Who Makes Money on Wall Street?

who makes money on wall street

I came up with an ultra-perfect top-secret method for beating the stock market. I saw it right there on the screen after thirty straight hours of computer programming. My heart was beating fast. I was sweating when I went to sleep. I could only sleep for about two or three hours and I had to get up and check my work. I added up all the money I was going to make. I would never work again!

It didn’t work.

Every day I get a message that sounds something like this. “Can you introduce me to Steve Cohen. I have something that will make him a lot of money.”

I don’t mean to sound arrogant and I certainly don’t want to piss off people who take the time to send me emails (usually they flatter me first and say, “I love your blog and can you give me [insert rich guy]’s personal cell phone number.”)

Playing along I write back, “Why?” Like why would I give anyone’s email to someone I don’t know, for one thing.

Answer: “I have a method that beats the stock market.”

Usually it involves some moving average bullshit or there’s some new theory about commodities or whatever.

It’s all BS. NOTHING works. Let me repeat it a different way:


You’re not even a good person. You’re arrogant and rude. You smell.

I know from personal experience. You’re smart, talented and yet you want to use those talents to do some hocus-pocus that you think will put you ahead of the other 5 million people who are trying to win in the markets: people a lot smarter than you are, a lot hungrier, have a lot more computers, have a lot more inside information, have teams of analysts, etc. I cannot believe how stupid you are.

Let me describe to you the ONLY people who make money on Wall Street (and note: I am very bullish on stocks in general). By the way, all of the below people will slit your throat in a dark alley. They don’t like you, they want you to die a painful and disgusting death and they want all of your money. So beat it, punk.

– People who hold forever.

Warren Buffett, Bill Gates, etc. These are usually the founders of companies, who build their companies up, take them public and never sell their shares. Some people who try this have companies that fall apart and they make nothing. Some people who try it turn out to be multi-billionaires.

If Bill Gates had sold his company in the early days instead of going public he would’ve made about $100 million or so. A good amount. But not the 50 or 60 billion he has today. Ditto for Buffett who was worth about $20 million in 1970 but didn’t sell a single share of Berkshire Hathaway stock during its climb from $6 to $100,000. (See, 8 Unusual Things I Learned From Warren Buffett).

They Will Slit Your Throat In A Dark Alley

(they will slit your throat in a dark alley)

So this presents an obvious way to make money on Wall Street. START A GOOD COMPANY that actually helps people. Then take it public and ride it forever. You’ll make money.

– People who hold for one trillionth of a second.

i.e. high frequency traders. Let’s say you want to buy some shares of IBM. These guys have computers with cables hooked right into the exchange who slip in the middle, buy some someone else, sell to you 1/10 of a penny higher and makes a sliver of money.

These guys make money every single day and it’s a race to the bottom: who can get their faster, quicker, and more deftly to screw you out of 1/10 of a penny every time you make a trade.

And by the way, probably more than 50% of trades on the stock market are done by these guys and a single mistake (think: flash crash) can cause the market reeling within seconds.

– People with inside information:

If you know Hilton is about to buy Marriott then you can make an awful lot of money. The Feds arrested a handful of people engaged in insider trading a few years ago but my guess is they only got about 1/10,000 of the people who have inside information. Every hedge fund manager trades on inside information all day long. There’s no other way for them to get any edge on their peers.

They use every means at their disposal. Not the old-fashioned bribery stuff of the 1980s. They hack into networks, they vacation where your CFO is vacationing, they use so-called “expert networks”. There’s no stopping the culprits.

By the way, this does mean that micro-cap companies that have public information but seems like it’s inside because nobody pays attention to them, could provide a small edge in the markets. But whoever is trading the large-cap companies are just losers. The kind of people you want to play cards with.

–  Congressmen.

It’s legal for congressmen to trade on inside information. So, let’s say your congressman knows that a vote on some energy tariff is going to go a certain way he can go to his local casino table (stockbroker) and place his bets accordingly.

Guess whats happened the past few years since 2007 when all of America lost money in the stock market. As a group, congressmen are up 30% per year.  If this continues I might consider running for Congress sometime soon instead of just running for the Vice-Presidency.

This is one of the reasons I think we should just abolish Congress.

– People who take fees.

I’ve been invited twice in the past few weeks to become a partner at different $100 million funds. In one case I said no and in the other case I kind of just blew them off. I’ve become a bit of a shut-in lately and the thought of meeting people and negotiating and selling..blah. I can’t handle it right now. I think I need medication.

But here’s how it works. You raise $100 million and you make about $2 million straight off the top in fees which you split with your partners and the people who raise you money. Then you split any money that comes in off the profits on the $100 million.  In the long run you lose money for all of your investors but you make a TON of money on fees.

My favorite example is super hedge fund manager John Paulson. He turned one billion dollars into six billion during the housing crisis in 2007-8. He probably took a billion in fees off the table. Then he raised his fund from six billion to 30 billion as more investors poured in.

Then, or so people tell me, he lost 50% and his fund went from 30 billion to 15 billion (these are rough numbers. Its give or take a few billion). So net-net he lost about $10 billion to the markets.

And yet, he’s pocketed about $3 to $4 billion in fees, making him one of the richest people in the world without providing any useful service in the world. He made that money simply by losing even more money. That’s a pretty good job if you can get it.

Ugh, in general, try not to be an arrogant loser. And, by the way DO NOT spell “loser” as “looser” like everyone on the yahoo message boards.

Also, shower more frequently. And don’t think you have a system for beating the markets. And, in the worst case, if you can’t get over your bad habits then either start a company or run for Congress.

At least there you can legally steal from us and pretend like you are “representing” the people. Good luck and God Speed.

  • Anonymous

    “You ain’t gonna get rich in the Keno lounge.”  — Jimmy the Greek

    Very true. Unfortunately, the average investor looks at the whole Wall Street mess and determines it has, indeed, become a Keno lounge. I think that lack of confidence is priced into the market and is one reason stocks are historically cheap right now.  Are you gonna get into the shark tank and take a swim?  Good thing I’m broke, I guess.

