Invest In A Mutual Fund, or, Play Baseball Blindfolded

Republished From Snow Underground
May 8, 2006

It's pretty ridiculous how tipped the scales are when it comes to the financial world. It really is true--the system is set up to make the rich get richer and the poor get poorer. I mean, what kinds of financial instruments does the little guy have access to? He can get bullshit advice from a stock broker trying to sell him stock or an ETF like a door-to-door knife salesman, or he can buy a Mutual Fund. And that's pretty much it. Sure, he could buy some bonds too, but that's not exactly a leg up...the rate of return is crap, anyway.

Stocks, and in fact equilibrium prices in any market (which is what current stock quotes are: momentary equilibrium prices for a given piece of paper...err...stock) go up and down. They ebb and flow. So how, in any way whatsoever, does it make sense to employ a system where you can only make money if stock prices rise. Do you REALLY think "buy and hold" actually works. No, this is all just another way that rich people make money off the little guys. The whole system is set up to get most individual investors into useless stocks on the long side, betting that the stocks will go up, so that these knowledgable, powerful hedge funds can come in on the short side and take it all. But think about how hard it is for most investors to get into a hedge fund - matter of fact it's virtually impossible unless you're swinging around a few mil.

Playing only one side of the stock market, e.g. only the long side, betting that stock prices will rise, and never shorting or buying Puts at all, is the biggest handicap I can think of. It's like playing Baseball with a blindfold on. Or worse, it's like getting up to bat, and then in the next half of the inning putting your pitcher out there without a single defender. What the hell's the point??! It's not like shorting stocks or indices is cheating. It's a valuable, even necessary part of our financial system. So why limit yourself to just one side?

The name Hedge Fund comes from the fact that these firms use strategies to "hedge" their bets. Almost every single stock I'm trading in right now is on the long side, betting that the price will rise. But I still own some Put options on the indices--a small bet that will make a lot of money if the stock indices go down, but that becomes worthless if the price rises. I use that to hedge the bets I've made in these individual names.

So, please, learn how to play the system if you really want to trade. Don't just put your money to work in something useless so that it can be taken from you by the big guys. Buy and hold doesn't work. It's a bullshit phrase designed to keep you in the game when you're losing...so they can take more of your money. If you don't have the time to really play this game then you should just get out and buy some Bonds or a CD or two. At least you won't be losing money.