Is The Stock Market Rigged (responding to Banker's Anonymous Blog):

This question is from me.  My thoughts on Mike’s answer:

The mutual fund industry’s path to retirement for everyone is to invest solely in index or managed mutual funds.  That’s plain terrible advice if an investor wants to have higher returns than average.  Why? The common stock market and bond system is structured to not give an investor a good deal.

It’s unquestioned that the liquidity and availability in stock markets are huge benefits.  But, they comes at a very big price to the investor — and that’s what I mean by rigged.  Here’s why:

  1. There’s a huge “drag” on the gains that an investor can make in the conventional equity and bond markets from fees and favorable status given to bigger customers than you or I.

  2. Stocks brought public have a very good determination of a fair price.  The likelihood of a person identifying truly undervalued assets is slim.  In fact, most active mutual fund managers do worse than the average once fees are included.

  3. Information asymmetry is real.  Hedge funds know more than you or I.  They employ “expert networks” (often times legal inside information) or receive tips from the analysts that cover a stock.  High-frequency traders have their automated systems co-located with the exchanges own servers.

Not to mention cheating (which is rare but there), the players in the exhanges and markets know who the suckers are — and those are the public.

If an investor wants to get ahead, there are better ways to do than that stock market.  The two most common developers of wealth are business ownership and real estate.  Both offer better opportunity for higher returns.  Of course, they require individuals to take responsibility for their own finances.  But, much like we should expect people to manage their own health by responsibly eating and exercising, individuals need to be able to understand money and how to manage it.

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