Some Observations on the Market

Recently reaching the ripe old age of what I’ve reached I have come to a few observations and conclusions on the “stock market”. These have been triggered, in part, by the recent revelations of a number of well known hedge fund managers heading for indictment and jail; couple that with what Washington does and the political apparatchiks crony capitalism the game is not what it is touted to be. And the politicians should be in jail right next to the hedge fund managers. No, I don’t think these observations will be earth shattering. But they are observable. One, the market is rigged. Yes, even though it’s not earth shattering news, it’s basically true. The big boys rule the market, from large investments houses to huge mutual funds (have you seen Fidelity lately?). The market moves as they move money and as much as the SEC tries to tamp down the collateral damage, it still ensues. Secondly, insider trading is rampant. The news often goes through Washington, where insider trading is legal by the way and for which you and I would be thrown in jail, and gets to the west coast late if ever. By the time we move our few coins into the fray it’s usually too late. I know, I know, the market is for long term. I also disagree with that assessment as well. Take an individual or individuals who are close to retirement. Those of us who are ‘baby boomers’ have, for the most part, or maybe not for the most part, scrimped and saved and invested hard won capital into the market only to see the last five years an implosion take place of American stock. I can’t even imagine those individuals who have put nothing away for retirement. The market at its height was over fourteen thousand points; at its low, around six thousand; and now bouncing two to three hundred points a day. Why is that? What I see is the manipulation of the market. It’s no longer free. Corporate greed has many examples and the last five years has proved that vice over and over again. Thirdly, managers and traders are not paid according to whether they make their clients any money. They’re paid based on volume and amount of trading.

Finally, from Michael Lewis’ ‘Money Culture’, I find this interesting snippet:

“Wisdom and experience, in other words, stand exactly as much of a chance of beating the market as an Amazonian tribesman blowing darts at section three of the Wall Street Journal. Malkiel made gentle sport of the vanity of those who have acquired reputations as market beaters. The big success stories—for example, Peter Lynch, Warren Buffett, John Templeton—were explained perfectly well by the laws of chance. Success in the stock market was no different from success in coin-tossing contests in which those who toss heads are declared winners:
“The contest begins, and 1,000 contestants flip coins. Just as would be expected by chance, 500 of them flip heads, and these winners are allowed to advance to the second stage of the contest and flip again. As might be expected, 250 flip heads. Operating under the laws of chance, there will be 125 winners in the third round, 63 on the fourth, 31 on the fifty, 16 on the sixth and 8 on the seventh.
By this time crowds start to gather to witness the surprising ability of these expert coin-tossers. The winners are overwhelmed with adulation. They are celebrated as geniuses in the art of coin-tossing—their biographies are written and people urgently seek their advice. After all, there were 1,000 contestants, and only 8 could consistently flip heads.”

Kind of makes one wonder. I think what I’m trying to say is that for me, and mine, there has to be an element of risk for any gain. That’s true. But one should try to reduce that risk as much as possible. I have come to reason that the more one takes and gives away his control of capital to circumstances, people, and instruments, the higher the risk. I learned years ago that most investment planners and stock brokers know little. And they definitely do not control the market.

Just some thoughts.