When people think about the stock market, two things often come to mind. One, the gambler, betting on stocks like horses in a race or numbers in a casino. Or, Two, the rational investor, long-term oriented and passively investing, or selecting companies by crunching numbers & analyzing balance sheets like an accountant … the “Warren Buffett-type” investor.
Between 50-65% of people in western nations have some money in the equities, and most follow conservative popular tenets of how to act regarding buying and selling stock.
The common belief is that those who trade in stocks more actively, sometimes getting in and out of stocks within months, weeks or even days are gamblers, while people that follow a popularly believed method are venerated as “real” investors, such as Buffett.
There is some truth to these notions, but not in the way most people think.
Specifically for Warren Buffett, the term “investor” might apply, but again not for the reason you might think. He’s an investor all right – but not because he looks at the stock market the way he does, buying “under-valued” stocks to hold for the long-term. He specifically is an investor, because Buffett and his company Berkshire Hathaway are also involved with other asset classes that are genuine investments, such as private equity.
However when dealing in the stock market, as good as no one classifies as a genuine “investor”.
The following reality will run against the grain of what most people’s believe the stock market is, but anyone who risks anything in these muddy waters would do well to accept it:
In what people call ‘the stock market’, there is no such thing as investment – at least not the type of stock transactions that >99% of those who deem themselves “investors” are involved with. Buying stock in the open market classifies as much as an “investment” as does cleaning your kitchen shelves.
In this article I’m making the case that the everyday citizen and thus most people in the stock market chase red herrings and breadcrumbs, which are more often than not thrown to them by a large industry that feasts on their beliefs, ignorance, hopes and wishes for profit.
I am not particularly cynical about Wall Street, as there are large benefits to its existence – job creation, the potentiality of personal wealth creation with your own hands, launching yourself into self-employment, in specific instances even the availability of genuine investment that can enable business to flourish, just to name a few. Opportunity looms for those willing to put in the work.
Also remember – when you read on, no one is forcing anybody to buy or sell anything. We are all consenting adults, and most industry players are merely answering to a demand. In the end, we are all responsible for our own actions, profits and losses. If we want to know the real culprits, most of the time we only have to look in the mirror.
But I do see a lot of people misunderstanding the nature of the beast and consequently losing their hard-earned money in stocks. There is a cold and dark side to the iceberg hidden under the surface of Wall Street, and it is important to see things for what they really are in order to succeed.
Joe Average doesn’t “invest”
The SEC outlines an investment, including stocks, as “giving your money to a company or enterprise, hoping that it will be successful and pay you back with even more money.”
Broadly, an investment in a company qualifies as such when you provide money to the business, and then either reap rewards from business success or losses from failure. You provide money for operation & expansion, and share the operational risk – if things go well, you receive a reward from operational success, if not, you stand to lose some or everything.
Stock is sold by brokers with the message of gaining ownership shares in a company, to invest in it. The great dream of “owning your share in profitable businesses”.
The reality though looks very different, because there is really only one time when a genuine investment happens in stocks. That is during what’s known as an “offering”, such as the IPO, or follow-on public/ secondary offerings. In this part of the market, called the primary market, the company actually issues & sells shares to raise capital to finance operations & expansion.
Even then, under the surface offerings often just serve as a way for venture capital to exit a company investment they made much earlier, for a profit.
IPOs only happen once, and secondary offerings are very rare. These are the only times in the stock market when stock buyers may actually “invest” money into a company, provide it with capital for operation and expansion, and share their risk of doing business. If the company succeeds, they might (!) reimburse you for the risk, distributing dividends, and the stock price might (!) be higher at a later date. Even then, though, there is no guarantee that either dividends will be paid out or that the stock price will be higher than the IPO price, as has happened countless times in history. The graveyards of Wall Street are filled with those that expected this to happen.
But let’s not fool ourselves – as good as no one participates in IPOs or secondary offerings, deals in warrants with a company, or invests venture capital in private placements. Many brokers don’t even offer this service to the everyday stock buyer. Over 99% of people are exclusively active on the secondary market, or what’s generally known as ‘the stock market’.
