The Financial Landscape is not a Level Playing Field –
On September 13, 2008, it truly was a dark and stormy night in the minds of the Lehman Brothers Board members huddled around a table deciding their fate and the fate of thousands of stockholders around the world. With the result of the technology stock bubble of the late 1990’s fading from view, now the bursting of the housing bubble took center stage, with derivatives speculation overwhelming the market as the risky bets had to be covered.
The final catalyst for the Great Market Crash, after a decade of turmoil on Wall Street, began on Monday, September 15, 2008, when Lehman Brothers declared bankruptcy.
That left the investing public in the lurch with nothing else to do but hang on and let events play out. The rather incestuous nature of the connection between investment banks and their analysts recommending stocks and other financial alternatives to an unwary public is now well known, after causing havoc to the retail investor over the years leading up to that fateful day in 2008. The risk to the individual investor was in an overheated market and those who had the power to manipulate it.
The retail investor is at such a disadvantage in the marketplace that by the time any market moving event is known, any reaction by the individual is far too late. The institutions aren’t set up to “trade” the market for gain or asset protection, so the risks in the market prevail. Many efforts have been made over the years to make the playing field as level as possible, but the manipulation and self-interest continue.
With that scenario in mind, the traditional places where people put their money become so complex and risky that the prospect of controlling one’s financial future disappears.
The institutional offerings to the retail market rely so desperately on trying to manage the vagaries of the market, without concentrating on making money for the client (the conflict of interest alluded to above), that the best managers mimic the market everyone is so anxious to beat. Asset allocation and diversification by asset class or individual securities leads to “market performance”, at best, and will probably get the managers a bonus for being able to match something they could have done by buying a Market ETF.
Their objective: To insulate themselves against being blamed for managing a portfolio that goes against the market, as opposed to managing a portfolio for gain.
This is very counterproductive to the interests of the client and exposes a portfolio to the risks inherent in the “market”, with no control over the outcome.
The Individual is Left at the Mercy of the “Market” and Those Who Control It –
Basing “investment” decisions on the recommendation of others and on some perceived worth of the securities being offered relegates the individual’s financial future to be determined by market action in a portfolio created based on the motivation of others. Everything is determined by fundamental analysis of the securities in question and the future success of the underlying management or anticipated event, with no regard for market forces that impact performance every day and ultimately determine the worth of any security.
Protection of one’s assets under management is NOT part of the deal.
With this backdrop, people are left “holding the bag” with nowhere to go to secure their finances. Diversification by asset class, with an ever-increasing volume of securities, is sold by the financial services industry as the only answer to risk management. As we’ve seen, this exercise, at best, gets you market performance and leaves you with all the risks the world financial markets can produce.
Worse yet, most managers are required to be fully invested at all times based on their outdated formulas, magnifying the problem – market realities don’t seem to enter into the calculation. Even with financial advisors working under the new rules that legislate putting the wellbeing of their clients above their own interests (what a novel idea that is), the problems are the same. All the advisors can do is recommend what’s in the “market”, which puts you in the same place – being controlled by the market and taking on all the associated risks.
With all these headwinds, no wonder the individual is at a loss for direction in a very confusing marketplace.
Even for those who have realized that they need to do something on their own to improve their financial life, the obstacles are the same, only in different arenas. The marketplace for individuals who want to learn about trading for their own account is much more diverse and harder to understand than the traditional investment alternatives. This leaves the individual forever searching for that pot of gold at the end of the rainbow. In all my experience in the institutional and private trading arenas, the problems for the individual centered around:
- Lack of education in the retail marketplace as to what is available and how the offerings fit together for anyone’s advantage. Life is too short and decisions too unpredictable to rely on a static plan devised in a vacuum.
- Too many choices of advisory services and institutions offering a myriad of money making and trading opportunities, with no independent evaluation mechanism for the individual – contributing to the high failure rate for those who try to make sense of the maze.
- No concise education for the individual to develop and manage a successful wealth building program, leading to a lack of awareness of opportunities available to those that could benefit greatly by that knowledge.
- Lack of direction to guide the individual to the best path to wealth building success centered around their own needs.
Picking stocks based only on fundamentals for long-term appreciation is a strategy that, again, relies on the “market” cooperating and clients never needing their money. Life never happens that way, and this long-term strategy sold by the institutional marketplace only succeeds in the rarest of cases when the timing is perfect, and we all know that happens only by chance.
Contrary to the institutional propaganda, you’ll learn that the timing aspect in portfolio management is the most critical component for true wealth creation, and only a total change in mindset will produce success – the key ingredient to ensure a positive financial future.
Trading in the Stock Market highlights the problem with matching market performance over time, and then…
…it analyses the alternative view – Trading With the Market.
Building the Bridge to Financial Security – A Change in Mindset
When someone gets to the point in life where they realize they need to do something about their financial well-being, in most cases the only avenue open to them is the financial services industry and the high risk associated with the industry’s self-serving agenda and the uncertainties of the “market”.
From the mission statement for The Diversified Trader, I emphasize: With the confusion among people surrounding the financial markets and how one can ever manage their personal finances, the time is right to bring clarity to the need to actively manage one’s own financial destiny and give direction to finding lasting success through building the framework that cuts through the maze of alternatives in the marketplace.
The key is to take advantage of the market, not depend on it.
Getting to this point, after many years of experience, my motivation has always been the thought that it would be so nice to have someplace the individual could go to find their way through the maze of opportunities in the marketplace and end up controlling their financial future. The Diversified Trader is the result of that wish.
Filling the Gap Between the Institutional Marketplace and the Professional Traders of the World
If you’d like to explore what filling that gap would look like and how you can take advantage of being in control of your financial future, have a look at You Really Can Manage Your Own Money to get an overview of the concepts I’ve laid out to make that possible – outside the traditional financial services industry.
To Leveling the Playing Field,
Your Research & Development Coordinator