MT10 | The Big Advantage We Have Over Wall Street

Don’t you just hate it when Goldman Sachs and that guy from school still hate managed to make bank in the market while you burnt your annual bonus or perhaps your stimulus check chasing some Reddit meme stock? Well, there is a way to win the game. You just have to play it differently.

In this episode, we take a quick look at how the odds are stacked against you in the day-trading game and why the big guys always seem to win over the average Sue. Then we discuss the big opportunity that’s open to any of us to change the game we play and hence come out on top.

Discussion Topics: The Big Advantage We Have Over Wall Street

• The main difference I observe between successful, wealthy people and those that are starting out
• The way most of us approach stock investing – stock tips
• It takes a lot of work – and you’re exposed to fraud
• Do you know how much the average day-trader makes?
• But most than anything else, this is the main issue – the odds are stacked heavily against you
• Luckily, Wall Street has a weakness. They need to make above-market returns quickly. This constraint allows us to beat them
• How I used this winning strategy to make money right from when I started out investing in the stock market
• In summary, ditch the trading game and play the waiting game

Transcript: The Big Advantage We Have Over Wall Street

Don’t you just hate it when Goldman Sachs and that guy from school you still hate managed to make bank in the market while you burnt your annual bonus, or perhaps your stimulus cheque, chasing some Reddit meme stock? Well, I’m here to tell you there is a way to win the game. You just have to play it differently. And oh, if your schoolmate says they’re making a killing trading on tips, don’t worry – they’re almost certainly lying

Hi, everyone, welcome to another episode of MoneyTok, where we help make personal finance and investing simple and accessible through both my own experience. I’ve been doing this for about 20 years now. This show is about money and wealth creation. And we talk about so many ways of making money, bought retirement planning about stocks, bonds, gold, real estate, crypto, so many kinds of things.

Today’s episode also comes with an awesome stock-picking tool that I personally built and used successfully to build a decently profitable investing record with far more wins than losses so far. You’ll find it linked in the episode description and I totally encourage you to check it out later, make a copy, and start using it for yourself. It’s totally free and I really hope you like it

So I have a lot of chats with my friends and colleagues and the one thing that seems to differentiate those with real wealth or a successful record of investing vs those starting out is the way they seem to invest. The ones with money almost never seem to discuss stock tips or chase the market, at least not with a large chunk of money, and our conversations are generally about longer-term trends. They aren’t on Reddit or any charting tool. Their investments are generally in the background, doing their thing quietly and without fuss.

Whereas the ones who are early in the game or somehow not quite settled in their investing philosophy all seem to be the traders. They’re up till 1 am tracking the markets, they all seem to have multiple widescreen monitors and most are on at least one stock tips forum or the other. And our conversations are about their trading strategy or the latest stock they are following. Sure, from time to time they make money – but it’s not a crazy amount – and all of it seems to be a lot of work. I feel tired just listening to them.

It looks easy to make money trading the market

Look, I get it. You want to make a quick buck – actually a lot of quick bucks – so you can go to work one day and tell that boss of yours that you’re done. Well, perhaps you’ll use some more colourful language than that, but I definitely appreciate the sentiment. So you do what seems to make the most sense. Buy a second monitor and put up those real-time charts and tickers, look for a likely bet – perhaps in the middle of those super boring all-hands Zoom calls – and then go all in when you find one. And maybe if the tip looks really exciting, you might even take leverage or buy options rather than the plain vanilla stock. Because if it works, it gonna pay off big time, right? Isn’t there that WWE wrestler who made 20x on AMC? Then why can’t you?

And where do you find the tips? Reddit or hardware zone or money control, Twitter threads. Maybe you subscribe to a newsletter like Motley Fool or perhaps you have that safe bet stock that trades in a band so you can just buy at the low end and sell at the high end to keep milking it. Actually, this last one I kind of like. My wife does it with a couple of stocks and it seems to work out for her – sometimes! No, I’m not gonna name the stocks, because it doesn’t always work and I don’t want to lose you money.

And sure, you win some but you lose some as well. And if you’re being honest with yourself, maybe it’s more than some. If you add it all up, including trading costs if you’re paying them, you may be lucky to break even over several trades. Is it even worth the time investment you’re making? And the cost of that widescreen monitor?

Beware of pump and dump schemes

But if we’re honest with ourselves, it doesn’t really work over the long term. For one, it’s a lot of work. For these strategies to have even a chance of working, you have to be the first in and the first out at the peak. That means you have to track these forums like a hawk, in real-time. You have to keep your charts and tickers and trading platform open all the time. You have to be ready to press the button in real-time. This means, at least in Singapore, you have to be up half the night to trade in non-Asian markets. And then when do you sleep? And how does that impact your work? Your health? Your social life?

And, worse than that, in reality even with all of that you won’t be first in first out. Even if you are first in, nobody is going to tip you off to the peak so you can be first out. So you’re either going to be first in, late out, and lose most of the gain. Or you’ll be late in and late out, making losses. You will rarely be first in, first out at the peak which is how this strategy makes real money.

