Investing in the stock market is fundamentally an information business. There are thousands of sources available online where one can obtain information relating to every conceivable aspect of trading. Of course, information in its raw form is of little use. What we need to massage and manipulate information into something useful is context. Wall Street is not in the business of providing the individual investor with context for free.
It won’t surprise you to learn that the securities firms lining Wall Street produce hundreds of billions of dollars of profits every year. It might surprise you to learn that the bulk of those profits come not in the form of capital gains, the reward for investing acumen, but from management fees and commissions. It is these charges for services rendered that keep Wall Streets wheels greased. Information they have in abundance and will liberally share.
Context on the other hand is a commodity jealously guarded.
Of course most securities firms and most of the people who work for them are honorable and provide many worthwhile services for which fees are warranted. (For example, everyone would do well to pay a couple of hundred dollars to consult with a competent advisor who can work up an appropriate asset allocation model.) However, the financial services industry is every bit as self-serving and avaricious as any other. Ever increasing profits are essential in order to accommodate elegant offices draped with museum quality art and six, seven, and eight figure bonuses.
To these ends vast sums of money are sent from Wall Street to Madison Avenue to mold your perceptions. The subtle and sometimes not so subtle message is that you, the individual investor don’t stand a chance. ‘The stock market is such a terribly dangerous and complex place that only the most experienced and sophisticated professionals can hope to operate there successfully.’ After all, they employ legions of Ivy League MBA’s as well as Nobel Prize winning economists, all with decades of experience. What do you know about investing?
So you think, “Gee, they’ve got a point. I have enough trouble just getting through the day. Heck, by the time I roll out of bed in the morning and get the kids off to school I’m already exhausted. Then I have to work all day at a job I’m sick to death of with a bunch of people I’d happily strangle if I thought no one was looking. After work I run errands and then go home to more work and demands.” You take the bait, hook, line, and sinker. And, in doing so you embrace the perception and accept the belief that you can’t do it, its way too complicated, difficult and time consuming.
Your reward? Every few months you get to open your mutual fund statement and get depressed all over again because the end just doesn’t seem to be getting any closer.
“To reach our goal we must sail sometimes with the wind and sometimes against it. But we must sail and not drift or lie at anchor.”
Oliver Wendell Holmes Sr.
It gets better.
The financial services industry not only spends piles of money on advertising, they spend scads on market research. Guess what? They are very much aware that you are very much disgusted with their performance. And so, over the past year or two the advertising focus has changed. Does this seem familiar?
Now the message is ‘It’s time to declare your independence! Open a trading account with us and get access to all the research you need to create your own investing style. You can learn all about diversification, asset allocation, and dollar cost averaging. You can avail yourself of every bit of known information about any company’s products, operations and competitors. You can learn about PEG ratios and P/S ratios and P/E ratios and why they are important. (But rarely why they’re not.) You can create stock charts that are about as revealing to you as the Greek alphabet.
(Of course they are well aware that developing a “personal investing style” is an exercise that requires years of experimentation, and that only one out of every 1,000 who attempt this on their own succeeds. The other 999 come crawling back with their tail between their legs begging for a nice, safe, low performing, managed account… and hang the fees!)
Meanwhile they’ll let you cheerfully beat your way through their nice luxurious jungle of high quality information, right up to the point where it’s time to engage in some practical application, and then…everything gets real vague. Context? ‘Sorry pal, that’s what managed accounts are for.’
Yup, they’ll gladly give you all the rope you need to hang yourself. Then just before you pass out from loss of capital they’ll cut you down and say ‘you’re in luck, one of our top advisors is giving a free seminar next week. Let’s sign you up. She’ll cover Spyders, Leaps, ETFs, futures, options, and of course all manner of managed accounts. Don’t worry we can discuss fees later.’ So now you’ve come full circle, but your trading account is a whole lot lighter.
“They say the world is too complicated for simple answers, they are wrong.”
Ronald Reagan
Don’t take the bait. You control your perceptions. You control your beliefs.
Yes, information is important, but what is infinitely more important is having an effective context (strategy) in which to place it and work with it. The truth is you can do most every bit of research necessary for any stock in about 30 minutes. This doesn’t have to be complicated, it doesn’t have to be confusing and it doesn’t have to consume an enormous amount of time. It’s frequently quite simple.
Dependence or independence? The choice is yours. Fall prey to the misperceptions directed at you by Wall Street and Madison Avenue and accept the belief that you can’t do it? That route by design is an easy one.
Tomorrow, would you rather come home, collect the mail and open your mutual fund statement, or fire up the computer and find that you’d made a thousand dollars while you were out? Again, the choice is yours.
“I didn’t get to where I am by thinking about it and dreaming about it. I got there by doing it.”
Estee Lauder
