How to Beat Wall Street At Its Own Game

Keith Fitz-Gerald Jul 01, 2016
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Conventional wisdom holds that Wall Street is rigged to favor the big traders, and that you’ll never win.

The implication, of course, is why even try?

I’ve never believed that, and you shouldn’t either.

In reality, there are plenty of savvy investors who beat Wall Street at its own game consistently, including Sir John Templeton, the legendary Jim Rogers, Stanley Druckenmiller, and Warren Buffett, just to name a few.

I want YOU to be one of ’em.

Here’s what you need to know – and how to profit.

Most investors believe they’ll never beat the markets. According to their way of thinking, the deck is so heavily stacked against them, so why try??!!

Yet, I’m here to tell you that YOU can beat the Street.

I’m not kidding.

YOU can do this – starting with understanding something called “Gambler’s Ruin.”

If you’ve never heard the term, you’re not alone.

Gambler’s Ruin is a mathematical principle that deals with the preservation of assets – or, more accurately – the probability that you’ll lose them over time.

Here’s how it works:

Imagine a game with two players.

Both players – let’s call them Player One and Player Two – each have a finite number of pennies, which they flip one at a time, calling “heads” or “tails.”

The rules are very simple – the player who calls the flip correctly gets to keep the penny. Since a penny has only two sides, it would seem on the surface that each player has a 50/50 probability of winning.

That’s the case for each flip, but here’s where you need to really pay attention.

If the process is repeated indefinitely, the probability that one of the two players will eventually lose all his or her pennies is 100%. Not 20%, 50% or even 75%…100%.

In mathematical terms, the chance that Player One and Player Two (P1 and P2, respectively) will be rendered penniless, is expressed as follows:

P1 = n2 / (n1 + n2)

P2 = n1 / (n1 + n2)

In plain English, what this formula tells you is that if you are one of the players, your chance of going bankrupt is equal to the ratio of pennies your opponent starts out with to the total number of pennies.

There are all sorts of wrinkles in the theory but we’ll leave those for another time, and for a more mathematically oriented discussion.

What you need to understand at the moment is that the player starting out with the smallest number of pennies has the greatest chance of going bankrupt.

In the stock market the player with the smallest number of pennies is you… and me…and any other individual investor, for that matter, who is up against the big boys pushing highly-leveraged billion dollar portfolios.

Chances are you understand this at some level if you’ve ever played a table casino game in Las Vegas, Macau or Monte Carlo. That’s because the longer you stay at the tables, the greater the probability that you will lose. The house simply has more money and better odds.

The financial markets work the same way.

The big banks, hedge funds and traders know that they have more pennies than their individual patrons (retail investors) so they can play the game longer. Not better…longer.

This means they come out ahead because the smaller players get wiped out or, as many are tempted to do right now, give up.

Gambler’s Ruin, you see, dictates you will give up your assets unless you have some method of protecting them. Whether that’s at the world’s great casinos, as part of a corner game of Three Card Monty, or in the stock markets, it makes no difference.

The only question is when… unless you change your behavior.

When I talk about this at presentations around the world I see lots of elbows and head-nodding in the audience as people begin to process what I’m sharing with you today.

Winning is actually very simple.

You just need to change your game up to take away the advantage Wall Street otherwise enjoys.

When On Wall Street, Do As The Big Firms Do

The easiest way to do that is to line up your money with theirs instead of trying to fight it.

Here’s how.

Institutions are very “name driven,” but they are hampered by their size.

This means they can’t just waltz in and pick up shares of a company they want to buy any time they want. So, they have to engineer a big rally… to sell (to you)… and a big down day… to buy (when you’re selling in a panic).

This is why big traders are especially active at or near big bottoms or market tops, and you should be, too.

Second, traders are paid to win and hate losing money no matter how much of it they’ve got.

That why the big boys will often lock in stability and profits with one or two big-name investments backed by many of the same Unstoppable Trends we follow. For them, it beats trying to make 30-50 companies “work” by trading them into the ground the way individual investors do, especially when confronted with something like the Brexit or a protracted downturn and a paralyzed Fed, for instance.

