The investment industry wants your money.

That's it folks.  Pretty simple concept.  Every facet of the investosphere (I think I just made that up) is designed to take the dollars out of one pocket and put them in another.  The question is, who's really making the money here?  The answer: those that facilitate your trades.

The whole setup is to make you BELIEVE you can profit.... and you can!  But there are some landmines in the path to profits that you must be able to detect and avoid.

Don't get me wrong, there are a lot of great people working in this field and have chosen it as their life profession. However, there are also lots of sharks in the water, and some big ones at that!  I dislike the corollary that Wall Street is like a Vegas casino, but in some ways it is true.  The biggest parallel is that the house is going to win, regardless of who is playing.  The question you must ask in every stock transaction is, who is the house?

Who the house is makes a lot of difference in the way you will trade.  For me, the house is the trading account that I use to make my trades.  The house takes their cut in the way of commissions.  $10 a trade.  Multiply that out over time and mass quantities and, voila, you get a giant skyscraper.  Those mahogany desks and television commercials didn't pay for themselves, in the literal sense.  

It doesn't really matter if I win or if I lose.  It only matters that I play.  To get me to play, I have to win from time to time, or at least BELIEVE I am going to win.

The belief that I am going to win can come from a number of sources.  It can be a person who, literally, has been trained to sell me a product.  (Check out the reviews on glassdoor.com about working for a neighborhood brokerage.)  In the movie "The Wolf of Wall Street" the main character gathers a group of goons who know nothing about investments, but are great salesmen.  Granted, there is a lot of Hollywood sensationalism in this, but it illustrates a fantastic point.  At the end of the movie (Spoiler Alert!) we see the main character holding a conference with a bunch of brokers and he simply asks them to "Sell me this pen."  

"Sell me this pen" is a classic interview question for those entering the sales field.

Sometimes, selling the pen can be done without direct person to person interaction.  Flashy computer programs, network broadcasting, social media.  All of these are FANTASTIC at doing one thing... nudging you in the direction you already think you want to go with some sort of confirmatory commentary.  I'm an avid watcher of network stock market commentary.  It is the background noise to my life.  I listen to it in my truck on the way to work and on the way home.  If I get a day off when the market is open, you can bet I'm watching from pre-market to post-market.  Love the stuff.  But, what I find the most interesting is that the opinions represented never have the same vector.  What I mean is that one minute a commentator will say the market is going higher, and the next minute a different commentator will say that the market is "complacent" (Wall Street jargon for, "I've been really wrong here, and I don't know why") and is due for a major correction. Some commentators are perpetually espousing their predictions of market demise with the knowledge that a broken clock is right twice a day. (Think about that for a second if you didn't get it the first time.)

Okay so what, Lando?  

The house is going to take a cut.  We know this.  The trick is to minimize the cut.  I'm not talking about finding the cheapest trading platform out there.  I'm simply talking about minimizing the moves only to those that are absolutely necessary.  Day trading is super expensive from a cost of trade perspective.  You have to be right ALOT for that to work in your favor.  My plan requires us to move in and out of trades one to three (ish) times a month.  

Here are some things that require investors to "buy the pen" and should be generally avoided: 

  1. Individual stock picking - Think about how much this is encouraged by mainstream outlets.
  2. Day trading - Those trade costs add up quick.
  3. Complex option trading - I haven't discussed option trading, and I won't, just trust me that it can be expensive and uber risky.