As many of may know, I spent most of my 20s working in a large investment company. Today at breakfast I was reading the New York Times. In the business section, there was a piece about some insider trading and so forth. I really do not want to talk about that specifically, but that topic coupled with the rapid market drop early this month, I thought I would tell you all a secret, one that your banker, your broker and maybe your brother-in-law does not want you to know. Wall Street is the Vegas Strip dressed up and dignified. Nothing more and nothing less.
Casinos vs. Investment Houses
Ok, this covers the physical similarities. On the Vegas Strip you get bright lights, killer architecture (think MGM, Paris, the Luxor) on Wall Street you the NYSE, Goldman Sachs, Merrill Lynch and JP Morgan, with their muted masculine decor, upholstered couches, wood paneling, and rich carpet. In Vegas you get the the blinking lights and in Manhattan you get the ticker tape - letters and number racing and chasing.
Professional Gambler vs. Professional Money Manger, et al.
Every professional gambler has a set of rules or guidelines that leads his or her play. Don't believe me? Then watch and listen to them on ESPN, BRAVO or where ever they show poker tournaments and the like. They do. Some call it suspicious, some luck - but it is at some level a scientific or pseudo scientific process at which they base their play.
Money managers are the same. They have a system, a set of guidelines that they work by. They could be technical in nature or more research driven. They will look at the trends, they will evaluate economic data, but at the end of the day it still largely based on luck, just like the professional gambler.
It is no secret that the type of person that succeed long term on Wall Street is similar in temperament as the professional gambler. You have to have coolness, confidence and a bit of arrogance to make it happen.
Quarter Slots vs. High Rollers
On Wall Street there is a place for the little guy and the high roller. While we like to pretend that it is all equal and at any moment the little guy can hit the jackpot in Vegas and that the slow and steady investor can make it big on Wall Street, the reality is that there are different tiers to the investment game, just as there are different perks for the high rollers. This is the way it is - work with it.
With your $50 to put away each month a mutual fund makes sense - a hedge fund does not. With $25 million to invest - the funds come to you. Nothing unfair about it, it is the way of world.
Now that said Wall Street could learn a bit about being kind to the little guy like Vegas. Free drinks are nice, open buffets, nice. Sometimes it is not the "what" of the matter but rather the "how"
Cheating is the flip side of Good Sportsmanship
Ok, well anyone who has watched Las Vegas or seen Rainman, knows that the casinos hate cheaters, card counters, and other riftraft and go to great efforts to ensure that the game is at best fair and at worst fairest to the Casinos.
Wall Street it seems to me is alittle less honorable that way. Trust me, the investment firms have the deck stacked in their favor. They have spent billions on attorney fees to ensure that they have every advantage should you get mad at them. The account agreement you sign is 900 pages long for a reason folks!
They make the rules and have a self governing bodies to enforce the rules. (NASD;NYSE, ect.) I am not sure that the SEC is all that independent, there is alot of influence. They set the fees, change the fees and generally when push comes to shove - their bottom line is what is really really important.
Now that said, they are not ogres. Do not running around telling people that I said all investment houses are bad - it is not a question of good or bad. I am merely being honest. It is impossible to play the game, if you do not know all the rules.
The stock market is a big game - just like Blackjack and Poker. Learn the rules, do your homework and make your best guesses - sometimes you will win big and sometimes you will lose. Your best bet is to be consistent, filter out the noise, know your limits and stay steady over the long haul. Know when to fold'em.
Know that while your broker is very likely on your side and a decent person, that that alone does not absolve you of taking control of your own destiny and doing your homework.
I mean would you trust the drunk card shark next to you in Vegas with every dime you had with you? I hope not! Wall Street is no different ladies and gentlemen.
So know you know the big secret! Use it wisely!