Why do the rich profit from listed shares?

A man checks share prices on his mobile phone while waiting for his coffee at a Starbucks branch in Beijing July 16, 2015.[Photo/Agencies]

THE HURUN RESEARCH INSTITUTE released a Hurun Cash-out Rich List 2016 on Oct 21, which, as the 10th of a series, studies the cashing out of the rich people in China from last July to this August. An opinion article on Beijing News analyzed the relationship between the cashing out of the rich and the stock market:

What is the difference between ordinary people and rich people?

The answer is simple: The rich are better at making investments than others are－much better. Whenever the stock market experiences an abrupt fall, the rich always manage to sell their stocks at a high price before the drop, while ordinary people always sell after share prices have fallen.

Media reports show that has been the case for the past 10 years. For example, before China's stock market plummeted last November, the cashing out by the rich people who held large amounts of shares reached its peak in October, and small shareholders bore the losses.

Even if there is no fall in the stock prices, the rich, who hold the majority of shares, can still make money from shares, as they are very smart in obtaining cash. According to the law, shareholders are forbidden from selling or transferring their initial stock holdings within three years of a company being listed.

The ban on ELG's major shareholders selling initial stocks came to an end in October 2014. Two months later, their board introduced a transfer plan, and their share price rose abruptly. Three months later, they introduced another plan and the share price rose to almost four times the price before they introduced the plan. Then ELG's major stockholders started selling their shares in hand, which accounted for more than a third of the total shares.

ELG is only one of the stories of domestic super rich. Now you know how they increase their fortunes through the stock market.