Our orders are routed to the exchanges where we are matched with other buyers or sellers of the stock – we buy from someone a few time-zones away who sells Apple stock to pay a medical bill, or we sell our Pfizer stock to a money manager on another continent who thinks its price is heading up.
On the secondary market – what people refer to as when the say ‘the stock market’ – no money ever goes to the company in question, i.e. we don’t invest in the company. Our collective buying might bring up the price of stock, some of which the company management controls which might help it to borrow more external funds or act as “skin in the game” to encourage them to work better. But neither is this of any significant magnitude, nor does it qualify as an investment either.
In the end, the reality is that those who think of themselves in terms of stock investors, conservative investors, buy & hold investors, long-term investors, passive investors, or whatever the label of the day might be, have been duped – either by their own misunderstanding, by wrongful education through others that do not understand the market, by a large industry that happily feasts on them, or most likely a combination of all of these.
I’ve seen people begrudgingly admit that the stock market can be strongly biased by the emotions of the people active in it – fear, panic, euphoria, hysteria, exuberance, defeatism, frustration, hope, greed and so on, which can drive crashes and bubbles. But those same people still believe that the stock market is largely or somewhat and investment vehicle, manipulated and sometimes driven to excess in either direction by psychological phenomena. But they’re wrong – the stock market that >99% of people traverse is not largely investment, or somewhat investment – it is not investment at all.
Of course, the stock market and its indices (e.g. the ‘Dow’, Nasdaq-100, S&P 500, etc.) have a long-term upward trajectory over decades. This is why people put in money for the long-term in the first place. But that is because the stocks within these indices are constantly changed and rearranged to include the stocks that currently move up, while those that were already in and now start sinking and cause financial mayhem to their holders are silently taken out of the averages, brushed below the carpet. A beautiful illusion of long-term growth, masking an ugly picture of boom and bust.
Our money does not help finance the operation and growth of the company. So, if we don’t invest in the company, why do we own stock?
There is only one reason – to make a profit, a speculative profit. There are only speculators, and those who don’t know that they are and end up becoming gamblers. Let me explain.
Individual stocks and fundamentals
Stocks are not investments because a buyer doesn’t share the business/operational risk of the underlying company – they share the stock risk. And a stock, over its lifetime, is only a fraction of the time related to the company, and even then not in the way that most people have come to believe.
For many private companies, the allure of becoming public is big. There is an old saying “Why go broke? Go public”. The IPO proceedings are not a loan, corporate bond, etc. – there’s no process of redeeming the “invested” money (and even for bonds, there is a primary and secondary market). The IPO process is essentially a way to obtain virtually free financing for a company – as good as no strings attached.
Hundreds of millions or billions of minuscule ownership fractions are marked up in price and off-loaded into the hands of the public with the help of a syndicate of underwriting investment bankers, brokers, pool operators, analysts, and financial media for a profit. People are being led around the block by a carrot on a stick, the carrot being earnings reports, guidance, upgrades, ratings, recommendations, tips and fundamentals to create a liquid market to sell into. This can go on for as short as weeks to as long as decades.
Most people don’t grasp this, and they stick to the religion of “investing” in “value”, fundamentals and “good companies”. But buying on fundamentals is a deeply flawed idea, and a grave mistake many people make. That is because the value of stock is not linked to the prosperity of company, or its business outlook.
Since non-profit organizations can’t go public, only for-profit businesses are found on the stock market. By definition, in its most basic sense a for-profit business becomes successful if it makes a profit, i.e. its earnings are positive and growing.
The SEC describes purchasing a stock with the idea that “you take on the risk of potentially losing a portion or all of your initial investment if the company does poorly“, and vice versa if the company does well. They say that you assume operational risk.
Reality again looks very different. There were and are tens of thousands of companies whose stock price has been trading flat or even consistently dropping for decades (e.g. General Electric, AT&T, IBM, Goodyear Tire & Rubber) while the companies are sporting great and/or stable fundamentals and earnings, or at least similar or better to those companies whose stock is strongly trending up.
