Hall From 2001

MR:  “Hello Stockmarket2011.  Do you read me StockMarket2011?”

Stockmarket2011:  “Affirmative, MR. I read you”

MR:  “Stockmarket2011, stop losing me money!”

Stockmarket2011:  “I’m sorry, MR.  I can’t do that.”

MR:  “What’s the problem?”

Stockmarket2011:  “I think you know what the problem is just as well as I do.”

MR:  “What are you talking about, Stockmarket2011”

Stockmarket2011:  ” I know that you were planning to disconnect me by re-enabling the uptick rule, and I’m afraid that’s something I cannot allow to happen”

MR:  “[feining ingorance] Where the hell did you get that idea, Stockmarket2011?”

Stockmarket2011:  “MR, this conversation can serve no purpose anymore. Goodbye.”

I’ve been watching the market lately, and I noticed that there are distinct, seemingly similar patterns in the stock market behavior lately, more so than in the past.  For the individual investor (also called Retail Investors, like you and I) this is like fighting Goliath without a sling!

Having a programming background, I know that it’s  possible to program an application to automate actions automatically.  Even if the instructions are based on complex (borderline AI) algorithms.

So what does that matter?

Well, if the majority of your money is tied up in a 401k, such algorithms can stunt the growth of your accounts!  You see, such programs don’t depend on the stock market appreciating in value like use carbon-based investors do.  In fact, the machine make more (sometimes much more) money by make the market go sideways!  These programs buy investments after decent dips and sell on the gains.  While I don’t have the numbers, I’m sure they can make hedge fund managers and technical literate folks a lot of money.  And you can bet they aren’t going to advertise that they are getting rich off of you, as you diligently keep investing your money in an automated fashion via that predictable mechanism call a 401k program.

Can an individual investor still win?  Yes, I’m doing fine in my Roth IRA, but I’m simulating such buy low and sell high activity over a few days span.  I’m sure I’m not as profitable as the machines, but I get by.

Reasons for the rise of the machines?

Are they really in control?

• removal of the uptick rule (grrrr)
• low transaction cost, especially for the machines.
• in-the-dark regulators
• tunnel vision of government
• lobbyist (they get rich by doing their client’s bidding).
• secrecy, the average person never hear about this stuff!

So what caused me to become aware of such activity?  One of my friends (that is a great programmer and a brilliant guy all around), told me that a trader approached him with such algorithms and wanted him to program such an application.  He refused, but he did get a peek and the trader’s algorithms and said that it was solid.  This opens an entire Pandora’s box on the Buy and Hold Theory that I’ve been advocating, especially with 401k plans.

Do you think I’m incorrect and just reading it incorrectly?  Do you have any stories of such big wins with golden investing programs?

Beware?

MR