You might remember the early 1980s thriller “WarGames,” starring a young Matthew Broderick as a teenaged Seattle hacker. In the film, Broderick mistakenly triggers a potential global thermonuclear war after breaking into a U.S. government computer system.
As the plot unfolds, the teen must convince a rogue supercomputer on the U.S. side to give up control of real missiles aimed at the Soviet Union. So he forces the computer to play tic-tac-toe repeatedly — until the machine realizes that the game is unwinnable.
The military supercomputer informs Broderick that “the only winning move is not to play” and gives up on nuclear war, suggesting instead “a nice game of chess.”
In a nutshell, that’s the modern stock market. The supercomputers are literally everywhere, in the form of high-frequency trading desks. These high-powered machines jack directly into the markets, running millions of trades through algorithms in search of even the slightest discrepancy in price.
It’s not your father’s stock market. It’s not the even the market investors knew three or four years ago. Nevertheless, financial cable TV and the big consumer brokerage firms send us a singular message: You are unique. You can trade. You can “beat the market.”
Both of these things cannot be true. If the brute force of hundreds of machines cannot easily find a way to profit from mispriced investments, even trading at superhuman speeds, you will not be doing it from a PC on a desk. Yet finance “news” shows would have us believe that trading is the way to win.
We fall for this because we tend to apply the lessons of our ordinary life to the stock market: Keep your eye on the ball or miss the swing, we learn from sports. Business management is daily, even hourly, in its demands. Raising kids is non-stop work.
Our attention brings value in these endeavors. So, naturally, we assume that paying attention brings value to investing. But it’s not true. In fact, paying attention more often than not is a source of investment risk.
We often believe, for instance, that our investments require us to watch stock prices daily. Watching a stock is pointless. You can buy or sell, but your attention will not move the price up or down. The company will do no better and no worse.
Imagine for a moment that you hold enough of a single stock to actually affect the price. In practice, this never happens to even the biggest investors, but picture it: You control more than half of a major corporation.
Are you in control of anything? No, it controls you, more likely. Sales rise and fall. Management is good or rotten. The stock price reacts to the market’s perception of your performance — not your financial needs.
Yet that’s the illusion fed to you by the financial news media. They need advertisers. The advertisers — that is, the brokerages and banks — need customers. Customers, being human, like the idea that they can control outcomes.
So the message is simple: You can trade. You can win. You can beat the machines. The product being sold here is the notion that you can and should trade — a lot. Trading generates fees and commissions for the banks, of course. As the saying goes, if you look around the table and can’t spot the patsy, it’s you.
Investors instead should take the passive approach. That’s not the same as “unplugged,” but definitely hands-off. By keeping fund costs low and trading minimized, it’s possible to build wealth steadily and simply with a minimum of stress.
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Unlike brokers, advisers, insurance agents and mutual fund managers, who get a yearly percentage of your money or a commission selling you a financial product, we are 100% on your side. MarketRiders is not affiliated with anyone nor do we receive compensation for any of the ETFs we recommend or online brokers our clients use.
Would you like to play a game? Or retire on time with your wealth intact? It’s nice to think you can have both, but research and experiences suggests that, in fact, you should choose not to play.