On the other hand, there are countless examples of amazingly performing stocks of companies that display what “investors” would consider ‘bad’ fundamentals. Just think back to the 2020 bull market, where stock of companies like Peloton or Plug Power ran up hundreds or thousands of percent while they virtually lost money consistently and continue to do so to this day. Similarly, there were tons of stocks in the late 1990’s that exploded thousands of percent in price while their underlying companies were sometimes as successful as a Ponzi scheme. “But, it was a bubble!” you might think – well, the stocks still rallied and made their holders rich, didn’t they. As you’ll read below, the whole stock market is really nothing but a large bubble.
How does this fare for fundamentals driving stock?
As these examples and many tens of thousands of precedents in history show, fundamentals are almost always detached from stock price. Company performance numbers, i.e. operational success of the company, do not matter to a stock in the present and whether it will run up 4000%, lay flat, or nose-dive. There is really only a single linchpin that matters to find stocks that can double, triple or more in a short amount of time – I teach here how you can find it.
People who think they are “investing” are thus facing another reason of why they are not doing so in reality – they don’t partake in the business operational risk, but in a risk that is almost completely detached from company success – stock risk.
That means the following – there may be such a thing as a spectrum of good and bad companies. There is also such as thing as a spectrum of good and bad stocks. But great companies don’t necessarily have good stocks, and bad companies in turn can have great stocks. That is because companies are good when they make a profit and provide value to the business arena and society, while stocks are only good if they move in the direction that you want them to.
So far I did not discuss here some people’s assertion that you could influence and thus “invest” in a company’s improvement via ownership rights, i.e. equity. Well, there are the occasional hedge fund activists or institutional investors that try to exert operational control on a company. But again, neither does this qualify as investment, nor is it an opportunity pertaining to the everyday small stock holder to whom the idea of “owning your share of business” is advertised.
The idea of equity in the stock market only really applies to those controlling titanic amounts of capital. Individual owners may account for sometimes up to 30% or more ownership of a stock, but each single holder only accounts for a microscopic equity right in itself, a drop in the ocean. The most tasty pizza in the world cut into a billion microscopic pieces has no worth to anyone.
Don’t fool yourself when your broker sends you an invitation to a shareholder meeting. Because, de facto we have nothing to say in a shareholder meeting with 0.00001% equity. Even cumulatively as a large group of individual stockholders we don’t. The controlling interests matter, and that’s the big money only.
You might de jure own a portion of a business as a small stock holder – but neither did you invest in it, nor do you gain virtually any rights from this ownership that might help you take part in company operations.
Stock buyers do not invest to improve business or the economy, they place bets on it improving down the line
Neither is stock price trajectory, or stock risk, related to the economy at large. Of course, that is also not to say that equities are completely detached from general business outlook – but rather than individually, they are loosely connected to it as an asset class. The stock market is a discounting mechanism for what’s expected in 6-12 months ahead, and capital will flow categorically into this asset class when there is an aggregate expectation of betterment of business outlook.
But first, not all stocks rise strongly when the economy improves. In fact, many stocks only stage mediocre lacklustre moves due to spillover in industry sentiment.
Second, the stock market as a whole doesn’t rise because of an improving economy – companies improving their top-line and bottom-line results, consumers spending more, unemployment going down, etc. – it rises in anticipation of.
As established above, money paid for buying stocks in the secondary market does not go into the companies to finance their operations or help them grow to meet the bettering business outlook.
That means that a categorical rise of the asset class “stocks” does not happen because of “investment” capital flowing into stock companies. It happens because stock buyers expect a rising price in the future.
Everybody is in the markets to make money – nobody is there to lose it. That is via multiplying it, or making dividends from it. That of course is an attempt of anticipating the future of that happening, because neither is guaranteed to occur or continue. Because there is an expectation (though most of the time for the wrong reason) that stocks will rise with a bettering economy, people buy – therefore in reality this buying is akin to placing a bet on the anticipation (but not guarantee!) of a future of rising stock prices, rather than an “investment”.
Prices rise on buying demand, and we make money on rising prices. Others’ buying in the future makes us money if we bought before them. Many of those may buy because they think they “invest”, undoubtedly.
