector of their interests.

Investment implies risks, whereas our risks are relatively minor and temporary. I have tried my best to protect the investors from risks, much more effectively than the market itself ever does. However, I have only covered the initial stages, while the entire process is yet to be accomplished. If it were not for the legacy issues, I would have easily raised $600 million in 3 years, instead of the $60 million which I did. The loss of millions of dollars is not a giant setback to me, as I have confidence in myself. Now that the legacy issues have been solved, nothing can stop us all from progressing.

Every dream has costs. We have a promising future, but are currently on a winding road towards a positive destination. As leader, I take the most risks. Everyone sees that I am the one who has lost and suffered most. However, as always, I put the investors at the very top of my concerns. For their sake, I’ve come a long way, and experienced much hardship and difficulty. Many people only see what is in front of their eyes but not the entire process: starting point, the development, the future, and the ultimate goal, which I firmly believe we can all achieve, and sooner rather than later.

My investors hate to see that I used their money to pay previous investors. They accuse me of running a “Ponzi Scheme,” as made dreadfully famous from the outrageous thievery of Bernard Madoff in the United States. In essence, one investor’s money being paid to another is exactly what happens every day in the financial market: no one knows the others, and no one blames the others. It is a sin if someone takes your money through deceptive means, and uses it for his or her own extravagances. It would be an investor’s nightmare to give his money to someone who has no real competence or skill to make money from the market. Then, his investment will never bring any return. That is exactly what the Securities & Exchange Commission and the public traded companies are doing to investors, every single day.

What the Securities Commission is doing is preventing the investors from recouping their losses from the market. The essential difference between a fraud and a normal investment business lies in the motive of the person who operates it, and who is the ultimate beneficiary of the fund. Indeed, it is not uncommon in the financial market that money from new investors is used to pay old investors as investment profits, but not all circumstances are fraudulent. The allegation that my business is a fraud is catastrophic, not only to me but to my clients as well. Today there is no chance that those lucky clients who had been paid profits by me would return the money. They did nothing wrong. As soon as my business improves and starts to create profits, they may very well choose to return to the fold. As for now, we have to work together and make the best use of my sense of responsibility, market abilities, and wisdom.

The Way to Recoup the Losses

Under the repeated demand of the investors, I had to disclose all the truth about my business at an investors’ meeting on February 27th, 2009. A mystery that no one wanted to see was finally uncovered. For me, it was a relief, but maybe an opportunity for development as well. From another perspective, we were all relieved, as all that investors seek is profits, and hope for the future. Now that I have got rid of my legacy burdens, I am ready to fight again to win back what I have lost. I can only rely on myself to solve the problems and recoup the losses by making money from the market once more.

How will I recoup the loss of millions of dollars? This question is beyond the imagination of most investors. In fact, anyone with insight should see that I have exceptional trading and marketing competence, as well as my popularity and great potential. The market is always in need of my trading and fund-raising abilities. I will make efforts to let the world know, love, and need my abilities. My current popularity and the media’s focus on me greatly add to the possibility of my resurrection to success once more. So far, a number of business people and senior investors have approached me. Many people have presented their proposals and plans to me. They all wish to take this excellent opportunity to make me work for them. More and more men and women have become interested in my experience and abilities. As the legal proceedings continue, someone may be bold enough to grab the chance before the court ruling takes place, just as in a stock market, where one will look for opportunities when everyone else is afraid. One of the common mistakes that investors make is that they don’t invest when they should, and that they invest recklessly when they shouldn’t. I have learned my lessons, and I profoundly believe that I can make hundreds of people wealthy once more. END

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