The Game is Rigged?

One byproduct of conversations like the one yesterday about the Occupy Wall Street protests is the sentiment that the stock market is rigged, that the little guy does not have a chance, that the individual investor cannot possibly compete.

This raises a couple of questions that are worth exploring.

If the stock market is rigged, when did this start? It is pretty obvious that to the extent it is rigged, the stock market has always been rigged. There have always been cheaters of one kind or another. We know this because every so often there is news of a cheater who gets caught. I don't think it is too much of a reach to think that not all the cheaters end up getting caught. What percentage of the cheaters do you suppose get caught? My hunch is it is pretty low.

The extent to which anyone thinks the deck is stacked against the individual investor it is no more or less stacked than it has always been. Yes participants who do have the advantages (whatever they may be) have better technology than they used to but so does everyone, on a relative basis. However much blame should be placed on HFT or algos, there is no denying that HFTs and algos spend more on technology than you or I. The predecessors to HFTs and algos have always spent more to acquire their edge (or if you prefer, unfair or even illegal advantage) than you or I or people like us ever did.

Whoever comes after HFTs and algos will spend more than we will. Again, any of this maybe unfair, unethical or illegal, or not but this is not something new. I don't remember these types of complaints back in the 1990s when stocks were all whizzing higher but there is no question that if there have been people taking some sort of unfair advantage over the last ten years, there were people doing the exact same thing in the 1990s. Remembers SOES bandits?

Greed is not new to Wall Street.

If you can accept that greed and unfairness (or if you prefer illegality) are not new then you have always participated along side of it. How has this impacted you thus far? It is unlikely that any of us could quantify how we have been affected. It is possible we haven't been directly affected. You can assume you were affected but I don't think there is a way to know concretely that any specific trade you placed was adversely affected.

Consider the chart to the left. It is a ten year chart that tracks VFINX in blue, Deere (DE) in green, Altria (MO) in orange and Chevron (CVX) in yellow. Whatever the reality of unfairness or cheating over the last ten years it did not prevent holders of the aforementioned stocks from trouncing the S&P 500 while having better than "normal" decades. While it would have been better to pay a split adjusted $19.86 than $19.93 (to make up an example with actual prices of where the stock traded that day) for Deere ten years ago, a $0.07 difference for a long term hold really doesn't mean much. Obviously it would mean a lot for someone looking to trade the stock for an hour or two looking for $0.20 or $0.30.

Looking forward, the unfair advantages will evolve and continue to exist. This will not prevent some stocks from being huge winners, some countries from thriving or some themes from paying off big for investors.

Rigged or not, if you plan to retire then you probably need some piece of money to be able to generate an income stream to fund your retirement. The decision for forgo potential growth available in global equity markets for any reason is perfectly valid but there are tradeoffs. If your money grows at 2% instead of 6 or 7% (or any numbers you think are realistic) and you want to retire at some point then you probably need to save more, work longer, live a more modest lifestyle in retirement or any combination of the three.

I tend to believe in solving my own problems before trying to solve the world's problems. That line of thinking draws criticism but I think the country would be better off if a larger portion of the population did this.

A quick comment on the passing of Steve Jobs; actually more like comments from other people. Jason Raznick from Benzinga tweeted "Jobs died at 56. Who in the world has accomplished so much in so little time?" Brian Sullivan from CNBC tweeted "There is no single device that brought me more joy than the ipod. Thank you, Steve Jobs, for bringing so much music to us all." Finally ETF Trends quoting Jobs who once said "Your time is limited so don't waste it living someone else's life."

And just to lighten the mood a little, I give you what is possibly the funniest picture ever posted on Facebook as captured by John Ramsay.