This week, from SmartMoney, I’m going to feature a story about a supposed scam about two brothers from England who developed a magical strategy for picking stocks and selling advice. The SEC charges that this scam involved the brothers selling newsletter subscriptions to unwitting investors who believed in the ability of a mythical robot to pick winning trades in the market.
Read the article here… Wall Street is Full of Stock-Picking Robots
Apparently investors were told “the ‘robot’ was a highly sophisticated computer trading program and the product of extensive research and development.” Over several years roughly 75,000 investors handed out more than $1.2 million in subscription fees for the service. The whole thing gets a little dicier when we learn that the duo had a separate business where they were paid to promote certain stocks. In turn, for a price, the robot would pick the paid-for stock in the next newsletter.
The article actually suggests what would be my biggest question with this whole story. How is that different from what happens on Wall Street on a daily basis? Hedge funds and asset managers are constantly promoting their proprietary computer trading systems as a reason for you to place business with them. Not to mention the fact that there are plenty of firms who pump an enormous amount of money into certain stocks as a way to artificially inflate the stock’s price, only to sell it moments later at a profit.
I certainly don’t condone these actions in any way but I will tell you that for the average investor, the game is rigged. Have you ever felt powerless as you watched your hard-earned assets evaporate? Well, in many cases you are. Fundamentals favor the long haul while many of today’s trading practices emphasize short-term profits. The problem is that short-term dips in the market cause emotions to drive decisions for many people.
It’s hard to ignore the healthy returns available in many market cycles. But as you approach retirement, wouldn’t it be wise to protect your baseline first? That allows you to take the risks needed to capture real growth over time without threatening your ability to retire when you want.
So, protect the assets that are needed for sustainable retirement income first. Then you are free to chase massive returns with whatever ‘stock picking robot’ most appeals to you.
If you’re tired of the Wall Street games, give us a call.
Have a great week!
Bryan J. Anderson