    And thank you for pointing out the “lose” “loose” thing. That’s been driving me nuts. Nice to know I’m not the only one.

  • I also like the idea of writing to 1,000 people and predicting the market for the next week, half one way, half the other. Then to the 500 for whom you got it right, split them again and send a prediction. Do that again for 125, and then for the 62 or 63 people that got four right predictions in a row, and sell them a newsletter for $1,000 per year and get Indians to write it for $1 a week. 

    It’s probably against the law, so that’s a downside.

    • Did you read about this in Fooled By Randomness by Nassim Taleb? I just finished reading it and he did a section on this sort of scam.

    • SeriouslyQuiet

       It’s an old game. I saw it on a re-run of that old cop show Dragnet.

  • I tend to make my money off numbers 1 and 2.  I keep a fixed amount to speculate and the rest of my money (the majority actually) goes toward blue chip stocks.  I’ve made more money on the stocks I’ve held than the ones I try to speculate with, but I use a small percentage of my capital to jump around nonetheless because there’s an impatient side of me that wants to see money being made within hours or at most, one week.  If you’re going to speculate, just curb your enthusiasm by allocating a fixed percentage of your capital to speculating and you’ll be fine.  

  • speedius

    But what about the Bread and Butter trade? Don’t tell me that doesn’t work either. I coded that 8 years ago and put my account on autopilot. I haven’t even checked it since then. Should I be worried?

  • You just gave away part of the ending to The Big Short!  I was going to finish it tonight!  That’s alright, I knew how it ends anyway.  

  • Anonymous

    I love this! I’d also add: “People who pay themselves, i.e. CEOS”.  CEOs of major companies have a big influence on how much they get paid.  Why not take a little bit from each shareholder’s dividend and give myself a nice fat $20M salary?!

  • Or you can short sell penny stock scams and profit when they collapse just about EVERY time :)

    • Anonymous

      go away. 

    • I love how you are the first comment. Fyi, a big fan.

    • Charlie

      Yes it works, but it not scalable. Limits the profits and a lot of work/hassle to spread ones capital over multiple stocks. Scaling in and out of penny stocks with >$100k is a mess.

    • Or sell courses and alerts and things like that ;)

  • Laura G.

    As always, genius writing. I’d invest in the market, but I’m afraid I’ll “loose” too much money.

  • So it’s like in Superman 3?

    • Yes, but it is not stealing. It is just taking a few pennies from the jar, just make sure no one fucks up the code.

  • Chuck

    or become the middleman

  • César Grajales

    The problem with people
    is that they do not know what is to be rich.
    Being rich is the one that spends less money; but today is the opposite, the more you have the more you spend, and therefore, none amount of money is enough. I have heard people who simply cannot live with, $ 60, $ 70,
    $ 80 or $ 100 thousand dollars a year, to
    me they are fucking
    losers because they
    do not know how to manage their fucking
    money. So, it is not about to
    beat the stock market,
    it is to overcome our fucking greed.
    I am a day trader and live happily and
    well with the amount of money
    that I do every day.

    So traders, first learn the value of money and how to live with small amounts, before complaining about why you do not have billions.

  • Dan

    I agree and disagree. Certainly most people who try to outsmart the market will lose. However, I think you left out the group that I belong to, and I believe a lot of the people who read you could fall into- the individual long-term investor. You may have meant this group to fall under the first category, but it read to me like you meant company founders.

    I can tell you that over the past several years I have made strong returns and I don’t consider myself a smart or sophisticated investor. But I am disciplined, which I think makes up for a lot. If I believe the fundamentals of a company are strong and the long-term growth outlook looks positive, I will buy and hold for several years.

    Now when I first started, I was very lazy and optimistic, which I soon found was a deadly combination. I would read an interesting headline, buy into a stock, watch it drop a few bucks, panic, and get out. Now I basically ignore the news and don’t buy a stock unless I am prepared to hold it for the long haul.

  • cindy

    I wish I had enough money for all my bills this month….let alone money to invest in the stock market.

    Loved your writings as always though. You’re the best.

  • I’ve made some money in the market, not enough to brag about, but by dumb luck and riding bubbles. Better to start a business that actually makes something of worth. I have not found anything yet, or anything that hasn’t already been done, or that doesn’t require much capital,..thanks for the article James.

  • So what’s the story with your ‘fund of hedge funds’, Formula Capital? Does it allocate money to hedge funds that trade on inside information, ones that practice high-frequency trading, or ones that just lose money for their clients? According to your post, those are the main possibilities.

  • Greg

    Here’s the thing…

    If you have money, inflation will eat it up.  You DO usually make money over time in the stock market – like in most 10-15 year periods.  Diversified portfolio of quality stocks and all that yada.  
    Not day trading, just holding and sometimes adjusting.  Maybe an index, maybe you pick out some big established companies with healthy dividends and spread your money across 20 of them and rarely trade.  Buy some rental properties too if you want.

    The choice is “probably keep up with inflation and maybe even net a modest 1-2% real return” or “definitely lose 3-4% a year”.  Can’t really avoid the stock market.

    Either way you’re not going to make enough to be paying anyone fees (beyond maybe the 0.3% of an index fund or slightly more for bond funds) so you have to figure out the basics yourself.

  • Chuck

    talk to the fund people.
    a lot of people dream of oppurtunities like this.
    or i can disguise myself as you and do it for you ;-)

  • Lachlan

    And this is why I read JAltucher.

  • JC

    About the statistics on ‘high frequency traders’, a news show I watched the last week (I think it was Nightly Business Report on PBS) was talking about a new movie coming out based on a book about the stock market crashing because of automated trades, and the author said that only 2% of traders are high frequency traders but their activity represent 75% of all trades daily.  Sorry I can’t link to the show/book/movie/reference, but maybe someone else out there can fill in the blanks.

  • Capitalistic

    Thanks for sharing the glaring truth. 

