I visited the CBOT recently and watched the traders in the pit, with some of them being mostly empty, and thought if you had a computer you could easily out price these people.
So what you've got is the collective psychosis of every investor rolled into a big ugly ball, multiplied by whatever derivative funds the managers want to create, raised to an exponent by the bond markets and then taken factorial by Jim Cramer, the ETrade Posse and their ilk and what you're left with is a radically unstable equation in which the only way to make money reliably is HFT. "Software competition for cash" is exactly what it is: "high-frequency trading has been shown to have a potential Sharpe ratio (measure of reward per unit of risk) thousands of times higher than the traditional buy-and-hold strategies. By 2010 High Frequency Trading accounted for over 70% of equity trades taking place in the US and was rapidly growing in popularity in Europe and Asia. Aiming to capture just a fraction of a penny per share or currency unit on every trade, high-frequency traders move in and out of such short-term positions several times each day. Fractions of a penny accumulate fast to produce significantly positive results at the end of every day.[5] High frequency trading firms do not employ significant leverage, do not accumulate positions, and typically liquidate their entire portfolios on a daily basis."
Yes, this doesn't sound much like investing to me. So, the question becomes: Why have it? What is the benefit it provides to society? Trading that is agnostic to the company traded seems antithetical to the idea of a free-market. Freedom to trade as you like in this case actually obfuscates the notion of company value. Without a measure of company value, companies are not rewarded based on performance in the market, but performance in this trading scheme. This is corruption, -a limited number of players pick winners and losers based on their own personal profit motivations. -It's free-market turned Central Planning. There seems a simple fix though: Once you buy a stock, you must hold it for 24 hours. -That's the risk you take. Buy accordingly.
Any study of banking history will clearly demonstrate that "what they tell you they do" and "what they do" are totally separate. I personally recommend "I.O.U" and "The Big Short" as great places to start. On that note, here's my favorite story about how "the little guy" will never be more than a pawn in investment:
Basically, my 'investing' in the market is guided by such: Buy when the media is negative on a company about something that does not relate to the company's ability to do business. i.e. Buy BP when the spill news peaked. Never buy good news. If you like a stock, wait until the market as a whole sags significantly before buying. Buy a stock when a well-circulated editorial bashes the companies prospects, especially if the writer has prior or close connections to the company. I hold my stocks for years, (typically because dividends are part of the reason I buy), or, I pick a sell price when I buy it, and completely ignore the stock until it reaches that price. -It's dead to me until it gets there. I don't care if the company goes bankrupt. I just place my bet and stick it out. I do ok, -basically because most of what I have was bought in 2009, but it doesn't represent a huge amount of my financial plan or attention. It all boils down to luck unless you have inside information. I wouldn't mess with short-selling or margins for that reason. I think the notion of 'inside information' is interesting. Say you want to open a restaurant, and ask me to invest. I want all the 'inside information' I can get before I do so, right? But with stocks, that's "illegal". We are supposed to be blind to what will really affect the company the most. Funny thing, the "market".
I'm a rational person, and I have a deep appreciation for the irrationality of any commodities market. My first "big move" was taking the whole of my retirement fund and shoveling it into forex and emerging markets funds in 2004 because the one thing I knew was that nearly every economy in the world would outperform America's. I more than doubled my money. My other big move was assessing the world economy in summer 2007 and deciding I had no fucking clue what would happen next, so I shoveled the whole of my retirement fund into a ratcheting index fund in September 2007. When the markets tanked, I lost zero. On paper, I'm a brilliant investor. In reality, I'm a ham-fisted, superstitious rube who lucked out twice. I may reach a point where I'm willing to dabble but the nuances between "stocks" and "ponies" are lost on me.
I'm with you. I haven't a clue. My most 'brilliant' move was moving all my GM stock into Ford, because GWB had me worried that he might not bailout GM. The next day he did, my new Ford stock tanked, and GM soared. :/ But, I sat around, GM went bankrupt, and the Ford I bought ~$2 well, that proved my genius! :D Nice move in 2007! I have a great aunt that pulled everything out in August 2008 right before the drop. Her reasoning was: "I'm making too much money. This isn't right." :)