12 08 2010

Authored by William Robert Barber

Everyday trillions of dollars are invested by millions of people in public traded corporate equities. For the most part the investments are made by the almost blind and the just about totally ignorant. These trades are administered by the somewhat less than totally ignorant for a fee and the whole industry of trading equities is overseen by a federally chartered agency, staffed by thousands of regulatory-type employees. Remembering that everyone, the investors, the traders, the regulators, and the governments (or their designators) all feed off of the trading volume. No volume – no feed…

In the majority, these buys and sells of equities are whimsically caused to be executed on a presumption that a particular or grouping of forecasts has merited viability. The trading action, be it buy or sell, creates the trading momentum; such momentum either validates the forecasters’ initial presumption or negates the heretofore judgment. Real time software programs are in place to gage the trading volume/price and to execute on the basis of such swings of momentum. In other words, respective of a company’s financial substance, be it judged strong or weak, trading momentum will not be denied its result; the stock rises or falls on the basis of volume sold or purchased, not some empirical truthfulness.

The reasoning of momentum trades are founded on one real fact: No one, in real time, can read a corporation’s balance sheet – and it is in real time that trades are executed. So a licensed trader may go through the motions of prudent discovery per the studying of financial statements, interviewing key persons within the corporation of investment interest, or some other institutionally considered methodology of pre-investment sensibility. But the truth is, no one with consistency can invest into the equity market with any meaningful degree of accuracy.

When one places a bet onto a crap game by throwing hued chips on the table, no observer considers such an action an investment. In fact, the observer defines it as gambling. Now gambling maybe considered by the generous of heart as entertainment; others adamantly declare gambling as the clear and simple example of avoidable risk. But if one directs ones cash to the purchase of equity in the secondary market (listed stock exchanges) even at the 100% risk of one’s principle, the definition of such an action changes dramatically. Indeed the action is defined by most as an investment and is considered an instance of prudent well reasoned behavior, wherein gambling is considered a foolish, even stupid act.

Nevertheless, gambling and investing have certain DNA commonalities; the differing from one act to the other is measured only by a chromosome or two in separation. Both actions require determination of forethought and such determinations, regardless of the particular strategy employed, require timing and cash management. In gambling the contest is (for the most part) about playing against or for the established odds; now of course, the odds in gambling as with the ever-changing factors pertinent to equity investing, are not static. In equity investing, stockbrokers, these licensed pseudo-harbingers of risk mitigation, ‘plot & plan’ with the standard and normative institutionally acceptable advisory: An assorted diversity of holdings, a spread of cash percentages within the variety of holdings, long term thinking that deduces into long-term expectations, coupled with the contemplation of and for more fair-efficient-tax related outcomes.

But after all the Brooks Brother suits and the casino bosses having cashed in their cut of the winnings, my contention is: There is little differing between gambling and investing in the equity market; this seems particularly true for the average Joe. Another interesting similarity between playing the casino games and the stock market is where the players decide to place their bets. In the games within a casino, most play is given to slot machines; with investing in the equity market, the greater percentage of players are vested with mutual funds. In both instances the reasoning for such particulars of behavior is its simplicity of action; neither the slot machine nor the mutual fund requires much thinking…

Equity investing has a wide differing of results as to returns for individual investors only because of one exacting, and that is timing. Timing is everything. Timing applies just as proportionately to successful gambling. Now if I am right and the one and only tangible of surety for making money when putting one’s monies at risk is to make the bet after the horses have run the race. And since no one would take such a bet it is reasonable to conclude that one needs to be a harbinger in order to successfully gamble or invest.

Clearly, investing in equities is arbitrary. Returns on investments are random in nature. There is no such thing as historical norm and all elements of measure subordinate to the power of chance.

Well then, why is it that the global equity market is so popular? How does it so successfully transact, for a fee of course, a win-loss result to millions of people in the trillions of equity investment dollars?

Because just like from gambling transactions, the governments of the world earn multi-millions of cash income from all of the people’s speculating; without the transactional revenue in both gambling and equities, there would be no fees or taxes earned. Unless the government earns fees as a result of its legislative interceding, its ingress into what in the majority is a private transaction, or by the invention of cause so to engage, government cannot gain its commission; no commission, hence no cash to feed its insatiable appetite for more power.

Government is the new all-powerful corporation. It is more powerful than the Standard Oil of old; the railroad dominance of Andrew Carnegie, and the banks of J.P. Morgan. The U.S. government is the largest single greatest monopolist of natural and synthetic resources in the world; it also controls the most lethal armed force since 1st century Rome. It is this very government that has won, by regulation, legislation, investments of other people’s money, and intimidation of litigation, a full-partnership in every aspect of this nation’s material assets.

Imagine that the Securities and Exchange Commission regulates the very entities that pay them a fee to be in business. If trusting business to operate free of monitoring is imprudent, why is it prudent to trust the SEC for such a function? After all, without transactions that generate revenues in the equity market, there would be no need for the monitorship.

Plus, who in their right state of mindfulness would trust congress?

I suppose, to varied degrees we are all gamesters. We participate by differing means because we must or because we love it; regardless of our motivation, we are all players – and then we die. The only real winners through it all are attorneys and the governments.




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