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Why Most Stock Market Investors Will Always Lose Money

August 8, 2011 12 comments

Recent events in the stock market due to a credit rating downgrade of USA are a good starting point to introduce one of my observations about the scam of investing money in the stock market. Do you realize that-

Most stock market investors will always lose money over any significant time period.

But why is that so? Don’t most investment gurus and money managers promise financial nirvana if you invest with them or follow their advice? They do appear to be quite successful themselves, don’t they? Could it because they are playing with other peoples money and therefore win whether their clients does so or loses.

OK, let us start with a very basic question- What really changed between August 4th and 8th that could rationally account for the large and mostly negative changes in the stock market? Here is the answer- nothing of any significance in the real world.The decline in stock values were due to changes in perception, based to an expected announcement by a discredited and corrupt rating agency. Moreover, they did not mention anything that was not already public knowledge.

So a single pronouncement by a corrupt organization referencing previously public information was enough to wipe a few percentage points off the stock market. Odd.. isn’t it? In contrast, all the statistics about un- and under-employment in the USA, foreclosed houses, usurious student debt and generally poor job market do not seem to affect the stock market. What is going on?

Why is the real economy not influencing the stock market? Can they not see the obvious or are they ignoring it? In my opinion, the answer lies elsewhere and is linked to the nature of the stock market. The stock market is, and always has been, a casino. Gambling games in the casino or bets placed on them have little connection with reality- jut like stock prices and market moves. A casino is not run to profit its patrons, but merely to make them lose money by giving them the impression that they can win a fortune. However, casinos never advertise themselves as places to invest for retirement and casino staff never tell you that they will help you win. The stock market, its pimps (brokers etc) and shills (media) on the other hand try to convince you that they are smart, honest and trustworthy people.

Stock markets play by rules, concepts and criteria that have little connection to reality precisely because that is the most efficient way to fleece investors.

All the expensive suits, financial rules and regulations, graphs, charts, interviews are just meant to achieve one thing- separate you from you money. However the last 30 years have seen one nasty trend- namely who they rob from. In the old days, it was the rich and aspiring rich who lost money on the stock market because only they had enough to gamble on it. Today the numerical majority of investors are not rich and they often invest in it through intermediaries. Various pension plans or similar “wealth management” schemes are now amongst the biggest investors on the stock market. The stock market has now become one the most important ways of pauperizing the middle class through loss of savings and absence of promised returns. The best part is the suckers line up to get mugged and blame themselves for it.

The stock market pimp guilds (brokers, bankster etc) also aid the process by selecting the best and slickest conmen- who incidentally are worshiped by the HBD crowd as examples of superior intelligence. The people who are supposed to regulate the system are in cahoots with these conmen and the politicians are on their payroll.

Another issue that must be mentioned is the growth and metastasis of economic financialization since the 1980s. Previously the stock market casino had only a limited connection with the real world- but that is no longer the case. Today we live in a globalized world with complex supply chains and dependencies, which are extensively linked to the stock market casino either directly (stock listings) or indirectly (through hedge funds, investment instruments etc). This arrangement carries an almost certain risk of disaster because the feedback loop from the real world to the stock market is broken or non-existent. The truth, then, is that whole system is corrupt and abusive by design and will continue to be so until it is made to disappear.

I have little doubt that the current system is systemically unstable and potentially disruptive to the real world. It will go down or change, one way or the other. Whether this will happen through violence towards pimps, fearful pimps, investor apathy or some combination thereof remains to be seen.

Comments?