Convinced that the only way I would learn from my folly was by losing my own money, my parents let me call their broker. I distinctly remember making the long-distance call (no toll-free numbers then!) with shaking hands. As I recall -- and bear in mind that some of my memories of this long-ago trade may have gone fuzzy -- I paid $9.375 apiece for my 100 shares, plus a commission of $50 or $60 (or 5% on the trade).
Over the next few weeks, the stock took off. Every day, I would check in the newspaper to see what it had done the day before. It rose past $10, then past $11. (Only many years afterward did I realize that I had stumbled onto the same little conglomerate that corporate raider Ron Perelman ended up using as his acquisition vehicle.)
As it rose, my broker suggested putting a stop-loss order on it, to sell me out of the stock if it fell below a certain price. MacAF kept climbing until the stop-loss was at $12.625. I was rich! In a few weeks, I had made 35% -- not counting commissions, of course.
And then, to my astonishment, an envelope came in the mail telling me that I had been sold out of my MacAF shares at $12.625 the previous week and that I would shortly be receiving a check for the proceeds -- minus another commission, of course.
I was astounded.
It turned out that MacAF had momentarily dropped below that price a few days earlier and I had been "stopped out." Because our newspaper had room only to show closing prices, I'd never known that the stock was sold out from under me in intraday trading.
Naturally, I bought it back immediately. I ended up selling it for good a few weeks later, around $14.25, I think. (If you can't be smart, be lucky.)
Commission costs ate up probably about 50% of my gross profit, leaving me with a net gain of $250 or so. That's not counting the numerous long-distance calls I made to our broker at a couple dollars a pop.
Research by Charles M. Jones of Columbia University and Kenneth R. French of Dartmouth College shows that the cost of investing has fallen by roughly 90% in the past few decades.
So has the aggravation. I still remember my anger at finding out, days after the fact, that I'd been sold out of a stock I wanted to own -- and then having to pay another commission to buy it back. The experience was so unpleasant that I didn't trade another stock for years, and I never again invested without mastering all the publicly available information about the company.
Something similar happened to many investors during the "flash crash" of May 6, 2010. But at least they found out right away, instead of having to wait almost a week even to learn that it had happened.
Many investors today are haunted by the sense that the markets are wildly volatile and have been hijacked by high-frequency traders who hold stocks for only fractions of a second.
While volatility is indisputably higher than its long-term average, it has been far worse in the past than it is today.
And the estimates that high-frequency traders account for 70% of total trading volume today differ little from the estimates of the Hughes Commission in 1908 that 75% to 90% of all stock trading in New York was "of the gambling type."
Meanwhile, the informational playing field has been leveled between individual and professional investors. Individuals can trade at lower costs than institutions can. Then again, you don't have to trade at all. Decades ago, a portfolio could easily have cost you 4% of your assets to assemble. Today, through index funds and exchange-traded funds, you can put a portfolio together at least 25 times more cheaply.
Yes, Wall Street is still a dangerous place. But it used to be worse.
More from The Wall Street Journal:
VIDEO ON MSN MONEY
The article's thesis is very true. The overhead costs of investing have gone WAY down and made it accessible to a lot more people. That's good and bad.
Near real-time quotes and historical data from most any reputable online broker has levelled the playing field somewhat. In the old days the deck was really stacked against the small retail investor as the author has pointed out.
This should not be confused with the second point, which is attempting to time the markets. Should I get in @ at the DOW = 13,000 ? Good question. I look at it with trepidation. Think about it. We are only 10% off from our all time high in 2008, so if you think we have solved 90% of our economic problems, then go for it. If you think interest rates will remain at 0% for the foreseeable future, keep buying equities.
Someone answered my question very simply. The Obama administration has printed about 34% more money, and that is why the stock market is up by a similar percentage since he took office. With 0% interest rates, where do you think the money has to go?
If there was a level playing field, the average investor would have a chance to make some decent money. The cost are lower but the danger level is still very high. There are just too many issues involved.
It had to happen eventually. I finally read an article that I disagree with every single argument the author is making. Ironically, that makes it a keeper.
You're right, it does make it a keeper because I'm guessing you know little to nothing about investing.
Stock markets are full of risk as we all know , the last ten years were Flat and loss decade . However, the market is getting positive news this year . So, the overall market will head up
gradually in the next 2 years . Bonds maybe seeing a small gain
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[BRIEFING.COM] Equity indices closed out the month of August on a modestly higher note. The Russell 2000 (+0.6%) and Nasdaq Composite (+0.5%) finished ahead of the S&P 500 (+0.3%), which extended its August gain to 3.8%. Blue chips lagged with the Dow Jones Industrial Average (+0.1%) spending the bulk of the session in the red.
The final week of August represented one of the quietest stretches for the stock market so far this year. The first four sessions of the week produced the ... More
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