  • Slackful

    You whiffed on the HFT stuff, but it’s hard not to given the loud buzzing sound in your ears at all times (courtesy those who used to make bigger money than HFT at our expense, but can no longer compete.  It’s the buggy whip makers shouting that cars might kill horses, therefore, ban cars).  HFT is ruthlessly competitive, and it’s not investment, it’s information mining.  The information (not data) found is actually worth a lot in total (Vanguard estimates about 40% more value for a retiree’s investment account at closeout due to reduced spreads and fees).  Therefore, the market, being smarter than the rest of us, simply pays for it, it’s a good deal.  But it’s a little obscure, it’s one of those self organizing systems that pays for what it needs to survive, no invoices are sent.  Prices just occasionally move slightly, to values a little bit more consistent with what’s knowable at the time.  Someone has to pay for this, and like any business, the amount paid is smaller than the value conveyed.  Millions of shares trade at more accurate prices, courtesy of HFT, which collects a small fraction of the total value created, just exactly like any other successful, productive business.  Ends up being a great deal for retail investors, as long as Sarkozy doesn’t run for US President.  So you’re to be forgiven for not understanding, even though, you’re smart enough to understand, and have enough experience in the biz to understand.  Surprising that you miss this one, it’s up your alley.

    Almost forgot the predicted obligatory:  I’m 61, and sent a Confidential link to my kids, one of your “what it really takes to succeed” type things, they love you.  20’s and thirties if you want to know the demographic.  Of course, I think you’re the greatest :)

  • The picture of Buffett and Gates is an absolute classic. 
    The biggest problem I have seen in the markets is failure to have discipline.  Yes, if your time period is forever, than no reason to sell.  But most investors do not have a sell discipline and thereby lose.

  • Steve Morgan

    you crack me up.

  • Topgun

    No company goes anywhere including Microsoft and Berkshire without salesman

  • Tell is like it is.  The way I see it as well.  I started looking at the top of wealth list and analyze how they made money in general or their investment style.  Two things I noticed: 1) Entrepreneurs that never sold stock in their companies MSFT ORCL AAPL 2) Investors that buy large stakes in companies that produce long term value Warren Buffet, Carlos Slim…

    • Anonymous

      Carlos Slim doesn’t produce long term value. He has legal monopolies of the telephone sector in Mexico as well as other ventures. He is not exposed to competition, etc. This is why roaming rates in Mexico are $1.50/minute or portion thereof.

  • Eugene Fama’s efficient market hypothesis was correct back in 1962

    •  I think its largely correct except for pockets where the above occur that I mention in the article. In other words, its very hard to bet AGAINST an efficient market.

  • Mattdeveaux

    Jesus, can we stop talking about Wall Street? Let’s talk about growing tomatoes.
    So boring. Boring people.Boring topic. 

  • Concretefelon

    I know its hard for the pack of robots that make up the “retail investors” and “daytraders” of the market to understand, but all you have to do is steer clear of the trades everyone talks about and make money on your own. The hedge fund managers don’t beat the market because of the most obvious part of this entire article; He made billions by hiring other people to lose for him. You can make 20- 30% a week/trade as long as you’re not investing 50k plus at a time. Big money gets swallowed and small contributions get paid out, quickly.  

  • Anonymous

    Timely post for me.  Just last week I concluded that I had no edge whatsoever in trading, and lo and behold today was a disastrous day for me and my account.  As it turns out, I did great trading in 2012 only because the markets were good for everyone.  I hope tomorrow morning I have the will to follow through with my intention to sell out and retain my profits.

    • Good luck. I sincerely mean it. Trading is a hard, brutal business and I have nothing but respect for those who survive the psychology of it. 

      • Anonymous

        Thanks.  Trading is hard on the mind and body, but I also learned so much about myself during this time.  I ended up selling with a sense of relief.

        Your blog and others have helped me narrow down what would really bring satisfaction to my life, and it’s more than money.

  • Just when I was about to write you an email with a fantastic idea of how to make Bill Gates a couple billions more! 

  • Guester2

    Actually, this article is the fraud. Trying to discourage folks from trying to make money. People make real money day-trading – you just have to know how! Not the stuff you read on forums and learn from “experts” selling a $4000 trading class that requires you paying for more and more advanced classes worth more. Know the company behind the stock… how does it make money? What constitute its cost or risk exposure? Monitor changes to those factors (the changes are either positive or negative to the stock price.)

  • zzen321

    Generally speaking, yes I agree. 

    Though I gave up designing ASICs to trade full time … +400% over two years, and better than +1000% over three years (etrade numbers not mine). Some amateurs like me can still sneak in for wins against HFTs.

    Wall street types pretend trading is really difficult and stressful. It’s by far (really far), the easiest and best paid job I’ve ever had. Try writing hardware code till 3am and working 70 hour weeks (no overtime pay). 

  • What about prop traders?

    •  I know very few prop traders (< 1%) who survive.

      • Depends where you draw the boundary. If the person “becomes” a prop trader when they have it in THEIR mind that they are one perhaps <1% who enter are making money 6 months or 1 year on. But of those who get beyond the learning curve the stay rate is much higher. After making a bit of money people also move on to do other things. From a generalists perspective your blog is one of the best, and I don't want to nit pick! Nuf said.

  • Windup

    People keep insisting that I can’t make money by investing. For me, this usually takes the form of “buy and hold is dead” (I think it’s been dead about a dozen times or so in the last twenty years), “market returns are mediocre returns,” “index funds are for the losers,” etc.

    The other day I found the the paperwork that showed what I had for retirement savings about twenty years ago when I started my current job. The total is now 110 times larger. Yes, I’ve put in a a bunch of money, my employer has put in some money, but that’s the total. What’s my rate of return? I have no idea. My fund company says that over a 3-year period, I’ve made something like 15% annualized returns, chiefly by doing nothing during the last crash except sending in payroll deductions as usual. Over a five year period, more like 5% annualized. The rest is too hard to figure out.

    Besides, I don’t retire on the ROI, I retire on the total.