That’s a good part of the thinking behind why I’ve consistently recommended you line up with big companies like Alphabet Inc. (NasdaqGS:GOOG) and short or avoid media darlings like Shake Shack Inc. (NYSE:SHAK), Twitter Inc. (NYSE:TWTR), Fitbit Inc. (NYSE:FIT) and GoPro Inc. (NasdaqGS:GPRO) as conditions deteriorate.

And finally, big traders tend to stick with their winners.

They may trade around them but most build a core portfolio, then guard it like a hawk, depending on their market expectations.

Individuals, on the other hand, seem obsessed with the thrill of the chase. It’s sexy, it’s fun to talk about at cocktail parties, and it makes for great dinner table conversation. That is until you get into a pissing match with a big trader determined to hammer you into submission and take your money at the same time. Then it’s downright unpleasant.

Institutions are under extreme pressure to trade actively. They can’t just step aside. They will offload their risk to unsuspecting individual investors every chance they get and in the process transfer your money to their pockets.

So don’t make the irrational decisions that give them Wall Street the opportunity to do that:

… Confine your investments to the same Unstoppable Trends they do

… Buy only the best, “must-have” companies they do

…Manage risk using Total Wealth Tactics like Lowball Orders, Limits and Free Trades, like they do.

That way you’ll be lined up for profits no matter what kind of day the markets are having, and no matter who’s trying to separate you from your money.

Until next time,

Keith

4 Responses to How to Beat Wall Street At Its Own Game

  1. Max R says:

    I love this “How To Beat Wall Street…,” That´s why on Jun 29th I sent you comment to your “Do This Today and You´ll Be Ready To Take On The Next Brexantrum” full of hilarious sense of humour, as follows: “Dear Keith: I think it´d be really useful to have your insight around the low balls´ purchase levels -you´d use- now, regarding the best companies producing “must haves” within each of the Unstoppable Trends. It´d be also very enriching to have an update about EKSO . Thanks,”

    I think you´d render a huge service to us if you could share your insight around the lowballs subject, Of course I understand it wouldn´t be an advice, but simply your insight on the matter.

    Regarding Ekso I sent them an email and as I know there´s general interest on the subject and I´d like to share their answer, as follows:

    “Thank you so much for your email and for your support of our team and of Ekso Bionics. With the FDA clearance in place, the organization can now focus on commercializing their life changing products. As you can appreciate, a strategy like this takes some time to put into place, but the folks at Ekso have their heads down and are working hard to execute so that we can all see the ultimate rewards via long term value of Esko stock. So for now, there is no news to report, and perhaps the stock is down a bit because many of our retail investors are anxious for news. Additionally, as disclosed on May 4, the company has recently done a reverse split of the stock with the ultimate goal to uplist to Nasdaq and thereby diversify our investor base and ultimately increase trading activity of the Ekso shares. With such limited trading activity currently, any small trade will move the stock. As we diversify the holders and move to the Nasdaq exchange, this should improve. As you are probably aware, the current market conditions are not strong and these conditions are hitting many micro cap stocks very hard, with many of them down significantly. Unfortunately, Ekso stock has been part of this group that is being impacted by the overall weak market. I hope this helps to explain our current situation. I also encourage you to listen to the earnings calls and take a look at press releases from the earnings calls to get any further detail that the company is sharing about its financials and strategy. And rest assured that as material news occurs, it will be shared with the public via press release and/or SEC filings. Again, thank you so much for your support of our company!”
    Best regards Keith!

    • Keith says:

      Hello Max and thanks on all counts but especially for sharing. That’s a huge part of what makes Total Wealth such a great place to be.

      I’ll have a number of columns coming up on both lowballs and Ekso, by the way.

      Best regards and thanks for being part of the Total Wealth Family, Keith 🙂

      • Max R says:

        Thanks for your answer my dear Keith. It´s really a pleasure being part of this wonderful community. I´ll remain on the lookout for your always thoughtful insights. Best regards

  2. Idrea says:

    Thank you Max!👈

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