Stock Market - Ponzi Scheme or Engine for Growth?

When the share price of the likes of Facebook climbs to levels that appear to be absurd when compared to traditional yardsticks of value one has to wonder what the function of a stock market is supposed to be. What happens in cases such as Facebook etal is that the saving public (via the services of momentum-chasing fiduciaries in the fund and private banking industry) hands their hard-earned money to the insiders who can cash in their chips and bank immense amounts of money. Has any value been created by this casino-like activity? Only if you believe that the transfer of money from losers to winners at the poker table creates value. The huge transfer of wealth - especially in the USA, but to a lesser extent in all stock markets - not only concentrates wealth in the hands of the few ultimate winners (remember the poker table!), it also creates a drag on economic and income growth as the few tend to hoard most of their gains - how many steaks can you eat? not mentioning how many monster yachts or ostentatious holiday homes can even the Super rich acquire? Stock markets are a useful and necessary tool to share risk and finance long-term investment but at present they are not serving the interests of the wider investment public. Only those that can avoid the hype - or get of the roller coaster at the right time - benefit from investing in shares in the present market structure.

Are Stock Markets rigged?

The controversy over 'algorithmic' and high-frequency trading rumbles on and on. While experts and regulators are unable to agree the ordinary investor is well-advised to tread with caution when investing in the stock market.

Don't complain - do your research!

Too many investors - even professional money managers who should know better - chase fads and overpay for their investments. A quick look at the key numbers behind the Zynga should have sent out warning signals and it is pointless to complain about insiders who unloaded more than half a billion dollars worth of stock in a secondary offering last April.

What returns can you expect from stock investments?

The experts argue about the return that investors can expect to earn from investments in common stock. Research studies cover a period of nearly 200 years but even in the markets that have been subjected to the most careful analysis - the USA and the UK - the results are hotly disputed. But whatever the numbers may be - anything between 5 and 10 percent before inflation may be plausible - investing in shares is fraught with high risks for the ordinary mortals. The stock market is to a large extent a machine to enrich the selling insiders - current IPO plans are a good example. The German Banker Fuerstenberg said nearly 100 years ago - shareholders are stupid and insolent, stupid because they buy the shares in the first place and insolent because they even expect a dividend. That said, there are always great opportunities to profit from mistakes that 'Mr Market' makes, but to profit from them you have to be 100pct dedicated to the stock market game in order not to be fleeced.