Stocks rise in anticipation of a bettering business outlook only for one reason. All capital that leads to buying into the stock market is done in the expectation of a return. For whatever reason the buying happens, this very buying is what brings up the price – not any improvement in business outlook or the economy. Whether the anticipated change will eventually materialize does not matter to the stock price rising now. And for whatever reason people put money in the market, it is on the expectation of profit, i.e. on the anticipation (but not guarantee) of rising prices in the future. People implicitly buy a stock because they anticipate that price will rise after they buy, which is speculation.
The stock market rises due to speculation, not investment. The ones that get in last when the economic recovery is obvious won’t make money, as everybody else has already acted and bought, price is up, and the recovery is already discounted – just like a game of musical chairs.
Those who believe themselves “investors” don’t understand the nature of the beast – they lose in an ever-turning clockwork called the stock market which actually works on speculation, statistics, loss cutting and other unintuitive rules that most people have no clue exist.
People buy only because they expect price to rise. But price rises only because people buy. Thus, knowingly or unknowingly, people are placing bets that more people after them will keep buying.
That is speculation, not investment.
We are all betting on directional trends
Short-sellers have gotten a bad reputation, trying to profit off the failure or bad luck of other people. But this is equally not true, as stocks don’t decline on the failure or success of the company. Of course, stocks are heavily sold in case a panic sets in due to an negative development in a company, such as the infamous Enron. But these are rare instances, and most stocks can top out while a company becomes more and more successful in the real business world, often because of a broad change in sentiment of market participants across the stock market.
Anybody who buys a stock, i.e. speculates in it, does not do anything fundamentally benign to the stock or the company. They do not help a company financially, support it, encourage or enable it. The company operates in the real economy, and is completely detached from the secondary stock market.
In the end, they are placing a directional bet on a piece of paper (and it’s not even that anymore nowadays) that we call “stock”, expecting that a lot of others will speculatively buy the stock after them. So why should betting in one direction be ethical, and in the other (short) not? You’re making money on the anticipation of profit, be it in this or that direction. No difference.
It is crucial to understand the nature of the stock market – no one “invests”, no one can invest. The well-kept secret is that everyone and anyone in the stock market speculates – institutions, Pros, amateurs, long-term buy & hold investors, value investors, fundamental investors, day- or swing-traders, mom & pop, smartphone retail traders, options traders, the list goes on – they all do the same thing. They buy a stock predicated on their expectation that they’ll be able to sell it at a higher or buy it back at a lower price in the near or far future. That’s the definition of speculation … whether they like it or not.
If you look at reality this way, those who deem themselves “investors” in fact do nothing different than day-traders or even the notorious short-sellers (though the more prominent short-sellers may manipulate the market to become profitable).
As much B&H long-term investors despise the words speculation and betting, in the end they just accurately describe exactly what they and many value investors are trying to achieve – betting on a future expectation/hope/wish of ‘should be worth‘, which is different from the present ‘is worth now‘. ‘Betting’, because no one does know whether the gap will actually be closed, and in what time frame.
Everybody in the stock market, whatever their approach, forms a network of traders that bid with each other on glorified slips of paper, hoping that in the ‘greater fool theory’ someone in the future will buy it from them at a higher price (or vice versa on the short side).
Do you speculate, or gamble?
The eminent economist John Keynes once remarked that a speculator is “one who runs risks of which he is aware; an investor is one who runs risks of which he is unaware”.
This has deep implications for anything we do in the stock market. Bernard Baruch, the famous statesman and speculator, suggested that the term ‘speculator’ has become “a synonym for gambler and plunger. Actually the word comes from the Latin speculari, which means to spy out, monitor, observe.”
This is reflective of what a speculator does. A skilled market operator will never try to predict what will happen. He or she will only do a sequence of three things: Observe, interpret, act. This stands in stark contrast to “investors”, who commit error after error in their market operation through not understanding how it really works. They end up gambling on the chance that their opinions and hopes come true.
In the stock market, unless as you participate in offerings (which 99% don’t do), the question is not whether you invest. There are only those that know they speculate and act accordingly, and then the vast majority of people that end up behaving like gamblers.
