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[W20]Wall Street & Technology

by A Raymond Randall, A R

As interesting as daily stock market news is to me, I often wonder if market reports matter when most investors are too busy and distracted to pay attention. Investors stay-tuned for the closing market averages; if the market is up, all is right with the world. If the market is down, "I'm in it for the long haul." If the market cascades unexpectedly, investors second-guess investment decisions.

"Buy! says the Bull" "Sell!", says the Bear. Who is Right? Stock and bond trading is a tug-of-war between the Bears and the Bulls (similar to the Democrats and the Republicans): one group sees what's right, the other group sees what's wrong. Both are opportunists.

If too many become Bulls, the suspicious Bears salivate; when the Bear corrals the Bull, the Bulls know their time is near. Bear traders see the glass half-empty; bull traders see the glass half-full. Together, they make a "market" where stocks, bonds, mutual funds, options, commodities, and derivatives are traded. The Bull and the Bear each get it right, but seldom at the same time; that's how markets are made.

"Securities markets are a fast-moving, glamorous, complex, multi-billion-dollar business." The largest located in New York, London, and Tokyo and and the emerging markets located in Sao Paulo, Karachi, and Jakarta, and they all have a history.

In the 13th century, a small group of investors issued 96 shares of the Bazacle Milling Company in Toulouse, France. Trading paper for grain did not catch French imagination (or anyone's) until the 18th century and the beginning of the Industrial Revolution.

* The 1700's brought innovation and advancement: 1712 - Thomas Newcomen patents the atmospheric steam engine.
* 1756 - John Smeaton invents hydraulic cement.
* 1769 - Nicolas Cugnot invents the motorised carriage.
* 1775 - Alexander Cummings invents the flush toilet (thank God).
* 1778 - Oliver Pollock, a New Orleans businessman, creates the $ symbol
* 1798 - Income tax introduced by British parliament (but of course)

New York Stock Exchange investors started "ringing the trading bell" in 1790. A 12 foot high wooden stockade separated that "trading floor" from the British and the Indians. On May 12th, two years later, 24 traders and merchants met under a Buttonwood tree at 68 Wall Street to sign the "Buttonwood Agreement" that empowered them to trade securities for commission. Their agreement is the first of many for the NYSE.

Essentially, stock market entrepreneurs sold paper in place of commodities. Trading cows, land, or lumber became too cumbersome. Further, selling a companies "paper" raises capital for the company, and gives ownership to the investor. Farmers harvest the grain, "listed " companies process and investors hope they do it right so they can shop for groceries.

The French voiced what every investor sometimes feels: if you cannot hold it in your hand, ownership is risky, while local farmers did not like big city highfalutin ideas. Holding a tangible object may be at the root of all risk concerns. Don't make a promise, take me to the store so I can have "it".

On Friday afternoons, I would visit my 82 year-old grandfather. Grampa would sit in his sun porch while I asked him questions about his youth. He owned a lumberyard and believed in tangible goods. I was working for Merrill Lynch at the time, and we always talked about the stock market. One day he said, "The stock market is filled with thieves and hoodlums. It is not as safe and predictable as real estate."

On his first point, I could not agree; on Grampa's second point, I would agree that many folks have more value in their real estate (home) than their stock market portfolio. However, real estate prices are contracting, and the stock market is up today. Further proof you should own a little of both because it's all about asset allocation.

The easiest way to see the impact of the need for cheap distribution is the extraordinarily low standards that Wall Street has established for financial advisors:

• Minimum education requirements: None, not even a high school diploma
• Minimum experience requirements: None, not even a day
• Minimum age: 18
• Disclosure requirements for credentials: None
• Disclosure requirements for compliance record: None
• Criminal record: Convicted criminals can obtain licenses as long as the crime wasn't securities related
• Licensing requirements: An easy examination that requires very little study
• Method of compensation: 85% are paid straight commissions

These are the people who want to plan your future and invest your assets. No wonder there are so many headlines that document abuses. Most investors are usually shocked when they see the low standards. In fact, they are so shocked many can't believe it's true.

The unfortunate reality is most investors assumed financial advisors had the same standards as other professionals, for example CPAs and attorneys. What they didn't know is the other professions are driven by an “advice” culture, while the financial services industry is driven by a “sales” culture. The difference is like night and day.

So why keep the low standards a secret? The answer is winning control of your money. Would you knowingly turn your IRA assets over to an advisor who had no formal education or experience? Of course not and Wall Street knows that so it withholds the information from you. That way Wall Street companies can add thousands of new advisors every year and they can start “selling” the same day they receive their licenses. New advisors feed the industry's need for a massive distribution system and they are cheap, which maximizes profit.

So how do they keep low standards a secret? Wall Street has had decades to develop and refine a strategy that's based on lobbyist activities and advertising. For example, Wall Street companies spend more than $300 million per year on lobbyists whose primary role is to make sure new legislation favors Wall Street and not investors. That's why there are no mandatory disclosure requirements. Then they spend millions or billions of dollars on advertising and public relations that sells an image of competence and trustworthiness. They know most investors buy what they see and hear.

What you can about it? You can't change an industry that's more than willing to put its interests ahead of yours. All you can do is learn to protect your own interests and that means learning to avoid lower quality advisors and select competent, ethical professionals. You can obtain the objective information you need by going to www.paladinregistry.com / Tips-4-Investors and reading the free tutorials. No registration is required to access the content on this website.

Article Source : The Wall Street

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Both A Raymond Randall & Jack Waymire are contributors for EditorialToday. The above articles have been edited for relevancy and timeliness. All write-ups, reviews, tips and guides published by EditorialToday.com and its partners or affiliates are for informational purposes only. They should not be used for any legal or any other type of advice. We do not endorse any author, contributor, writer or article posted by our team.

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