TAKING STOCK: Wall Street hasn't always been a money orgy for the rich

Dear Mr. Berko: I'm 76, and my nest egg has dwindled by 55 percent in the dozen years since I retired. I lost 50 percent when the tech bubble burst, earned back 80 percent and lost another 50 percent in the crash of 2007-2008. Then, I made back about 80 percent again before losing nearly 35 percent to the housing bubble. I've been investing since the early 1960s, and if CDs were paying 5 percent, I'd cash out and never be in the market again. Our three adult children have mutual funds in their municipal retirement plans, and they're worth less than what they've been putting in for the last 11 years. The market is higher than it was in the 1990s, but other folks I talk to tell me that they're also in the minus column. I don't know what's happening, and I don't expect an answer, but I'm angry about it. CD, Destin, Fla. Dear CD: There was once a day in another lifetime not long ago when investors could confidently select a winning portfolio of stocks. We did it by evaluating the past successes of management, by assessing the quality and ratios of a company's balance sheet and by examining the quality and ratios of its income statement. Then, depending on a company's revenue growth, we could project, with a modest degree of accuracy, earnings and dividend growth. We would compare its products to that of its competitors, talk to a few of the company's consumers and interview a few suppliers. It was also important to know the number of shares owned by management and the board of directors. And if the data was satisfactory, then all we needed was a good dose of logic, common sense, patience and a long-term horizon of six to 12 years. But yesterday's market--the same market that allowed many of us to accumulate portfolios of strong, conservative, income-producing stocks--has morphed into a trading market in which prices are determined by awesome volatility and momentum charts. High-frequency trading patterns have become more acceptable than balance sheets. Complicated algorithms replace income statements, and insider trading and fronting determine the stock's price. As a result, the stock market has become a carnal carnival featuring buskers; the proverbial organ grinder with a dancing monkey and a cockatoo; whirling gargoyles; and somersaulting midgets. Back in the day, Merrill Lynch was marketing a monthly investment plan to the nation's investors. We were encouraged to invest as little as $10 a month, which would purchase single or fractional shares of any one of hundreds of New York Stock Exchange issues. A broker would help you pick a stock, emphasizing growth or income, and discuss the wisdom of dollar-cost averaging. So if you had the discipline to invest a slice of your paycheck each month, you were certain to have a little nest egg to butter those retirement years. Way back then, folks like us comprised 85 percent of the volume on the NYSE. Today, 85 percent of the trades on the NYSE are conducted by hedge funds; Money-Center Banks; billionaires in Macau; private money managers; and investment banksters like Goldman Sachs, Jeffries, Perella Weinberg, Needham and Brown Brothers. Today's market is a playground for the rich and the uber-rich, for riverboat gamblers, many-tentacled traders and Wall Street's Greed Squad. It's a "gimme, get me, and do it now" venue in which long term investing skills are anathema to the brokerage industry. Today's Merrill broker, for instance, must maximize his commissions because his branch office needs to maximize its commissions because Bank of America, which owns Merrill, must maximize its revenues. And every year Bank of America needs to grow its revenues and profits because shareholders demand higher numbers. So investors who buy good stocks and hold them as they appreciate or grow their dividends are persona non grata. Most brokers would starve and brokerages would close their doors if their clients bought a few hundred shares a few times a year and reinvested the dividends. Or they'd be canned. ---------- Please address your financial questions to Malcolm Berko, P.O. Box 8303, Largo, FL 33775 or e-mail him at mjberko@yahoo.com. Visit Creators Syndicate website at www.creators.com. © 2011 Creators Syndicate Inc. Published: Fri, Dec 2, 2011