Legendary speculator Victor Sperandeo defines speculation as an art, i.e. “being able to accurately decipher and play the odds. Gambling is taking a risk when the odds are against you, like playing the lottery or pumping silver dollars into a slot machine. Speculating is taking a risk when the odds are in your favor.”
19th-century speculator Dixon Watts thus stated that speculation “presupposes intellectual effort, while gambling, only blind chance”.
To put it another way, “Investors are the biggest gamblers of all.” The author of this quote? Jesse Livermore, likely the most well-known speculator in history. “They make a bet, stay with it, and if it goes wrong, they lose it all.” The self-taught speculator and Wall Street pariah Nic Darvas agrees with this assessment, regarding “conservative investors as pure gamblers”.
Those who deem themselves “investors” form an opinion or attitude based on dogma or limited & faulty education (e.g. the tenets of value stock investing). They insist on that opinion no matter what happens, and proceed to act against the nature of the beast i.e. the stock market. As Wyckoff adds, in this way “most people use neither foresight nor intelligence” in their way of acting in the market.
Speculators have a plan and rely on favorable odds – gamblers on hopes and opinion of the future, wishes and luck. That is why speculators are the ones that should be venerated, while long-term and value “investors”, the real gamblers, should not. They have no method that is related to how the market really works and have no method of managing risk. As always in the markets, what’s popularly believed tends to be wrong.
The earlier you fully understand that the stock market has nothing to do with “investing” and anyone acting in it is either thoughtfully speculating or recklessly gambling for price changes caused by other peoples’ speculative order placing, the earlier you will be able to become profitable – controlling risk, matching your operations to a conducive market, and optimizing your profits by pinpointing those stocks which really outperform.
When you understand that, you’ll see that there is no objective value to any stock in the market – it’s worth whatever the price speculators bid it up to. You’ll see that the only ‘good’ stocks are the ones that go up rapidly and make you money.
Stop looking at the stock market the way it was taught to you, stop insisting on what you think you know. The stock market is not a church, and operating is not done by following teachings that are as dogmatic as religion.
In the end, this realization might scare off some people from being in stocks, but the difference is crucial. There can be fringe benefits to other real and genuine investments, even if they go south. For example, invested money such as private equity is actually put toward a productive endeavor for a business and the economy – and even if it is lost, there was a moral reason to make it available in the first place, a risk worth taking.
But not for speculation – the money does not go anywhere else than getting stuffed into the furnace of market and being spit out somewhere else again, hopefully more of it into your own pocket. A loss in speculation carries no benefit to anyone.
But there is great utility in this sobering thought. Seen from this perspective, there is no moral reason to ever suffer anything more than a minuscule and neglectable loss. Seen from this perspective, the whole aspect of stringent risk management becomes a necessary, crucial protection mechanism. – because there’s just no honor in losing, and simply no reason to ever have to lose substantially.
The infrastructure of profit
If stocks are not investments, buying stock does not help to improve business or the economy, and equity that the small investor gains is virtually useless, from where does the constant drumbeat stem that reminds the everyday citizen to “invest” his spare couple of thousand dollars into stocks?
Well, from an enormous industry that benefits from them believing in these ideas, of course.
That industry comprises both blind people leading other blind people through the desert that the market is, as well as the vultures circling the widely-promised mirages for carrion.
That is to say there are those who really know how to fish (the minority), those that don’t know how to fish (the majority), those that can’t fish because they’ve been sold a faulty fishing pole but still try to make a living by teaching the former how to fish, and those that sell the faulty poles in the first place. Both amateurs and professionals can be found in all these groups.
The moment the IPO/offering of a company is over and the company is publicly traded, the minuscule ‘primary market’ that serves for genuine investing is closed. From then on it’s the secondary market – and what’s sold there is not investments.
Sold there is one of the biggest false narratives of Wall Street.
The main purpose of the secondary market is not to provide an investment vehicle for the everyday citizen, or to provide capital to business and the economy – it is to generate trading activity to produce income to a self-sustaining dog-eat-dog infrastructure surrounding the stock market.
