This week's market turmoil has led to more finger-pointing than a broken lamp in a room full of six year olds.  And the short pudgy kid whose getting blamed the most is Margin Buying.  But I'm not one who believes everything I hear on The Today Show, and I thought that these accusations needed a little investigation.  So I spent today testing the hypothesis that margin buying creates market disruptions.  I single-handedly forced a substantial increase the daily volume of margin buying and assessed the impact it had on the markets.

Early this morning, I prepared for my margin buying as any serious investor would.  I opened the blinds in my office, and studied the flag atop the building across the street.  After twenty minutes of concentrated observation and note-taking, I concluded that the wind was blowing north-by- northeast.  Content with my due diligence, I waited patiently for the markets to open.

At 9:30, I walked into Henry's office, which is adjacent to mine.  I had decided that, given the north-by- northwesterly winds, I would start the day off aggressively.  He was reading a six-page document written by Sally from down the hall.  I yanked it from his hands.  "How much for your margins?" I demanded, and without waiting for an answer, I pulled the scissors from my back pocket and began to cut the margins from the pages.  They were the standard 1 inch margins.  Nice.

Henry just stared at me.

"I'll give you $20 a piece."  I figure, if margins are important enough to cause market volatility, they're worth at least 20 beans.  Henry's not much of a talker, and it turns out he's even less of a negotiator.  He didn't even counter my offer!  He just stared at me kind of funny as he took the $120 I gave him for his six margins.

Sucker.

From Henry's office I went to Jill's.  She had printed off last week's e-mails and was reading through the paper copies.  There were a lot -- 35 pages' worth -- but the margins were only 1/2  inch.  I offered her $8 a piece.  She got me up to $8.75.  After we completed the transaction, I stood in her office cutting the margins off of her papers and I explained my research effort.  She found it quite interesting.  She said she was happy to participate in such an important initiative as she pocketed the $300+ she earned for her margins.

I continued down the hall, and by 10:00 this morning, I had purchased over $1,000 in margins.  I soon realized, however, that much time is wasted cutting the margins from the rest of the page with scissors.  So I borrowed the paper-cutter from the copy room.  Time is money, after all.

Word of my research effort spread, and it soon became very easy to find folks willing to sell their margins.   I set up shop in the lunch room, and a line formed down the corridor.   There must have been 40 people standing there with their inter-office memorandums, departmental reports and trade publications.  It was a true buyer's market!  With so much supply, and only me demanding, prices plummeted to just over $1 per margin.  At first I tried a buy and hold strategy, but it became difficult to work the paper-cutter with handfuls of margins.  So I switched my strategy to accumulate and created a pile of margins next to my chair.

At noon, I rushed back to my office to check the market.  Both the Dow and the Nasdaq were down a small fraction of a percent.  My margin buying was having little impact.  I looked out the window at the flag.  The wind was still blowing north by northeast.

I was obviously just not buying enough margins to make an impact.  Buying from individuals was too small-potatoes; it was time to deal with the big dogs.  I walked down the hall to the sales department and offered to buy 60 reams of institutionally-generated margins for $0.79 a margin.  The price was low, but I flashed a wad of green before their eyes.  Cash is king, and they accepted my offer.  They would contact the copy room, and the margins would be on my desk by C.O.B.

The kid gloves were off.

As luck would have it, there is a commercial document production franchise in my building.  They were my next target.  They sold me 100 reams of margins and I purchased options to acquire another 50 reams of margins later.

By 2:00 this afternoon, I had spent over $75,000 in margin buying.  Back in my office, I checked the markets.  Nothing. No disruption.  No nothing.  NASDAQ was up a few; DOW was down a few more.  The flag was blowing due east.  Yes, the winds had changed, but only slightly.  I sat in my office ready to declare that margin buying has no effect on the markets when I remembered something one of the stock analysts said: it wasn't margin buying that caused the markets to tumble -- it was the margin selling.

I gathered my accumulated margins and marched through the office offering margins for what I thought was a reasonable $5 each.  There were no takers.  Not in the lunch room, not in the lobby, not in the men's room, not anywhere.  I lowered my price to $4. Then to $3.  Nothing.  Even the copy guys wouldn't buy at $1.50.  By 3:00 I was begging people to take the margins off my hands for $0.40 each.  Nothing.  Henry bought 6 margins for $0.18 each so he could tape them back onto Sally's report.  Jill bough back her 35 margins for $0.10 each.  And that was it.

By the time the clock struck 4, I had purchased $75,000 in margins, and sold $4.58 worth, for a net loss of $74,995.42.  I was sure this would be enough to cause havoc with the markets.  But I was wrong.  The Dow closed a percentage point lower than yesterday, and the Nasdaq closed up 20 points!

So what are we to conclude from this scientific research? First of all, it seems important to note that my research indicates that, even if you can tell the way the wind is blowing, you may still loose a bundle from margin buying.  In fact, I'm almost ready to agree with many of my co-workers who told me "this is stupid, Scott."  Margin buying does seem a bit silly, now that I think about it.

But what about my primary research question?  Does margin buying cause severe market disruptions?  It seems fairly obvious that one individual's margin purchases does not a market tumble make.  However, margin purchases by numerous individuals may still create market disruptions.  To tackle this question, I'm looking for several people to start buying margins tomorrow.  Any volunteers?  I know where you can find plenty of margins... for cheap.