    I realize this works mainly because I’m a parasite. Wall Street guys knock themselves out all day writing code, trading, worrying, fighting, etc. to produce one socially useful thing — “correct price.” As an index fund investor, I wander in at the end of the day on payday, say “looks good” pay the correct price and wander away until the next payday. I don’t even bother to say “thank you,” because it’s all happening via computer and I’m usually unaware that anything’s going on until the quarterly statement shows up, and I have more money.

    I occasionally feel bad about being a parasite, but then I read something about the behavior of people and institutions on Wall Street, and parasitizing them starts to seem more like a public service than something to feel bad about. I realize this means I might be a *really* bad person, but I don’t think so.

    Bull markets terrify me and make me want to put everything in bank cash. Crashes make me want to sell everything that isn’t nailed down and put all the money in stocks. When I think about investing, I’m usually so busy fighting one impulse or the other that by default I do nothing, which in my case means putting the same amount in the same funds every payday because I’ve set it up so that’s what happens if I don’t do anything.

    Anyway, if this is “not making money in stocks,” I guess I can live with it.

    •  You are doing the right thing. Congrats.

    • If you just do fixed monthly contributions you’ll usually buy proportionally more stock when the market is going down and proportionally less as it’s going up, so this strategy automatically buys the most shares at the bottom. No real need to fine-tune and sell everything that isn’t nailed down ;) 

      Mostly, when you read about a speculative strategy it assumes that you start out with a certain sum of money and not figuring in contribution, I think you even have to report your performance that way (makes for easy comparison, $1000 invested in this strategy would have yielded XY% annualized). Now if you look at the chart for SPX for example, you can easily pick two tops and prove that for certain time peroids, buy and hold wouldn’t have returned anything. This assumes you bought once at the top and sold again at the top. For ordinary people who don’t start out wealthy (nor ever will be) the reality is quite different, although a lot tend to sell at the bottom for psychological reasons. 

      • Anonymous

        My first reaction was that this is so simple and brilliantly obvious, so why not (other than human nature to try to do better).  Well, I remembered that markets climb and plateau for far longer than they spend in a crash, so you would actually spend more time buying at highs than you would at lows, even if you proportionately buy more at lows per purchase block.

        • andrew

          You are forgetting that the trend over time is up.  Every plateau is followed eventually by a higher one.

    • JTS

       Can I come work for you?

  • Lol. It’s all very cool

  • Great post, I enjoyed ready reading it, Keep posting good stuff like this.

  • I have recently discovered that there is money to be made in buying and selling options, but you have to put a fair amount of thought and time into it and you have to be disciplined and realistic (accepting and learning from losses and not attempting to be too greedy.)  Seriously – I failed at stock, ETF, and mutual fund investing because, I guess, I don’t have the patience nor do I desire the timeframe of investing “forever” (as you noted, that’s one way to do it.)  And I also have very limited capital.  So I have a few accounts with carefully chosen stocks and they’re doing just OK, but since around the beginning of the year, my husband and I have turned our accounts into nearly 100% options accounts, and he’s more than doubled his account size (over the weekend he took that profit and bought 1/3 of a new car – financed the rest, and his account is back down to where he started it, but hey, we have a car now, and it was money made from his brainpower!) and my account has just over doubled since Dec. 31, also.  I’m not trying to brag – in fact, I’ve been very humbled by only having this kind of reward for my work recently, and having been through very discouraging and financially-draining self-directed investing ventures previously.

    • Options are very hard. depending on what strategy you use. In a market of declining volatility that we’ve been in for the past 3 months, using options as a substitute for leverage works very well. But the same approach can destroy one if the market reverses.

      I am personally bullish on this market for the rest of the year but anything can happen in the interims

      • Anonymous

        Jim Rogers has decided to leap ahead beyond 2012 and calls the US “overdue” for a recession in 2013-14  (http://www.opalesque.com/641196/Rogers_US_due_for_another_recession119.html).
          Seems to me that he is just sounding off and will probably have a few more predictions by the time we hit the end of the year.
        James, you bullish beyond 2012?

        • I’m still waiting for Jim Rogers predictions from the eighties to come true. A statement like “the debt is going through the roof for all of us” doesn’t make sense, unless we borrow from aliens or a parallel universe or something like that. I also don’t think you can really act on those kinds of predictions. 

    • If you have recently discovered this it is likely that you will not succeed over the longer term.

      • You’re probably right – since I haven’t known everything since the beginning of time nor cultivated all skills before now – in fact, since I wasn’t born with all skills possible – I’ll likely be an abject, miserable failure or at least fail to meet with any success.  I’m glad you pointed this out to me and corrected any hopeful and positive outlook I might have otherwise had.

        • Myname1119

          Options have been great so far this year, I just “learned” how to trade them also and made 800% since the end of december, but I have to tahank apple and the wonderful run in the market for that.  We will ahve to be careful if the market schanged or has a bad stretch.  But then we can learn other option strategies.

          • YD1425

            Can I ask what kind of strategies you think work better in today’s market?

  • Not that your odds in starting a company or running for congress are any better. 

    •  It’s an interesting question: but with persistence, your odds in starting a company that could at least pay for lifestyle or more are definitely better.

      • Anonymous

        And who knows, you might actually love what you do, making the work less like work

        • There are a lot of people who enjoy trading as well. Even a lot of people who enjoy it enough that they don’t mind losing… 

      • I think it’s skewed a bit, because it requires almost no effort to start trading vs. starting a company, so a lot more people will try out trading without putting in an effort whereas for starting a business that’s required. It’s also easier to try the trading part-time.

  • Anonymous

    The traders commenting here crack me up. So much self-deception.

    And James, I hope you are doing OK. Your writing has had an edge to it lately. Can’t put my finger on it but it’s there.

    • Mikey, you should see the garbage I’m getting in my emails. But it’s like anything: people are afraid and they do not want their life-choices called into question. So they get angry and need a way to get it out.

  • Humble Winner

    You are the arrogant loser. Just b/c you can’t make money in the market (and don’t know anyone who does) doesn’t mean others can’t and don’t. And if you are making money than your whole thesis is discredited. Keep living the dream, dip shit.