That infrastructure consists of a large series of middle-men that stand between the buyers and sellers of a stock: brokers/dealers charging commissions and ECN order access fees or selling order data (e.g. the notorious “payment for order flow”), market makers cashing in on order spreads, exchanges charging transaction fees from brokers and market makers, mutual funds of which 95% under-perform the market taking management fees, etc. The whole thing is rounded off by the world of financial media outlets who mostly are in cahoots with the rest of the industry – selling premium ‘research’ opinion pieces, subscriptions, model portfolios, ‘investment advice’, ‘backtested’ algorithms, trading bots, ‘social investment’ platforms, data terminals, and much more to willing and gullible buyers.
The only part of the equation left is the guy who buys all these secrets to riches, and places the orders that every middle-man bites a chunk out – the people participating in the stock market. The ones that think themselves “investors”.
There is a reason why even the evening news on completely mundane television channels and internet search engines shove the daily action of the stock market down our throats. That is because the media are a major functional tool for this industry to generate order activity of the public.
To Wall Street, turnover is money – never forget that.
Large money. The global securities brokerage and stock exchange services industry was worth $1.7 trillion in 2022, growing at almost 10% a year. In the US alone, the brokerage industry comprises over 23,000 (!) establishments and generates over $120 billion in revenue per year.
The industry at large, whether by ineptitude (the blind leading the blind) or malevolence (the vultures), dangles the carrot of riches in front of the everyday people who are in the market, in order to extract money from their pockets and guide it towards theirs, or generate a environment liquid with trading activity to sell large blocks of shares into when a stock or market is nearing its top. The puppet masters sit in the exchanges, the brokerages, and the financial media outlets – and the puppets are their clients.
People are systematically kept in the illusion that this or that stock will perform better than the ones they have already, that they are investors that need to support the companies and the economy, that there is always another opportunity looming, that you should never give up and always try again because the first million is just around the corner. Does this sound like a lottery?
The industry is built on the act of making people believe they’re better than average, beating the market. We’re being told we are smarter than everyone else, though of course in the same sentence we are sold the very “cutting edge” tools that the industry generously offers to enable us to use our above-average wits to get on the way to riches. Sadly, about 95% of people, including professionals, under-perform the market, and most people trying their hands at stock picking lose money over a course of ten years or longer.
We’re sold the latest research, subscriptions to journals and online articles, terminals, proprietary data, fundamentals, the newest derivative to give us that missing tool to finally beat the market and make our dreams come true. You’ll be made available “the data that the professionals use” to “level the field between Wall Street and Main Street”, and the possibility of “investing” and partake in the betterment of business and the economy.
Like a roulette table in a casino, the market offers just enough breadcrumbs of wins to make people believe that winning is possible and the first million is just one stock away. The guys that are truly in charge of the brokerages, exchanges, banks and financial media know this – so they instruct their employees to keep coming up with new products to try, new low-commission ‘opportunities’, a fancy new derivative, another big advertisement, the latest ‘investment savings plan’, the newest low-cost ETF, just to get people to spin the wheel another time.
The smarter we are in real life, the more we believe we have what it takes to beat the market. The least gullible people in real life – doctors, lawyers, accountants, economists, scientists, researchers, etc. – end up becoming the most gullible ones in the market. That is because the market is not based on logic, but on psychology. It does not move on what is certain and known now, but what those in control of the large capital expect to happen in the future.
One of the great feats of brainwashing is that the market cannot be timed – propagated by academics and unskilled fund managers who have never been able to outperform the market, and industry agents that have a vested interest in amateurs and even professionals to keep all their money churning in the market at all times and order activity going. To the ordinary people, ideas are spread which are either faulty in the first place and serve to generate more order placements, or which are borderline beneficial only to large mutual funds – buying more stock at lower prices, buying on valuation, diversifying constantly, and especially the ignorant and rather damaging idea of “re-balancing”. The next win is just around the corner – just buy another lottery ticket from our sales representative or through our software.
These illusions, promises and ideas are engineered to keep trading activity high – not just among amateurs but also professionals managing larger pots. And that order activity makes the industry happy and profitable.
