Streetwise for Friday, October 13, 2017

Wall Street Is Not a Sophisticated Game of Chance

I would like to open today’s column with a heartfelt word of thanks to everyone who voted for “Happy Returns,” the Rudd International sponsored entry in the Southeastern Guide Dogs Superheroes on Parade, Puppy Edition, competition.

Happy Returns entered the winner’s circle as the winner among 37 entries in the Sarasota area. At a dollar per vote, Happy Returns received 8,249 votes.

While there is no denying that it was a pleasure to see Happy Returns take first place, the real winners were the superhero dogs that are bred, raised and trained at Southeastern. Those dogs will transform the lives of not only the visually impaired but also veterans living with PTSD and/or a variety of other battlefield injuries.

Sincere thanks also go out to artist Scott Moore, the creator of the puppy statues, and to Lou Pak for designing and painting Happy Returns. Now back to our regular programming.

An analyst on Wall Street once wrote that the real drivers of stocks is not earnings. Rather they are driven by fear, hope and greed and to some degree the business cycle.

In other words, what was being said is that you should throw out fundamental financial analysis, along with any analysis of a company’s product line, research and development program, customer base, supplier relationships and management expertise, in the trash can. What utter nonsense.

Yes, there will always be market speculators and their goal is to profit from those with less experience, or those feeling the psychologic trauma resulting from a newly wrought fear of a stock or the market. As in any game of chance, there will always some winners and Wall Street is no exception.

Market speculators do not deny they view Wall Street as nothing more than a sophisticated game of chance in which they hope to hold an edge. They are not investors any more than a gambler in Las Vegas is an investor.

Unfortunately, most of what appears in the financial media focuses on making money in the short term. Not a problem assuming your main concern is keeping score, being competitive, and being sure not to lose out on whatever might give you bragging rights.

Yes, you might achieve a 20 percent on a hot stock and in the process “discover” the next technology that is going to change the world before others do. Yet, you are not alone in this endeavor. Countless others are focused on the same goal, thereby dramatically reducing your probability of success.

Luckily, your investment future does not depend on what happens in the short or even the intermediate term. However, it does depend on having patience in conjunction with a long-term investment strategy.

Investors are successful because they undertake the research required to make investment decisions that have a high probability of success. Vision and patience are two sides of the same coin. If you had the acumen to see the value in a company, then have the endurance and courage to ride through short-term market aberrations and vindicate your judgement.

A rule of thumb is that a corporation needs a minimum of 12 to 18 months to demonstrate whether it can deliver superior performance. Therefore, you need to allocate the same length of time for that company’s shares to appreciate.

Continual concern about your investments is usually indicative of insufficient knowledge. A more certain attitude regarding your investment decisions can only come about through research. For example, some basic inquiries into a company’s earnings history can go a long way towards increasing both your knowledge and your confidence.

However, do not ask for the impossible. Everyone wants to see tremendous financial gain with little or no risk. It is a rare person indeed who accomplishes this goal. If it happens, the credit belongs to Lady Luck. She is always welcome, but to count on her is sheer folly.

Your primary investment objective should always be to achieve returns that are more than what you will lose through inflation and taxes. Do not continually try to outperform the market. Greed can be an overwhelming and uncontrollable force.

Lauren Rudd is a financial writer and columnist. You can write to him at Phone calls accepted between 9 AM and 3 PM at (941) 706-3449. For back columns please go to