  • Matt Pfeffer

    James how about the Bogle/DFA/Vanguard way?  Low fees, index/ETFs, sound asset allocation, rebalance.  End of story.  You just beat 85% of the people out there and spent a few hours a year doing it.  

    •  Yes. I’m not even sure rebalancing is needed that much. Maybe once every five years.

  • Scooby

    Fantastic post.

  • ShamrockBaby

    Have you considered doing anything about your nose?  I mean seriously, do you spend any time thinking about the impact that beak has on the rest of us?  It’s beyond distracting.  You want us to shower more and do this and do that yet not a care in the world about that honker.  It’s like Reese Witherspooons chin, it follows me no matter where I look.  Please.  Have mercy.

  • Andrew.S

    Yeah no one can beat the market with any CONSISTENCY, the Paulson example is funny but thats the brutal truth.

    •  Yes, I remember the year after his big move all of his investors were literally dancing in the street. And now…they are shutting down their funds of funds.

    • Jgrimsl1

      The Medallion Fund has done, or is it did (I don’t know if they are still trading) so for 20+ years.   There are quant strategies that out there that can kill the market, but the ones that can profit/survive in every market are very few and far between. 

  • abby

    Hi James
    I wnated to notify you that this column was translated to Hebrew and published on Israel’s leadind financial web site: globes.co.il
    Here is the link:

    • Thanks for pointing that out to me. In general, I always give universal approval for any site to republish my own articles. 

  • Drew Martin

    FYI, after 60 minutes did a piece exposing civil servant opportunists like Nancy Pelosi and John Boehner for insider trading, Congress supposedly passed a bill that makes it illegal for congressmen to trade on insider information (i.e bills they are voting on that the the public doesn’t know about). I’m sure they left a loophole for themselves though and we’ll continue to see congressman who make $174,000/yr fixed salary come out of Congress as multimillionaires

    •  There’s so many things that i would label “inside information” that Congressmen are aware of that my guess is there are a trillion loopholes in whatever legislation has tried to get through congress.

  • Alecto

    This is hilarious and tragic.  In 5-10 years, will it matter who makes money and how?  After DC destroys the country by spending everyone into oblivion, the only people with anything worth buying will be food producers like me!  Eat me Wall Street!  

    p.s. I am rude, I do smell (you try working in a barn for awhile) and the stock market I’m familiar with is the four-legged variety.  

    • To be fair, I think it will matter who makes money. the people who will make money will be the ones providing services and products that have real value (from food to ipads to productivity software to energy to biotech).

      We’re living in a world/country of incredible innovation. But unfortunately the “financial innovators” have taken advantage.

    • Matt

      2/16/17, five years hence. interesting times.

  • Ericvegas

    Hilarious. But if you’re going to bitch about “loser” v. “looser” clean up your typos.

    • These are two different things. When you have your own blog, you can do pretty much anything you want, you’re voicing your opinions/ideas. However, if I ever ask Altucher to introduce me to Bill Gates you bet I’m going to spell Vill Geits correctly.

      Just my two cents :)

      • Anonymous

        so true …

    • Jkullman

      Eric, please carefully review your comment for any typos, misspellings or egregious grammar errors. Really. We will wait. Look at it carefully.

    • Anonymous

      As an alien (in your cousin’s parlance) I find the USian habit of confounding there and their and they’re especially galling – and always wondered how intelligent people who obviously knew their way around orthography could make such mistakes. 

      Meanwhile I am pretty sure that automated spellchecking software is doing a _lot_ of damage and has to be closely watched.

    • wobatus

      These aren’t typos. That’s how a lot of people apparently think it’s spelled.

  • Jb

    Top 10 Hedge Funds By Net Gains Since Inception

    1. Ray Dalio’s Bridgewater PureAlpha: $35.8 billion net gain since 1975
    2. George Soros’ Quantum Endowment: $31.2 bn net gain since 1973
    3. John Paulson’s Paulson & Co: $22.6 bn net gain since 1994
    4. Seth Klarman’s Baupost Group: $16 bn net gain since 1983
    5. Brevan Howard: $15.7 bn net gain since 2003
    6. David Tepper’s Appaloosa Management: $13.7 bn net gain since 1993
    7. Bruce Kovner’s Caxton Associates: $13.1 bn net gain since 1983
    8. Louis Bacon’s Moore Capital: $12.7 bn net gain since 1990
    9. Thomas Steyer’s Farallon Capital: $12.2 bn net gain since 1987
    10. Steve Cohen’s SAC Capital: $12.2 bn net gain since 1992

    • Tripping Times

       Thanks for the numbers. They represent lot more truth than most words.

    • ceegar1960

      This is not the point, right? If you were to invest in any of these funds today, you would be more likely to lose money than to make it.

      • cheeryble

        Incomplete figures are meaningless.

      • Wobatus

        Klarman you’d probably do ok.

  • Poopman

    Pretty good. Better then that lame 10 year old post.

  • Tim


    Good column as usual, and you are right, why are people always spelling loser as looser!

    I have made quite a bit of money in stocks and real estate but the bulk of it was in a very conservative way (like your note about holding forever)  My technique is pretty simple, save and invest young , live below your means. I work hard at investing, I study the markets and companies I invest for a long time before investing. I have been working now for 40 years and have saved 18% of my pay since I started. I have invested in several companies for more than three decades (re-invested dividends of Exxon, Coca Cola, JNJ, etc) Each house I bought was very affordable and I own one home outright (bought in 1980 for $35K, now worth $600K) and another that will be paid for in two years.  I disagree with your thoughts on home ownership, I believe it makes great sense to buy a house and pay it off, it lessens the need for cash flow.

    I continue to be heavily invested in the market (80% invested) and I took a small beating in 2008 (I had stop orders on most of my stocks and got out to cash with a 15% haircut)

    I tend to shun funds except for some Index Funds.  I prefer to pick my own stocks and create a fund with no fees. It’s not that difficult but it is work to pick the right stocks. The key to me is slow and steady, use compounding to your advantage.  It’s not a get rich scheme although some really good years, it felt that way. The last decade was very challenging after the 1990’s which were very easy, any idiot could have made money then.  The last three years were very good for me, I was aggressive and improved my portfolio almost 60%. This year looks very good so far but I continue to worry about challenges around the world.