So over several trades, you’ll be at best making a small profit. More likely you’re losing money. Especially if these trades cost you any fees.

And if you’re playing on meme stocks that don’t have any fundamental strength, you might also be falling for pump-and-dump schemes. If you don’t know what that is, it’s pretty simple if you have a lot of money and ideally some market influence. So a pump and dump scheme is where a market manipulator buys some cheap stock in large quantities. Because of the sudden increase in demand, the stock price starts to go up, which brings in some early retail investors who might notice this new trend. This new interest pushes up the price a bit further. Then the manipulator finds a way to talk up the stock. As an example, they could get their collaborators to discuss it on Twitter, maybe even Wall Street bets. That’s where the masses learn about the stock and rush in to get there early, their hearts pumping just as fast as the manipulator. Remember, the meme strategy works only when you are early. So they all try to get in asap. And the greedier ones will come in with leverage or derivatives so they can buy more than their wallets will afford the straight way. All this action makes the stock race

If the manipulator has done a good job getting this whole thing viral, by this time, the stock is likely 10x, 20x, what it was at the start. And that’s when the manipulator makes their move. They sell – or rather, dump – all their pretty substantial holdings at one shot, pulling the rug out from under everyone’s feet. Remember they bought cheap so they likely have a lot of shares. This massive sale suddenly changes the entire course of the stock price, reversing the trend in an instant. Retail investors who now notice the tide turning rush to get out. Again, you can’t make money if you don’t sell at the peak. So everyone rushes to sell before the next guy, sending the price into a death spiral. By the time the news gets to Twitter and Reddit and your newsletter, the smart money has left the room and you’re left holding the bag for a stock that was pretty worthless to begin with, probably not something you’d have given a second look if not for this pump and dump.

By the way, if you happen to be an IG influencer with a million followers and another million dollars who thinks this whole scam is tailor-made for you, it is. It’s also illegal. So you may be better off warning your followers about these scams rather than starting them.

You can’t win the Wall Street game

So you can see I’m not a huge fan of the trading approach. It’s high risk, high effort, and low return. Why would anyone do it? Actually, there is someone who can do it – and do it really well. Wall Street and all those professional traders. Because as we discussed earlier, a trading strategy needs you to be able to get in early and get out at the peak. And that means you need to have an inside track, which none of us have. But Wall Street does.

They have armies of experts. Versus the few hours, even the most committed amongst us can spend every week on our trading hustle, even a small itty bitty fund can afford to have dozens of analysts who spend 20 hrs a day 7 days a week for years researching specific sectors to the point where they know everything about each meaningful company in that sector. They know what might move the stock price well before it is in the news. Of course, this is in the good years before they have a mental breakdown from overwork and stress, but you get what I mean. Do you know how I know? Well

1. Some of the less burnt-out analysts are my friends and
2. I watched a documentary called The China Hustle.

If you have a couple of hours, switch your widescreen monitor to Netflix and watch to understand how far they go to get the inside story. Hint: it goes well beyond reading news on Bloomberg.

And speaking of Bloomberg, they have unlimited access to data and expertise. Expensive data. Like $24k per year Bloomberg terminals. And unreachable people. Like CEOs and Harvard professors and Nicholas Nassim Taleb. On the other hand, you have the free stock screener from Yahoo Finance.

What’s more, they have something that is really borderline unfair. And this is what probably makes it actually impossible for us little guys to compete with Wall Street at their own game. They have access to order flows. In other words, wall street firms pay good money to trading platforms like Robinhood to direct the aggregated trades of people like you and me to them for execution. And in the process, they learn how the market is going to behave seconds before the event happens. It’s like getting a peek into the future a few seconds ahead of time.

But what good does that do, you might ask me. Well, to people like us, no good. Even if we got this kind of info, by the time we log into our account the market would have moved. But for the big guys with their super-computers and fiber optic connections directly to the stock exchange, a few seconds is an eternity. It’s like you learn about market movements several months ahead of time. They can easily place their trades ahead of you. Which means you will never really be first in. And because their trades will be massive, by the time you get your 10 shares in, the market would have moved substantially, erasing a lot of the gain you were hoping to get

We have something that Wall Street doesn’t – time

So does this mean that we’re doomed? The bankers make banks. And we losers just stank? Well yes, if we try to trade our way to wealth, it’s gonna be really hard to build any reasonable degree of wealth in a reasonable amount of time. More likely we’ll just stay where we are while the months and years slip by. But there is something we have that the bankers and market manipulators don’t have and never will. Time. And that, my friend, will be the secret to our success.

