Financial Systems Blind Spot

It’s called a “blind spot” because you don’t even know it’s there…

Many years ago, I was very fortunate to start my career on the trading floor of the Chicago Mercantile Exchange, one of the most important exchanges in the world. I started with no experience in financial markets. What I got was a peak behind the Wall Street curtain and what I saw was fascinating, I saw what appeared to be the greatest scam on earth.

My job was to facilitate order flow between money managers, big funds, banks, financial institutions and also average traders and investors. Handling the buy and sell orders, I noticed that banks and financial institutions were right in their decision making process most of the time and tended to make lots of money as a whole. At the same time, the average trader and investor was wrong in their decision making process and typically never came close to achieving their financial goals. I thought, how can the gap in performance between these two groups be so wide when they’re both buying and selling in the same markets? Watching the buy and sell orders gave me the answer. When Banks and financial institutions are aggressively buying, the mass investor crowd is typically selling, and vice versa; when the average investor is buying in a big way, Banks (the smart money) was typically selling. You see, money is simply a transfer of accounts from those who don’t know what they are doing into the accounts of those who do. I thought, if I could just learn to buy and sell where banks buy and sell, I could make some good money and live the life I want to live. My experience at the exchange gave me a solid understanding of why Wall Street makes so much money as a whole and why average investors and traders almost always fall far short of achieving their financial goals.

I knew back then I wanted a life of choices. I knew back in my early 20s that if I had kids and a family I wanted to be around for them, much more than most parents I see that spend so many hours at a job they don’t even like, away from their families… I realized the key to this was to understand how to properly manage your money. It comes down to a simple question: Do you want to choose your quality of your life or do you want the financial system to choose it for you? There’s really no middle ground, I realized.

Most people think they understand the financial system and the concept of buy low, sell high…but what they actually do is very different…

Think about how you were taught to buy a stock. You look for a good company with strong management, good earnings, a healthy balance sheet, and the price needs to be trending higher. But have you ever realized where the price of the stock is when all these things are happening? The price is almost always high and where Wall Street is typically selling, yet that’s exactly when most traders and investors are excited to buy the stock. What most average traders and investors don’t realize is you would never wait to buy and sell anything else in life when the price is high. Wall Street knows this, do you? Conversely, most people never want to buy into a market when prices are down, the news is bad and so on. Many people actually decide to sell in that type of environment, which is completely backwards from how you make money buying and selling anything else in life.

For example, let’s say you want to buy a new 65 inch Smart TV that costs around $4K. You get to the store and that TV just went on sale for $500… Would you hold off on buying it because the price is too low? Would you say to yourself, I’m going to wait for the price to go up before I buy it? Of course not, you would probably run and grab that TV before they ran out. People are conditioned to think the markets and their investments backwards, and again, this is one of the many reasons why the gap between Wall Street’s performance and the average investor’s is always so wide.

Wall Street does understand the financial system. They realize that how you make money buying and selling anything in life is exactly how you make money buying and selling in the financial markets. The average trader and investor has this completely backwards and this is why their market performance is almost opposite of Wall Street’s.

True or False: Most people make the majority of their investment decisions without considering the price they are paying for those investments. The answer is true. Most people investing in retirement accounts like 401(k)s are blindly sending a portion of their paycheck to Wall Street on the 1st and 15th of every month. They’re investing in mutual funds or other investments with a complete disregard to current price. You would never buy anything else in your life this way, without considering what price you’re paying. That’s like walking into a car dealership and saying, “I love that car and want to buy it” and then handing the dealer a blank check and saying, “you fill it out”.

It’s always been fascinating to me how people spend most of their lives away from their families working at a job they don’t enjoy and likely not making the income they need or desire, only to blindly turn that precious income over to someone else to manage and then pay so little attention. Most people look at their investments less than a hand full of times a year. It’s crazy, but people spend a ton more time on their grocery list than they do on their investment choices; and then they wonder why they don’t get the financial outcome they desire. Is this a Wall Street problem or is the issue that the average investor simply doesn’t pay attention. Or perhaps, the average investor simply doesn’t realize that they need to pay attention, until it’s too late. People of all ages all around the world have a blind spot to how the financial systems really work.

Wall Street has such an advantage over the average investor, but it doesn’t have to be that way. I knew nothing when I started but learned how the game works. There is a very simple game being played here. The problem isn’t that the average investor doesn’t know the rules, they don’t even know they’re a part of the game. It’s like playing monopoly with your kids when they’re young and telling them Park Place and Boardwalk are the worst properties in the game so you can buy them and they can’t. That’s how the financial system works, those who know what they’re doing typically get very wealthy from those who don’t. When someone is pushing the buy button, someone else is pushing the sell button and the transfer of accounts is happening from those who don’t know what they’re doing, into the accounts of those who do. The goal is to be on the right side of that equation and have a very simple and specific set of rules to follow that leads to you making decisions that are best for you, not Wall Street.

Hope this was helpful, have a great day.

 

See how Sam Seiden explains and applies the Supply and Demand strategy:

 

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