    My biggest worry is retirement years when I hope to move to more of a fixed income model. I have no clue what to do there but am beginning to explore.  What are your thoughts there?  Should I stay invested and try to earn my way through stock gains for retirement?  I am worried about generating income as I age and don’t have faith in annuities and those type of things. Since I do things myself, I am concerned about turning my money over to someone else. 


    Regards and I enjoy your blog

    • Anonymous

      What about the dividends from your portfolio?  Do you not think that is a workable strategy for income?

      • Tim

         That’s what I am spending quite a bit of time studying, but it seems to me that it’s a fairly low yield plan. Right now, I am thinking I may be able to feel secure about realizing a 4-5% yield and that’s about it.  I’d like another 1-2% to feel really good about it to be honest.  I am trying to maintain my same lifestyle for 30 years and that may be unrealistic

        • Anonymous

          I am nowhere near retirement age, so this is just my thoughts for what it’s worth.  It seems to me that starting a dividend growth portfolio is better for retirement, because 1) choose companies that raise dividends 2) their stock appreciates as well 3) your effective yield increases because of both 1 and 2.  Down the years your effective yield could be over 10% per year based on what you paid per share.

          Also, since it’s your main source of income, having a non-volatile source helps you sleep better.  And, you don’t have to draw down your equity each year and look towards the abyss down the line.  At some point the risk in growth stocks isn’t worth it when you are able to have enough income to not have to work.

          • Tim

             Well, I am in my late 50’s and plan to semi-retire in two years. I’ll work part time at a fun job to keep active and pay my real estate taxes. Maybe travel a bit.

            I have been modelling portfolios for income, all dividend stocks. Also looking at REITs and other income producing vehicles. I plan to exit the growth stock side next year and see how that goes, but the modelling exercise actually looks promising.

            Thanks for the comments

          • cheeryble

            This is so easy.
            Why sweat to get an extra couple % income when you can simply reduce your outgoings by two thirds.
            Move to Northern Thailand.
            (it has other things you might like)

  • Anonymous

    Cool article… Big fan James, some of the few blogs worth their value…   Many of your blogs have made my day… You certainly offer more value in your blogs than most people in their books.

    Not buying house… No trading… Dumping shit people…. were some of the best advise I ever got.

    By the way I bought all your books.. but still I feel I owe you six pack beer or chocolate cake to even out the karma….

  • rollingdancefloor

    Bellied Street Fighter Was Here.

  • Scott Murray1

    There is one way, and I learned it from Bill Ackman. Read everything that Warren Buffett ever wrote (I’m well on my way), and actually apply it. That will win over the long term, period. Doesn’t hurt adding a dash of Phil Fisher either.

  • another great post James and I say that not even being the least bit interested in meeting any of your rich friends.

    Way back in college a girl I knew gave me a card.  On the cover it said:

    “The problem with being rich is that…”

    Inside it said:

    “…you have to associate with rich people.”  Overall, that’s been my experience.

    The second blog post I ever wrote said much the same as your here, but I was nicer about it:


    but I like your style!

  • Anonymous

    Trading seems magical. I love reading all those trading/finance books and digging into the subject. Magic is fun to have in your life. It certainly beats a boring job, but only as long as it actually works. Usually magic doesn’t. Especially when it is being sold by someone. True magic does exist though, but so does the need to eat and feed your kids.

  • Lawrence LaPointe

    I thought I was the only person who detests looser.

  • The real dilemma is in starting a great company that provides an ever increasing value over a long period of time.  Much easier said than done.  A business has to last long enough to generate that snowball effect.

  • dick clark

    Dude, dude, dude. I have this awesome idea for beating the stock market. Basically, you give me 10000 dollars a month, I make blind bets, and whenever we take a loss, you take the loss, whenever we make profit, we split it. Any interested takers? Also, I have never used a stock market in my life. Is making blind bets the correct term?
    Also, I found this awesome thing, you have to see it, it’s right down this alley.

  •  Also, DO NOT write

    “to” for “too”
    “your” for “you’re”
    “definately” for “definitely”


  • Ken

    haha, good one.

    By the way, I REALLY do have a way of beating the market…

  • I made some good money in the Indian stock market (about 120%) over a period of 1.5 years and I tried to invest some here but I burnt my fingers. The market here fluctuates way too much and you can’t do your day job if you have to keep up with it. Do you think the emerging markets are better for investment?

  • Anonymous

    The top 50 “superconnected” companies

    1. Barclays plc
    2. Capital Group Companies Inc
    3. FMR Corporation
    4. AXA
    5. State Street Corporation
    6. JP Morgan Chase & Co
    7. Legal & General Group plc
    8. Vanguard Group Inc
    9. UBS AG
    10. Merrill Lynch & Co Inc
    11. Wellington Management Co LLP2 bicy
    12. Deutsche Bank AG
    13. Franklin Resources Inc
    14. Credit Suisse Group
    15. Walton Enterprises LLC
    16. Bank of New York Mellon Corp
    17. Natixis
    18. Goldman Sachs Group Inc
    19. T Rowe Price Group Inc
    20. Legg Mason Inc
    21. Morgan Stanley
    22. Mitsubishi UFJ Financial Group Inc
    23. Northern Trust Corporation
    24. Société Générale
    25. Bank of America Corporation
    26. Lloyds TSB Group plc
    27. Invesco plc
    28. Allianz SE 29. TIAA
    30. Old Mutual Public Limited Company
    31. Aviva plc
    32. Schroders plc
    33. Dodge & Cox
    34. Lehman Brothers Holdings Inc*
    35. Sun Life Financial Inc
    36. Standard Life plc
    37. CNCE
    38. Nomura Holdings Inc
    39. The Depository Trust Company
    40. Massachusetts Mutual Life Insurance
    41. ING Groep NV
    42. Brandes Investment Partners LP
    43. Unicredito Italiano SPA
    44. Deposit Insurance Corporation of Japan
    45. Vereniging Aegon
    46. BNP Paribas
    47. Affiliated Managers Group Inc
    48. Resona Holdings Inc
    49. Capital Group International Inc
    50. China Petrochemical Group Company

  • Rob

    Bill Gates may slit your throat in a dark alley, but at least his software works.  Too bad he didn’t slit the throat of Linux.  