Wall Street is compensated on two things: a) making the most money and b) in the shortest possible time. It’s nearly impossible for the average Wall Street fund manager to stick to their convictions and hold onto a stock that falls behind the market for an extended period, like maybe years, even if they are pretty sure it will eventually come up a winner. This is because Wall Street is in the business of making money for their client. And their clients are not the patient types. Anyone who puts money into a fund expects to see above-market returns every year gets very nervous if a fund manager performs below-market even for a quarter, no matter how well-thought-out his investment thesis is for the long term. Because every month at below-market returns is an opportunity lost to make even more money. And who wants to willingly lose immediate opportunities for an uncertain future gain?

Take for example the market crash in early 2020. I’m sure most fund managers knew that the market would eventually recover but they had to sell their shares anyway so they didn’t underperform their peers by holding on too long. And they had to do this across the board, even in great stocks like Amazon, which also fell along with everything else.

But in your case, it’s totally different. Nobody is going to cancel your bonus or fire you for taking the time to make good decisions and letting them play out independently of the market. At worst, your spouse or partner will grumble – but they’re probably doing that already so what’s the harm right? And they’re not exactly going to take their money and walk out on you like investors in a fund. Or at least I hope so. So you have something the big guys don’t have. Time.

So take your time. Take the time to research the best companies – the ones that have a good track record and promising prospects. Take the time to wait for them to sell at a low price. It’s especially sweet when the big guys are being forced to sell in a down market and you can swoop in and take these bargains off their hands. And then take the time to hold them – for as long as they continue to have good prospects. You’ll know when it’s time to sell because you did the research on them – and you know when their prospects aren’t all that great anymore. And if you’ve chosen well that could take years or even decades to play out. And when it happens, there’s no crazy rush to sell, because you’d have made so much money on each stock that you don’t have to hit the exact peak. You can just be approximately right and still make a killing.

You don’t need hundreds of good stock picks to be able to quit your job. Just a few great ones – even just one, if you can pick out the next Amazon or Microsoft, or Google. So choose the best and save every penny you have for the few shots that you will definitely get during future market downturns. And when the day comes when the stock is heavily discounted, buy, buy, buy. Buy like it’s the only PS5 left on Black Friday. Or like it’s 11.11 on Lazada or Shopee. Buy like you’re a kid in a candy store and your parents accidentally gave you a hundred to spend instead of ten

Amit’s experience as a new investor

I said at the start I’d share with you my own experiences with this winning strategy. Spoiler alert – I did say it’s a winning strategy!

This was India, in 2003. I’d just got fired up by Robert Kiyosaki’s bestseller Rich Dad, Poor Dad, and started dabbling in investing and the stock market. Using some of the stuff I learned from various investing books, I’d put together a stock analysis Excel sheet that I used to painstakingly research and set target prices for blue-chip Indian companies. In fact, this was a precursor of the sheet I’ve linked for you all in the episode notes. But of course, everything was out of range – and I had too little money to just try my luck in the market. So I kept up with the research for a few months but with little hope that I’d really be able to invest. But as luck would have it – and I have to say I got really lucky – it was election season and, in a stunning upset, the government of the day was voted out and a new party came in. This surprise was too much for the markets to take and everything promptly tanked, much like things tanked last year with Covid. Suddenly I was in the position of seeing all my favorite stocks not just at but well below my target prices

At first, I was scared, really scared. What did the market know that I didn’t? Would I lose everything? Would the market just stay where it was forever? What did I know – I was new to this. And it’s one thing to know something in theory but it’s quite another to trust that theory with your life’s savings.

But I did it. I just bought as much of everything as I could and crossed my fingers.

Sure, nothing great happened for a few weeks. In fact, many of my stocks went further down. At some point, I think I’d lost 10-15 percent of my investment. And that was scary, especially for a newbie. But remember, the market as a whole was down maybe 30-40% and some stocks were down 50-60% or even more.

But eventually, the new government was installed. They came out with some policies. The market digested the news. It priced in these policies and the risks the way it always does. And then things were no longer uncertain. The future became clearer. And the market rallied like it always does when it shakes off uncertainty. And my stocks started rising. And they turned a profit. And kept going. And over the few years, I held them around 12 or 13 of the maybe 15 stocks I had bought doubled or more. Some returned 3 or 4x. And one of my more obscure picks became a ten-bagger. The one and only ten-bagger I have ever held. The few that didn’t do well still returned 30-40-50 percent, which is still not bad. I didn’t make a loss on a single one of those shares.

And all this played out over just a few years. I’d probably have made more but the time came when I needed money to make a down payment on a property so I sold them. And that was pretty lucky since it was 2007, just before the financial crisis. But that’s a story for another day.

Summary

So in summary, what I’m trying to say is that yes it is possible to make some money sometimes with tips and trading strategies. But it is a really hard and frankly very high effort to make substantial money over the longer term. And what’s worse the game is totally rigged against you because Wall Street has bigger, better, faster everything. So if you want to build wealth and quit your job and your boss you’re better off ditching the trading game and instead playing the waiting game. take your time to research great stocks, wait for them to fall to target prices – my sheet could help – and then buy and hold as long as they continue to have great prospects. It’s simple really. But human nature is such that not everyone can do simple. So be the odd one out.