The Goldman mess hit the fan today, and it’s all over CNBC. The market is down -144 right now!  But, I’m not going to blog about Goldman, instead I’m going to blog about the stock market and if it’s a rigged game…

What’s a small (WallStreet calls us “Retail”) investor to do?

Perhaps, we should sock away our money under our proverbial mattress at home? Maybe…, but not me. After all, when you store money in your house, it loses value to inflation. It’s kind of like a glass of water sitting in the middle of your house… eventually the water will evaporate, leaving just worthless residue in your glass…

So are we the little investors at an disadvantage? Yes and No.

The “Yes, we are playing a fool’s game” argument:

• The institutional investors (mutual funds, hedge funds), have trained professional that do investing all day!
• They can control the momentum of a stock, with their buy orders alone.
• They have access to the target company CEO and other executives.
• They have the education and skill to play derivatives to hedge there losses
• Most retail small investors (us), only play the “buy and hold” game.  We are a one trick pony.  And for the most part, that is a good thing actually…

The “No, we have an advantage” argument:

• We can capitalize on the institutional investor’s momentum, so we can skim of off some of the price appreciation that the institutional investors create.
• We don’t have to worry about the numbers and competing against other institutional investors, esp. quarterly performance numbers.
• We can take positions in smaller companies that are too small for the institutional to gobble up.
• We are fortunate enough to be able to examine the financial statements of all publicly traded companies.
• Expensive Transaction fees are no longer the concern they use to be.
• The internet provided financial information quickly, vs the past.

I do know if decent stocks are purchased and if they are left to grow (basically ignored), they can appreciate to have high levels.  This happened to me as a kid growing up.

I guess it’s all what you are comfortable with.  I will say that today, I see the downturn in the market a buying opportunity, especially in the non-financial sector (why are these segments down today anyway, most because of fear.  I follow Warren Buffett’s advice ).

If you don’t have time to invest, then consider mutual funds or etfs.

Readers, what is your opinion on the matter?  Do you think the stock market (or any financial market for that matter), is rigged gains us small investors?

-MR