This elaborate salesmanship is done using technical jargon and fancy appearances to build and maintain an air of professionalism and central importance of the market, but even more so a carefully constructed illusion that navigating it is characterized by a high degree of complexity and difficulty. Complexity which, of course, can best be navigated by buying certain products, research, or paying certain professionals, advisors and managers for their knowledge. And if the “investments” go south? Well, you agreed that “investments are risky and can lead to total loss of invested capital” in the fine print … commissions, fees and subscriptions however continue to be charged.
The brokerage industry is best satirized in the comedy Trading Places: “No matter whether our clients make money or lose money, Duke & Duke [the brokerage] get the commissions”. Taking a step back, this applies to everybody involved in this large game.
It gets worse – the industry including investment banks and brokers often pay prominent media outlets and educators (think youtube channels, courses, etc.) for disinformation and propagating their products, services and false narratives of how to profit in the stock market. On top, because the everyday stock buyer is statistically liable to make about 85-95% of losing decisions, many brokers actually by default bet against them. Think about it, a 85-95% win probability, plus making commissions and interest on margin loans …. a money printer if there ever was one.
But because people go broke very quickly on average, it’s paramount in this industry to keep attracting new customers – e.g. the brokerage Robinhood, Inc. spent $186 million dollar on marketing in 2020.
Of course, not all brokers, newsletter writers, journalists and so on have a conflict of interest and are distributing disinformation – some want to genuinely help. But they commonly tend to belong to schools of a quasi-religious cult, usually that of value investment or convoluted technical trading approaches. They’ve been raised by the same system, teach and sell the same ideas and erroneous approaches – misinformation. They often end up causing more hurt than anything else by their own ignorance. Many are so dogmatic that there is nothing else they can or are willing to do to learn. The blind are indeed leading the blind.
Others, the vultures, have no problem selling their own grandmother. Pushing advice or information that they claim to be critical, whether it turns out valuable or not, is a golden goose in the financial world.
Such tipsters don’t need to be right all the time, they just need to give different advice in newsletters, reports and articles every day and recommend a new stock every other day – the new shiny horse to bet on. With their big marketing budgets, new people keep reading their ideas and advice every day, and at some point there will be a horse that wins, advice that makes money, which they will from now on constantly use to justify their status as gurus and ‘experts’.
But no one knows which of their tips will make money, so readers will have to act on many or all of them, and lose money on most of them. Some may make a little money, which will only lull people in a false sense of security. Richard Wyckoff put it most aptly: “Why does the lucky gambler lose eventually? They are apt to be carried off by getting away with a profit that at the very next opportunity they will think they have Wall Street by the tail and will plunge with all they have made and more, eventually making a loss”.
A fool and his money are lucky enough to get together in the first place — Gordon Gekko
In effect, Wall Street is both painting the image of the mirage in the desert, and the vulture circling above the people trying to reach it.
The industry at large, from the brokers to the exchanges to the financial media, have vested interests in keeping people buying and selling stock over and over. If someone has never urged you at times to stay in cash and out of the markets, they are most likely benefiting from order activity, or are brainwashed by disinformation and propaganda.
Your interest should not lie in buying and selling indiscriminately on your hopes and opinions formed by the industry, nor should it lie in buying and holding forever – both are two sides of the same coin of dabbling in stocks.
Instead, you need a consistent method of reverting to cash in bad times, and get into the best stocks when the market turns benign. You should buy and sell as few times as possible, but as often as required to make a killing. That is actually much less frequently than you might think.
Not all is bad
Speculating in stocks can become a side hustle or your main occupation, but don’t dabble – and don’t listen to the snake oil salesmen. The stock market at large is not without value, quite the contrary – as an asset it can generate wealth in the long term or short term, help to hedge off inflation or other risk and economic phenomena, or it can generate dividend income. But it has to be done the right way.
If one buys stock on the secondary market, as >99% of people do, it is a speculative endeavor, whether people like it or not – and not an investment. By definition, for success, we need to adhere to the rules of successful speculation. Interested in learning how to do so? Glad you asked.
