Is it only suckers and fools who put their money in shares, unit trusts and pensions?

On Tuesday I went to a talk by one of Britain’s leading economists John Kay, author of a book about investing – The long and short of it.  Kay had recently completed a study for the Government on the working of stock markets. A key conclusion was that originally stock markets were one of the most important sources for companies to raise money. But that now stock markets and companies had little to do with each other any more. When companies need to raise capital, they seldom use stock markets and when there is a share issue nowadays, it’s usually a hugely-hyped scam (like Facebook) where insiders get massively rich at the expense of the suckers.

Stock markets now seem to be gambling dens where share prices are driven more by the trading activities of market insiders than by the value of the companies whose shares are traded. There are probably five main levels of participants

1. High frequency traders – financial institutions which have set up sophisticated computer algorithms which “scalp” – take a cut every time a share is bought or sold

2. Insiders – who can make fortunes from their inside knowledge and from share price manipulation

3. Hedge funds – who take massive bets on prices either rising or falling and then use tricks like pumping-and-dumping, shorting-and-distorting to move share prices to the level they need on the date they need

4. Destroyers of value chain – tens of thousands of fund managers, financial analysts, researchers, salespeople, lawyers, IFAs, trustees, investment consultants, financial journalists and many others who destroy value for savers by encouraging us to put our money in their hands and by all taking their very lucrative cut from our money   

5. Ordinary savers – people who put their money into shares, unit trusts and pension funds. But the question for us is – with so much of our money being siphoned off by the above four levels of market participants, can it ever really be worth it for us to put our savings into any financial product like shares, unit trusts, ETFs or pension funds?

Share prices are no longer an image of the health of a company, they just show the results of manipulation and speculation, creating a distorted view of the past and future of companies. Tomorrow, I’ll be on a plane. But on Saturday, I’ll propose ways we can avoid financial services insiders making helpless suckers of us.

In the meantime, I’d be grateful if you could encourage your friends and acquaintances to buy copies of my latest book GREED UNLIMITED, otherwise I’m going to have to burn the remaining copies, which would be a pity.