What Gordon Gekko Taught Us (Or Didn't)
Near the end of Wall Street, Iagoesque investment banker Gordon Gekko tells his impressionable broker (played by Charlie Sheen) that investing is "...a zero sum game, pal. Someone wins, someone loses."That line always stood out to us as a testament to the way in which small, average investors have gotten the short end of Wall Street's stick.
The idea that Wall Street is an "unlevel playing field" is not a novel one, of course.
Nor is it an idea that's had a chance to take a breather.
The Enron, Tyco and Aldephia debacles shortchanged millions of unsuspecting investors around the world.
I speak to dozens of of disgruntled investors everyday, many of whom think "the game is rigged."
I would say, for the most part, yes, the game is rigged.
Most of us buy stocks based on what someone else has created or researched, whether it be the latest stock special on CNBC or the most recent research report from our brokerage firm (99% of which treat "Sell" like foul language to be avoided at all costs).
Without the right information, you're a dead duck.
On Wall Street, institutions control the flow of information.
And yet, the average fund manager can barely beat the major averages.
We're' stumped.
There is hope for the Jones Family down the block, perhaps.
If the game's ever skewed towards the small investor's favor, it's through latter's ability to move fast.
In other words, individuals have one thing institutions do not: agility.
The average fund takes weeks if not months to initiate a position.
As such, the biggest funds are unable to move in and out of stocks rapidly without creating a big splash.
To illustrate a case in agility, I want you to travel back with me to early 2004, when some day traders were collecting $20,000 a day in profits by trading Taser International (TASR), the Arizona stun gun company that went to the moon and back in less than a year.
By the time the mutuals, pensions, and banks decided they wanted a piece Taser's volcanic run, well, there was no run.
The stock was on its way down -- way down where grown ups don't play.
Moral of the story: Never underestimate where you, the small investor, stands relative to the elephant, for the elephant's size can be its greatest weakness.
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