You and I, and people like us that must work for a living, have no business in the equities markets. Not in individual stocks. Not in mutual funds. Not even in a broad index fund like the S&P 500, which is most likely the best way to “invest” in equities.
Some thirty years ago, when I was in my twenties, friends of my then wife
were in the investment business. They were smart, frugal and sincere in
their belief that to live and retire well people should set aside some money
and invest a good chunk of it in equities.
S&P Historic Price Graph
To drive home their point they gave me a business card sized, four-color
graph of equity indices – similar to the one above – the Dow, the S&P,
etcetera. It clearly showed that since the crash of 1929 stocks have gone
up and down, but unlike a roller coaster, the trend was clearly up, up, up.
So, I invested the small sums I saved for retirement in stocks.
In the summer of 1987, my then wife was also friends with a woman who was married
to the technical analyst Ralph Acampora. You may remember Mr. Acampora as
one of the “elves” on Louis Rukeyser's PBS television
show “Wall Street Week.” He was often a featured guest.
At the time, I was a graduate student at New York University's
Stern School of Business. Mr. Acampora invited me to visit his “office,”
which was actually a rather large walk-in vault. I don't believe he or
his partner ever closed the vault door. It was just space in the over-crowded,
over-priced real estate market of Manhattan.
Inside the vault were graphs of every statistic known to man on clear
plastic overlays. Placing one on top of another they searched for
repeating patterns. Their job was to figure out what the market was going
to do next.
From that surreal meeting I took away a single piece of sage advice: “The
second you see interest rates go up, Charlie, bail-out of the market.”
Back then bail-out meant get-the-hell-out, not get a hand-out.
In June of 1987 interest rates inched up. I sold my stocks.
Ralph saved me a lot of money. I got back in the market in January
1988. After that, my luck ran out, in a number of different ways.
Take a look at that chart again and the trajectory of S&P stock
prices. Up, up, up. The S&P needs to lose a whole bunch more
before we're back down to 1995 prices.
Answer: You and I are not the S&P 500.
Further: You and I, and people like us that must work for a living,
have no business in the equities markets. Not in individual stocks.
Not in mutual funds. Not even in a broad index fund like the S&P 500,
which is most likely the best way to “invest” in equities.
Here are a few, just off the top of my head, reasons why:
- Picking stocks is for
suckers. You can't do it; I can't do it, at least not anymore.
There are just too many variables. Company financials and
fundamentals mean nothing anymore. Time was the annual 10K reports,
required by the SEC, would give you everything you needed to do a complete
accounting analysis of a publicly traded company. Do you know how to
do an accounting analysis? If you do, do you do one on every stock
pick? No matter, there's no longer enough information in the 10K to
do one. Companies can hide all sorts of important information and
totally obscure their bottom line value or lack thereof.
- External variables are
unrelenting and capricious: war, weather, new laws and regulations,
systemic economic shocks. You name it; you don't know what's going
to happen next. Worse, some of this is manufactured by Big Greed
itself to cheat you legally. I'll say it again. You and I don't have enough resources to
play in this game.
- You'll probably ignore what
I'm telling you about publicly traded equities. Billions are spent
to make you believe you can pick stocks, futures and currency exchange
rates. Look at the television ads: A baby can do it, for only
$7 a trade, and a very sincere Law & Order actor tells you every night
that the investment firm he shills for is behind you all the way. To
where? Why is it so important for them to make you feel smart and
- Answer: Fees. All kinds
of fees. You can't get around the fees. You're investing this
small amount of retail money, under a million dollars, peanuts, and the
fees will quickly wipe out any reasonable returns. The Big Greed boys are playing wholesale.
What do you consider a reasonable return, 4%, 10%, 15%? Fees will
wipe that out in no time.
- What return? Have you
heard about Fast Trading? It's probably just taking a nano-percent
of the returns on a winner that would have gone to you, but it's also taking
a nano-percent of a loser, losing you more. You know about insider
trading; what's that costing you? How about derivatives? Do you think those fancy trades may be
sucking some of the blood out of your investments? A friend who was
a bartender once told me there were a dozen ways to steal from the
house. Wall Street has thousands.
- By investing in publicly
traded corporations you are feeding the machine that is screwing you up
the butt. They are taking more money out of your pocket through
deals that add nothing to the real economy. These same “quality” corporations are
exporting jobs and using H-1b visas to drive down the wages they pay even
the most technologically advanced workers. They have an unfair
competitive advantage over small business in their ability to borrow and
sell equity with no intent of ever repaying this funding. This, in
turn, crushes local employment, farming and self-sufficiency.
In the face of all this, where should you put your money? A contributor
to the Motley Fool said, “my recommendation is to focus on the highest-quality
segment of U.S.
What would those be? As we have seen, no corporation, of whatever
historic quality, is capable of protecting their assets in a consumer/worker
slaughter-driven market dive.
Also, how can any small investor get a "fair" return relative to
risk with the current situation of trade skimming and who knows what other
black box scams?
Any rational investor opted out months ago and is waiting for the storm to
pass and the enforcement of necessary regulations to create a market situation
where the odds of success can be determined; where risk can be reasonably
The current market is untenable. The only people participating are either:
a) ignorant of the circumstances, b)
blinded by greed or, c) the same operatives of Big Greed pulling the levers of
this the biggest con of all time.
If I haven't convinced you to sell your stocks, good luck.
If I have, now is a great time to sell, as this current bubble will soon burst.
Put your cash in an insured account. Don't
worry about the paltry earnings rate.
Anything is better than the rigged casino they call Wall Street.
Chaz Valenza is writer and small business owner in New Jersey. He earned his MBA from New York University's Stern School of Business. His current feature film project is "Single Point Failure" an insider's account of how the Reagan Administration caused the greatest tragedy of the space age based on Richard C. Cook's book "Challenger Revealed." He is a former Director of Public Information for Planned Parenthood of NYC. His website is: www.WordsWillNever.com