…and how you can profit from them

Most people don’t dare invest in stocks. They’ve fallen for the myth that only the big-shots can win and profit. By that they mean the banks, financial institutions, billionaires and other market makers. This myth rests on a rather tenuous assumption. It goes something like this;

The insiders have the game rigged in their favour. Investing is therefore a zero sum game you can’t win as they control when markets will rise or fall.

A majority of people who believe in this myth choose not to invest at all. These are the people who plow their hard earned money into $40k kitchen renovations.

The rest of their cash is parked collecting dust in the terrible investment that is the savings account, until a giant chunk of it is spent rebuilding a perfectly functional bathroom or Samsung releases a new ulta-flatscreen TV, twice as thin as their last model that hit the shelves only 3 months ago. Clearly it’s a buy!

Sounds familiar? Then this article is not for you. Your road to happiness shall remain paved with endless house renovations and the latest pots & pans from Martha Stewart living.

Instead, I’m writing for the minority who do indeed invest. Specifically the ones who do so through mutual funds run by the big institutions themselves. You currently subscribe to the if you can’t beat them, join them strategy, despite it being common knowledge that only a tiny minority of these mutual funds beat the market over time.

After factoring in their considerable front loading and hefty annual fees, an even smaller minority of them do. A simple index fund is a far better choice for retail investors. The Economist frequently writes about it. So does Marketwatch.

 

How the Rigging Comes to Life

I want to add a couple of observations whom, despite frequently touting the horn of the index fund strategy, the aforementioned publications never touch upon.

First, none of them argue TO READ ON SUBSCRIBE AND BECOME A PATREON.

  • Brianmark

    Very good post. I agree 100%. I plan to get more invested in the market again. You are so right that the market is rigged to go up. It goes up 4 of every 5 years.

    • Harald Baldr

      Thank you for reading!

      • Brianmark

        Have you been in the market during a big correction and lost a lot of money? I know that in 2002 at the bottom, a whole decade of profits was erased and the market was where it was 10 years earlier. I don’t think the Nasdaq has ever reached to 2001 highs again. I’m still waiting for the big correction to get back in more and be more aggressive.

        • Harald Baldr

          NASDAQ did set a new all time high earlier this year. But yes, what you say is a good reminder of the patience it sometimes takes and the importance of diversification.

          Yes, I’ve been in the market during major corrections and also lost money. I don’t know any investor’s who haven’t.

          I have several friends who say what you did: “I’m waiting for a big correction”.

          I usually tell them that there are big corrections somewhere every year. Just look at oil since mid 2014. Or commodities in the past couple of years. Or India a few years ago.

          Waiting for everything to correct as it did in 2007-08 for example when there were real fears of a total economic collapse is not a very fruitful strategy. It could happen tomorrow but it could also take another 15 years.

          It’s this fear and possibility of short term losses that is responsible for the superior long term yields investor’s who stick with the game enjoy. If everyone dared to buy stocks, yields would be akin to a saving’s deposit which is the current investment everyone dares to make.

  • roy alfred seaberg

    What’s your feeling on penny stocks

    • Harald Baldr

      That one should stay away unless in possesion of first hand insider knowledge

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