  • Tj_powers

    Martin Armstrong.  The Pi.  

  • Silverliberty

    James, I’ve been a stealth reader. This article has forced me out of the shadows. I was a craps dealer in Vegas for 15 years and what you’ve said about the market also holds true for gambling. Everyone thinks they have some sort of edge/system that makes money.
    The best investment one can make is in themselves. Learn a new skill like plumbing, carpentry or auto repair and watch the money roll in.  

    • I totally agree. The only way you can really push for greater than 100%/year returns is by investing in yourself. I know this from experience. 

  • zzen321

    I really think this article is too pessimistic and nihilistic. 

    No matter how good the algorithms, stochastic analysis, and expert systems, human perception  and bias are difficult to measure (especially for machines). There for, you and I can make predictions as well as any Wall Street trader or machine.

  • El Gordo

    Can you think of a way to spell ‘loser’ so that it will sound like it did when Ace Ventura said it?

    Lets see…
    Lou Sir
    Lose her
    LaHue, Sure!

    However you say it, I am sorry to have been born  one.  Mostly because life would have been so much easier.

    If only someone would have told me:
    “Bub, get a clue!  The Federal Reserve creates inflation intentionally to help fractional reserve banks and governments spend both what YOU have today, and what YOU will have tomorrow – all while convincing you THEY (and not you) are smart and rich!  (Maybe they are right.)

    Inflation means that every loan you take now comes with a little gift, and every loan or deposit you make now comes with a little shaft!”

    This one would have prevented the loss of many years of my savings:

    “You idiot!  fractional reserving and hypothecation mean that for every share you buy long your broker can buy at least 10 shares short (or vice versa …and really more like 30-50 shares now days). 

    The easiest and least risky way for an investment house to make money is to take it from their clients.”

    When I figured that stuff out, I left the markets forever.

    Want to make a *little* money? 

    If you are a pretty good judge of character and business plans – Invest in privately held companies or do venture capital.

    If you are a good judge of character…but not so much the business plan – find someone you trust to invest your money who CAN judge both character and business plans.

    If you are neither a good judge of character nor a good business judge – invest in midnight gardening, or in living for the moment…
    …Because you are not going to make any money investing. 

    Which is to say, you *might* be able to save money, but you can CERTAINLY enjoy what you have today.

    And the last, and easiest way to get something:
    Stick your hand out.  Some politician will put SOMETHING there to get your vote. 

    Of course, for most of you, one way or another it will be a tax bill.

  • El Gordo


    And by the way…

    The yahoo folks aren’t *really* misspelling ‘loser’.  They’re really just cheering the Federal Reserve.

    Looser Ben!



  • Sarcastocratic

    Thanks for explaining what we’re up against, “we” being anyone crazy enough to try making money on Wall St.!  Regardless, Wall St. is the temple of the American Dollar-God which is most pleased to draw upon its minions.  Once every 2 or 4 years we can take a minute to be good citizens and vote in this great democracy.  The rest of the time most of us work as indentured servants for corporations which for the most part are organized as mini-dictatorships. 

    • Anonymous

      But even when voting, you are playing a rigged game.  You only get to choose from insider-approved candidates with maybe a couple fringe people thrown in.  If you arent part of the 2 party (reality one-party) system, you have mounds of paperwork to contend with to get on the ballot in all 50 states.  

      So in the end, you get to pick from the Demopublican or the Republicrat, and the results are the same.

      There’s also not much difference between the evils of big govt, and the evils of big business.  The two are so intertwined now which is why being in congress is a way to wealth.  One hand washes the other…

  • Josh6121

    I have been on both sides I have had 2 of my own companies, one we sold just to get out from under it and didn’t make a dime on the deal and the other ruined by my life and almost left me homeless, I now daytrade currencies and have for the past few years.  I say without exception that trading has provided the far better outcome as with trading I don’t have customers, investors, employees, bills, etc to deal with and most of all it does not require a huge time investment. I do agree that buying and holding good equities is a good long term approach, and that day trading stocks is a good way to loose your money.   The reality is that the odds are stacked against you whether you are an entrepreneur or a trader and it is up to you to persist and keep trying.   

    • Team Dave

      lose, no loose. Did you read James’ article?

  • Levine

    You are 99.9% correct.  There are a few handfuls of people who actually study industries and companies and can make wise investments by knowing something about good management, product quality, the likelihood of a biotech pipeline.  The presence of this minuscule minority does not overturn the main message, though.

  • Not legal to trade on inside information any longer.

  • Pwilli1997

    Okay. I never respond to anything written online by any financial expert, fraud or anyone in between. Well, almost never. However, James, this piece is not only the most honest piece of writing on the subject of how quickly fools can be parted from their money, BUT most importantly, it’s the FUNNIEST!!! Brilliant, inspired, hysterical. Speaking as a shrink, you most definitely do not need medication. You need a lot of appreciation for your talent, and maybe a nice award or two.. I hope you make good money writing. You are definitely not a looser, no sir. Thankfully, Your New Fan

  • Delayabout

    James still believe in dow 20.000 this year ?

  • There are several words in English that share the same spelling but that mean different things: they’re known as ‘homographs’. The English language, not being governed by a bunch of men in funny hats,  goes its own sweet and innovatory way. The graph ‘looser’ to mean someone who not only lost on this one occasion (as in “The English team came out of their last meeting with Germany the losers by a margin of two goals”) but are in their essence given to failure (as in “England are just loosers”), is such an innovation. It makes sense – if you draw out the vowel, you hear why.

    So the objection that you instinctively feel when someone uses this graph is probably an objection to the loutishness of the person who sneers at others in this way. And the suspicion that such a person is, him or herself, a ‘looser’.

