One of the biggest delusions many small investors suffer from--from casual mom-and-pops to full-time day-traders--is that the market is something like a level playing field.
It's not, of course.
The average institutional investor has resources and information that the average small investor can only dream of.
These include:
What they also have, as everyone was reminded this morning when news broke that Goldman Sachs director Rajat Gupta is under investigation for passing inside info to Galleon's Raj Rajaratnam, is friends.
It doesn't matter how vigilant the SEC gets. There is simply no way to police facial expressions and body language. When you're at a cocktail party with your buddy who knows what is going on inside a particular company, you don't have to be a mind-reader to get a good sense of it yourself.
The buddy doesn't need to tell you anything specific. The buddy doesn't need to pass you secret confidential documents. The buddy doesn't need to give you hand signals. All the buddy has to do is look at you in a certain way. To paraphrase the old saying, a facial impression is worth 1000 words (and it also has the convenient feature of not being persuasive evidence in court).
Facial expressions don't have to just come from buddies, of course. When you're meeting one-on-one with a CEO, you can learn more from the way a CEO responds to a startling question than you can from a thousand page SEC filing. And no one will ever complain that you've been given material non-public information--even though that's just what you've been given.
Unless all personal contact between executives of companies and investors or agents of investors is banned (which it obviously can't and won't be), this type of information will continue to provide professionals with a valuable edge. And only a tiny portion of it will ever be declared illegal or prosecuted--in part because it's not against the law.
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Don't forget about the mega computerized systems that are in place and physically located as close to the source as possible so that the mega firms capture data a fraction of a second faster than their competitors.
George Orwell et. al. couldn't have dreamed of what is going on today. The bottom line is that day traders don't stand a chance.
The fact is that you are making money on just about anything that you bought 1 year ago...!
And once you understand this, you will see that the 'free market', where everyone has the right to participate and everyone the same chance of being successful, is just another propaganda lie right out of the Capitalists' playbook.
There should be 2 curves for the 'stock market'. The industry-player return which includes Wall Street employees, and the retail-investor line, which has people like me, whom I refer to as 'the sheep'.
There's no doubt the 'industry-player' curve would be higher than the retail investor's curve. The question is, 'how much higher'?
Then, when you know the actual returns for the retail-investor 'stock market', the question becomes, 'Is this incremental gain worth the risk to principal I am taking?' I don't know the answer, but that's one Hell of a question.
Then came the reconning in October of 1929 and the richest still remained wealthy.
History keeps repeating itself and so few seem to learn.
History keeps repeating itself and so few seem to learn.
History keeps repeating itself and so few seem to learn.
History keeps repeating itself and so few seem to learn.
The average investor can avail himself of index funds, the only weapon he needs to beat institutional investors.
And by the way, over anything more than 10 years the bond market has always out performed the stock market. On a very long term, like from 1932 to present it has outperformed the stock market by a considerable amount.
I was reading on the Motley Fool about a guy that bought a ton of 6% CDs a couple of years ago, all the banks he bought them from are gone.
Even with all the advantages you list, MANY hedge funds and mutual funds manage to underperform the market.
How do they do it?