Blog on the Run: Reloaded

Tuesday, October 6, 2009 8:50 pm

My first and last bit of investing advice …

Filed under: I want my money back. — Lex @ 8:50 pm
Tags: ,

… comes from Forbes, via Marketwatch’s Paul Farrell: Don’t invest.

No, really, that’s pretty much what he says, at least as it comes to individual stocks:

No wonder “too-stupid-to-fail” banks prefer gambling with [high-frequency-trading]-Quants over helping small commercial banking customers. This is their cash cow generating future earnings: As Forbes recently put it in “The New Masters of Wall Street” “… even as financial markets collapsed last year, high-frequency traders collectively enjoyed $21 billion in gross profit” while “some high-frequency traders are sending out 1,000 orders a second.”

Worse yet, if America’s 95 million individual investors do try to play this new game against these HFT-Quants, they will lose big. …

Forbes bluntly put it this way in a sidebar: “Trading for Dummies” “The role of sucker on Wall Street has traditionally been played by retail investors.” That’s you.

Don’t trade … the more you trade the less you earn

Nevertheless, Forbes offered some sound advice: “If every penny counts for you, there are still ways to avoid being the dumb money in a trade.” The usual tips: Streaming quotes, limit orders and “pay attention to premarket action.”

But in their fourth “Trading for Dummies” tip they really show their cards, telling Main Street investors something we’ve been preaching for years: “Don’t day-trade: It’s a losing game to try to make money chasing momentary market inefficiencies. Too many pros with too much computing power are already at it. Instead, decide on a set of long-term investing goals and trade infrequently to achieve them.”

Rigged. Game.

You can never outshoot a computer processor. Wetware just isn’t fast enough.

Until securities-trading law is seriously rewritten and brutally enforced, you’re almost better off burying your money in the back yard.

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2 Comments

  1. I visited my biggest customer today. He’s got their investments sitting it out in cash. He’s about to fire his broker and thinking about setting up an account with an online broker. This guy has a stellar record of common sense practice. I don’t think he’s aware of the HFT activity, but he can see speculation and profits on short positions with a fraction of their assets. He can feel the market enthusiasm about to end.

    Comment by Fec — Wednesday, October 7, 2009 8:54 pm @ 8:54 pm

  2. If I had any money I’d be buying gold, except that if a naif like me thinks it’s time to buy gold, then we’re probably at the peak of a gold bubble.

    Comment by Lex — Thursday, October 8, 2009 6:20 am @ 6:20 am


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