Your Questions About The Stock Market Is A Ponzi Scheme

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Richard asks…

Should we get rid of Social Security as we know it, and invest our money however we want, or leave it as is?

My mother-in-law lost all of her retirement in the crash of ’87. My father-in-law had died after a long battle with cancer, which had taken a lot of their retirement to begin with. If she hadn’t had Social Security and Medicare, it would have been a disaster, as we would have had to pay for her 8-year battle with Alzheimers.

My parents lost a lot in the .com bust as they had invested a large percentage of their life savings in a friend’s company, that had been doing quite well. Again, thank goodness for Social Security and Medicare, as they have been able to have enough income to survive. They can’t take expensive vacations, but at least I haven’t had to choose between my son’s cancer treatments and sending my parents money.

The idea of people investing money on their own scares me. Sure, investing makes the rich richer, but when the economy tanks (which it does every decade, whether we have a Republican or Democrat as President, no matter which party controls Congress), many hard-working people lose everything they’ve struggled to save for.

http://www.aarp.org/work/social-security/info-05-2011/social-security-fears.1.html
@ patient & vivii – The majority of the public doesn’t know what a good or bad investment is. Not everyone has a degree in finance or economics. There are many people, like Madoff, who scam people all the time. Even some very intelligent and educated people get scammed. Even if you don’t get scammed, the stock market is really gambling – you don’t know what the future will bring.

Justin answers:

The stock market is a cross between a ponzi scheme & a giant casino.

Joe avg can’t win, Jane Uber-wealthy can’t lose.

Mark asks…

Does Wall Street rely on asymmetric information?

I think it relies on deluding idiots into thinking they can out scam someone else.

Financial wizards, fully cognizant that they could never beat an average accounting for costs, try to convince investors that THEY know how other people behave, when this behavior is in effect (and by definition) variable.

Investing should be simple, owning American business forever asset-allocating along the way.

No question that patterns exist in short-term data, but the industry makes its money off looking for exceptions to these patterns, and using investors to be the idiots.

The great accomplices: CNBC, a 24/7 media, the internet, etc. that all encourage us to use our emotions to react to short-term information.
EDIT: Maybe it’s the greatest Ponzi scheme of all?

It takes money, real money from productive people, brainwashes them into thinking they can get an edge over other productive people, and pays the earlier people with the returns.

Justin answers:

Well, it isn’t a Ponzi scheme, Social Security is.

The market is an aggregate. People make decisions about their money, the company they work for, the companies they want to own a piece of because of the business they do, or think they do, or think they are going to do. Millions and millions of independant decisions are being made, sometimes arriving at the same conclusions at the same time as a lot of other people. They use all kinds of information and search for what they need according to their reasons.

A course in chemistry came to mind, it was mostly mathematics that we were dealing with in measurements and such, and when I missed some questions I was positive I had right I saw my professor. He would look at my multiple choice answer for a given question and tell me what mistake I made in the process. His understanding of common mistakes supplied him with likely answers to populate the question distractors. In the stock market, and a lot of other things, those of us who have some notions, real or imaginary, of what should be can commonly see where “the herd” made mistakes. Sometimes we are right, but sometimes the people in the crowd are doing exactly what they feel is best for them at the moment.

If you disagree with them, then don’t do what they are doing. Pretty simple to me.

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