  • Trading

     “People who will never turn a shovel full of dirt
    on the project (Muscle Shoals Dam) nor contribute a pound of material,
    will collect more money from the United States than will the people who
    supply all the material and do all the work. This is the terrible thing
    about interest…but here is the point: If the Nation can issue a dollar
    bond it can issue a dollar bill. The element that makes the bond good
    makes the bill good also. The difference between the bond and the bill
    is that the bond lets the money broker collect twice the amount of the
    bond and an additional 20%. Whereas the currency, the honest sort
    provided by the Constitution, pays nobody but those who contribute in
    some useful way. It is absurd to say our Country can issue bonds and
    cannot issue currency. Both are promises to pay, but one fattens the
    usurer and the other helps the People. If the currency issued by the
    People were no good, then the bonds would be no good, either. It is a
    terrible situation when the Government, to insure the National Wealth,
    must go in debt and submit to ruinous interest charge at the hands of
    men who control the fictitious value of gold. Interest is the invention
    of Satan.” -Thomas A. Edison

  • Raj

    Very interesting and depressing article from the Man who introduced me to trading systems and helped me become a profitable trader…
    Had it not for your book Trade like Hedge Fund – I would have never known about existence of System development softwares like Wealthlab..
    I guess you have given up on trading..Maybe ran out of ideas on how to make money..and need a break  from Markets.
     Markets still exists and people still make money out of it..and that is a truth..::))

  • Mokhurtz

    We are in the midst of the most corrupt and manipulated stock market..  Bullnanke himself admits Q@f750e5a5e1aca24c418504991e03ff70:disqus 1 and 2 were only implemented only to raise asset prices. He is the anti-christ. When hyper inflation eventually sets in as his mission to devalue the dollar is prevalent everyday, we are actually going in reverse as far as actual dollars gained. Now every bull-tard out there believes the market will keep going higher because, well, because it will keep going higher.
    The extinction of the middle class should trouble us as the rich get richer, and they could give a shit about the masses that struggle day in and day out to make ends meet.
    Remember, 12/21/12 is coming..  hopefully some justice prevails..

    • Not sure how or why my name is in your post?

  • 4thaugust1932

    Govt should regulate the market capitalization of all listed companies to twice their quarterly revenue.
    https://en.wikipedia.org/wiki/Fed regulates the Reserve requirements & Interest rates to promote sustainable economic growth.

  • Aj

    So does this mean that you think your “Trade Like A Hedge Fund” strategies won’t be able to help us outperform the market?

  • carbus

    Great post. James, one question that I always struggle with is whether there is another group – investors like Julian Robertson and his “Tiger Cubs,” such as Steve Mandel and Chase Coleman, or Seth Klarman – who are just inherently better investors than everyone else? And how do they produce consistently superior returns – do they work longer hours, do they read more, do they think differently? I would love to get your insight.

  • Goetze

    You’re wrong, bud, no complement intended. Take a look at RiskWerk.com for some new ideas.

  • Lev

    I never believe what this guy says, it all screams bs. but I like to read it anyway. The top level of society wouldn’t allow the likes of him in, imo. yet all his stories have incredible things happen. James Frey. do they know each other?

  • Dan Bustamante

    Great article, James.

  • Lovely writing. Where did you get the Congressman return stat? Thank you, Tony

    • Sharon Morgan

      Don’t know about the stat., but Nancy Pelosi got an IPO for VISA… pushed back a vote on something related to the market, and made out like a bandit.

  • tvstreamjm

    You can make money all around not only on wall street learn how to make money http://jamtechnews.blogspot.com/2013/01/make-money-ways-to.html

  • Don

    Hi James,

    This is not a joke or a scam.

    To those people hoping to get rich in the stock market, I have a system that I believe will tip the scales heavily in your favor. You don’t even have to pick your own stocks, Someone will do it for you.

    I remember a study that was done by some university which looked at 15 years of stock transactions made by congress and found what they described as a “abnormally high returns”.
    Since Congress is absolutely controlled by inside information and must make their investments public, I can’t think of a better way to make money in the stock market than to piggyback the investments in their portfolio.

    I read that that most of them leave congress much wealthier than when they arrived. This idea might be foolproof.


    • Sharon Morgan

      They don’t have to share the information as quickly….The ‘Stock Act’ quietly passed both the Senate and House. BO signed it… or so I read…

  • Don

    The stock market it is a way for the crooks to legally steal your money.

    My brother and I had roughly $100,000 each in our retirement about 10 years ago. He has $140,000 now which means he made just enough to match the rate of inflation which means he made nothing. I have about $650,000 now. He stayed in stocks. I took everything out and bought precious metals. He thought I was nuts. He will by lucky if he has his $140,000 10 years from now. If he does, it might buy him a really nice car.

  • vinaeco

    Your posts have an upward epic trend. epic.

    • vinaeco

      for the record, I’m focused on option 1

  • Mark Jackson

    “People who hold forever” doesn’t just include those who start companies. Ordinary holders who collect dividends year after year after freaking year also make money.

  • Wobatus

    That’s awesome. And I’m not trying to sell you anything. And why does everyone on yahoo finance message boards spell it “looser”?

  • 4thaugust1932

    Insider trading is/was never illegal.

  • SakiVI

    Are fees how venture capitalists make money? I ask because whenever i hear one speak, he moans he lost money.

  • Excellent Article!!!

  • HI! There’s an easier way. What about Household Wage Project? Google it now,
    it’s amazing lol. I’ve been generating $30k every month or so using it.Thanks.

  • ktregw

    they dont know how to get money and save up the just know how to blow money away

  • Rajesh Naik

    john paulson had 4 billion invested in credit default swaps , turned it to 20 billion, got 4 billion as profit sharing went long in 2009, made money on the bounce, for a year, then got too cute, invested in a chinese company called sino forest, lost a ton, went long in gold @ 1700, and gold mining companies, arrogance got the better of him, and the initial trade that propelled him to the top, was actually not his brainchild, it wa s friend of who his, whom he hired, in early 200, but never mentioned his name, and hence that guy quit.