Rigged. Is the market rigged? Do you know how many thousands of times I have had to answer that question in all of the years I have been doing this?
I hear politicians say it is rigged. I hear regular people say it is rigged. And I hear professionals, all but the biggest, say it is rigged, which leads people to believe that the wealthy do manipulate the market.
And judging by how many people were glad that the reddit-ites and robinhoodies stuck it to the man, the pros shorting GameStop (GME) , I think the notoriety of the institution that is the stock market is about to have another surge.
So let me tell you where I stand. Years ago, when I was a reporter, I covered a crime story in East Texas and found myself having a cup of joe across the street from a place called "the Caveat Emptor" used car company. I laughed because the statement seemed a little oxymoronic because it meant the buyer alone is responsible for quality and suitability of the product.
How in heck would I ever buy a car from a joint called Caveat Emptor?
Because I was an idiot? Or because I knew what I was getting into and decided it might be worth the bargain.
It's a bit of both.
The stock market is a caveat emptor institution. You buy a car from Caveat Emptor Motors there is no warranty. You buy a stock, no warranty. It may be worth much less the moment it gets from the lot to your portfolio. Contrast that to a vacuum with a warranty. If that goes down they owe you a new vacuum cleaner. If a stock goes down, you aren't owed anything.
When you put it like that you recognize that the operative term "rigged" makes no sense. A wealthier person has a better chance of doing due diligence and knows more about her suitability. A less wealthier person might not. The less wealthier person is therefore more at mercy of a caveat emptor institution and the stock market is, as it goes, worse at times that that Texas outhouse of a car dealer.
I point all of this out because stocks aren't for everyone. In fact, one of the great draws of the index funds is that it's harder for you to screw up. No, there is no guarantee, but the idea of grouping 500 stocks together is as much about protecting you from the 50 clunkers as it is finding the 50 good ones, or the handful that are responsible for much of the performance: think Tesla (TSLA) , Apple (AAPL) , Microsoft (MSFT) , Netflix (NFLX) , Amazon (AMZN) and a couple of others.
Right now we are seeing a lot of merchandise that is pure caveat emptor: SPACs that all seem to drive off the lot and gain value. Realistic until it isn't. They will eventually become too risky, but not yet.
We have lots of stocks of companies that make no money and some that have no sales. Not as bad as 2000, but certainly nothing comfy. We have lots of people taking out loans for caveat emptor merchandise, which is as stupid as buying a Caveat Emptor car with an auto loan.
And against all of this we have some real clever guys who figured out that the hedge funds, big fat hedge funds betting against GameStop, became too greedy and didn't know when to stop. They are lucky they are still in business.
To me what matters is that you need to protect yourself at all times from anything involving a caveat emptor marketplace. You can diversify. You can have a handful of stocks that you follow and like. You can read the boards, do homework, pay a broker, whatever, whatever makes you more comfortable that you aren't being had.
Nevertheless, if you don't have the resources to be ultra careful and you don't know yourself you could very well get beaten and think that the market was rigged against you.
No, the market is simply a caveat emptor store that you thought was guaranteed by the full faith and credit of someone and protected by the U.S. government. It isn't. As long as you know that, does it matter even if it turns out to be rigged, which I don't think it is?
I make no apologies for defending an institution that has made millions of people millions of dollars. But to defend it as honest is simply to be silly. There are many honest people in it. On all sides. But when there are no warranties, it really doesn't matter and you should presume it's bent unless proven otherwise. Which it never will be. So be careful out there.