April 9, 1999 (Ira Pilgrim)
The stock market is just rich men playing with money,
Thomas P.(Tip) O'Neil
The last time that I visited a Nevada casino, I was impressed by the large numbers of people frantically giving money to machines and pulling levers. It indicated to to me how foolish people can be. The old saying tinkled in my head: A fool and his money are soon parted. I get the same reaction when I watch, on TV, traders on the floor of a stock exchange frantically shouting at each other and milling about the floor of the exchange.
The difference between those one-armed bandits and the stock market is that the stock market is considered respectable. It has to be respectable; don't rich people play the market? And they aught to know. Isn't that how some of them got rich? As with any other form of gambling, the house always wins. The suckers usually lose.
The 1929 stock market crash led some people to commit suicide when their stock speculations turned sour. Anyone who commits suicide because of something as trivial as money is as big a fool as there is. But they are, or were, rich fools.
At the same time that some suckers were bankrupted by the market, a few were getting rich on it. The most famous of these stock-market multi-millionaires was Joseph Kennedy, the pater familias of the Kennedy clan. Joe Kennedy said something to the effect that the way that he got rich should be made illegal; and it was. However, even though insider trading is illegal, some speculators get away with it. When money is involved, only the 11th commandment applies: Thou shalt not get caught.
Despite the fact that I consider it to be high-stakes gambling, some of my welfare depends on the market. Half of my pension is invested in the market. I had little to do with it; that is the way that the fund operates. I decided to hedge my bets by having half of it be in a regular annuity and the other half a closed mutual fund.
The finances of the world are as controllable as the weather or earthquakes. It is a good idea, where possible, to hedge your bets. The best hedge that I know of is to own your home free and clear. Then, if the economy collapses, you at least have a roof over your head. The Mormons believe in also stockpiling food. That strikes me as a pretty good idea.
Of course, people who play the market aren't gambling; they're "investing." Some people really do invest, but it is not investment that makes the market volatile, it is speculation. A speculator is a parasite on the economic system. He produces nothing. He just profits from the ups and downs of the market. He can get rich simply by buying stock when the price is low and sells when it is high. It takes some skill to do that successfully, and a lot of luck. It is the same kind of skill that makes a good poker player. However, the stakes are higher in the market, but playing virtuoso poker probably takes more skill.
In order for the world economic system to work, capital has to be invested in factories and all of what is needed for a business enterprise. If it were simply a matter of people putting money into corporations, it would work; but it isn't.