We will all look back in 100 years and wonder why people ever invested in the stock market. \u00a0It will seem like such an obviously misguided and\u00a0colossally\u00a0bad idea; how did we ever think that could work out?<\/p>\n\t
I admit that I do not understand the stock market. \u00a0It isn’t that I don’t understand how to pick stocks (I don’t but that is beside the point); it is that I don’t understand the CONCEPT of the stock market: Why pay money for stocks? \u00a0Why use a second hand swap meet of useless company baseball cards as a vehicle to save for retirement? \u00a0It is silly.<\/p>\n\t
Point 1: \u00a0As in poker, you need to know which table to play at<\/strong>. \u00a0Put another way, inside information is the only way to consistently beat the market<\/strong>.<\/p>\n\t Regular folks investing in stocks is like you trying to win at the World Series of Poker. \u00a0We are like a toy boat on the ocean; \u00a0it would just be luck if we ended up where we wanted.<\/p>\n\t Along this same line, I disagree with making it illegal to trade on inside information.<\/p>\n\t Publicly the industry needs to say it is illegal to trade on inside information. \u00a0Why? \u00a0Because no idiot (meaning us) would invest in the stock market if they knew the game was rigged to benefit those with special information. \u00a0That is the democratic draw of the stock market; average people can participate and win…after all, the information is all out there, right? \u00a0WRONG.<\/p>\n\t Funds or people that beat the market consistently and trade frequently are likely cheating with inside information…period<\/strong>. \u00a0Mathematically it wouldn’t be hard to target any group\/fund\/person with consistent market beating returns that are outside a normal range….and assume they are cheating. \u00a0Start investigating them.<\/p>\n\t The reason I am for making insider trading legal instead of investigating everyone is that if you made it legal, people would hopefully stop thinking of the stock market as a vehicle for savings and start thinking about it for what it is: \u00a0A\u00a0cutthroat\u00a0gambling casino for the ultra-rich where the buy in is OUR money. <\/strong><\/p>\n\t I don’t have a problem with the ultra-rich betting against themselves all day with their own money; if they wreck that stock market it only wrecks them. \u00a0The problem is that we give them OUR money and then they wreck that stock market and get bailed out. \u00a0In that scenario, they win if they win, and they win if we lose. \u00a0Seems like a pretty good deal for the finance folks, huh?<\/p>\n\t Point 2: How can stocks go up faster than inflation + growth?<\/strong><\/p>\n\t No asset class can consistently outpace inflation + real growth over time. \u00a0People say Social Security doesn’t appreciate like stocks do; your rate of return would be better with stocks. \u00a0WRONG. \u00a0It might be better over time...but just wait until the first generation of people try to retire who have seen negative stock returns over their period of savings. \u00a0That will be the end of stocks as a retirement savings vehicle,<\/strong> and those people will eat potatoes and live by the wood fireplace in the winter.<\/p>\n\t It will also make us, as a nation, forever chained to the fortunes of the stock market (a very bad idea). \u00a0The government will always have to intervene if the stock market tanks because so much is tied up in it. This is a moral hazard for traders, since they know they will always be bailed out. \u00a0Additionally, their speculation is at the expense of our retirement.<\/p>\n\t This scenario of negative stock returns for retirees over the period of their career simply hasn’t happened yet. 100 years ago there was no retirement. \u00a0It is a modern concept. \u00a0Then there were pension plans (and Social Security), which were ponzi-like schemes where you always needed a larger portion of workers paying in than old people taking out to maintain them. \u00a0401K plans didn’t exist until the 1978, so basically no generation has yet retired depending on stocks. \u00a0Using stocks as a vehicle for normal people to save is a new and unproven concept.<\/p>\n\t If stocks cannot consistently outpace inflation + growth, then putting your money in the stock market is little more than gambling…and gambling against people who know a lot more about it than you.<\/p>\n\t