The stock market is not democratic. Changes in
the stock market, far from being an honest representation of the state
of the nation\'s economy, are nothing more than a barometer for the
wealthy, educated elite whose fortunes are tied to Wall Street\'s
performance, while the great majority of the population become
spectators in increasing numbers with every advance or decline.
Psychology, technology, education and social status all have become
barriers preventing the equitable distribution of the gifts of
regulated equities, and worse, perpetuate the imbalance by their very
nature.

 

In the stock market, the rich get richer while the rest...just think they do.

 

There is an unspoken myth that participation in the stock
market is wide and deep in America, and that its fortunes are
egalitarian - truly a democracy open to all, and with an even shot at
bonanza. In a sense, Wall Street has come to define America, and the
equality of opportunity it represents. No matter how humble of station,
the American dream is available through prudent investment in the stock
market over the long term.

 

The mainstream media in the United States supports this
supposition, the rise of business and investment shows, finance
segments in news broadcasts, and daily headlines covering every joyous
or threatening tilt in the great pinball machine. Finance news has
become a growth industry, predicated as it is on the increasing desire
of wider groups of viewers for immediate and insightful news and
analysis. On the web, sex is still king, with finance porn coming up
behind. A noun, a verb, and a stock symbol will get your blog readers
almost as fast as a scantily clad avatar.

 

Only a third of Americans participate in the stock market through
the ownership of stocks in one way or another. While that\'s a lot of
people, it certainly is not the strong majority that a democracy
assumes. Still, changes in stock market performance do affect
thirty-five percent of the population directly. However the math
suggests that the best such a wide group can do in a pseudo zero sum
game is to track the changes, their returns never being anything better
than average.

 

Real increases in wealth occur in smaller, segmented sections of
the stock buying population as a whole. Owning stocks alone is no
guarantee of success.

 

For most of the stock owning public, stock ownership arrives
through the back door, in market products that pool resources like
mutual funds, or in market incentives like retirement tax breaks that
accompany the buying of stocks in the way 401(k) plans do. People
invest for the tax break, and consider the risk small or non-existent
that their equity investments in stocks will melt away. They are not
stock market investors as much as they are tax break investors.

 

In terms of risk ownership - where higher risks mean greater
potential rewards - the vast amount of stock holding Americans have
insulated themselves from the great rewards of stock ownership, by
falsely believing their low risk, widely spread holdings will return
more than low, widely spread rewards. For people who own mutual funds,
automated 401(k) plans, or received stock in the company they work for,
the nature and motivation of their investment condemns them to the law
of averages, existing always on the fat part of the curve. They will
never beat the market, as they are the market.

 

And while most consider the rapid, inexorable advance of the value
of the Dow an important way to have their investments participate in
the great game of easy wealth creation, that too is an illusion.
Despite its impressive scorecard, the stock market has only averaged a
real rate of return of about 4% over the long term, once adjusted for
inflation. Hardly the get rich quick - or slow - scheme many believe.

 

Direct stock market participation is the only way to get out
from under the curve, and have any realistic shot at beating inflation
and adding real, sports car buying, holiday taking, coke snorting
\"wealth\".

 

Pulling together the money, reading a bit about what you are doing,
tracking down a broker, and selecting from thousands of stocks to
individually purchase in minimum board lots is not something Americans
do in any great, relative number. According to the Federal Reserve
Board \"Survey of Consumer Finances\", only about 18% of stock market
participation is done in this fashion. Less than one in five Americans
has taken the opportunity to work the American dream directly, and pit
their guts and faith against the odds.

 

Certainly, the advances in online technology over the last decade
have made stock market participation wider, what with the profusion of
discount brokers and do it yourself, on line stock trading. Wall Street
on line gaming. Yet, direct participation in the market has only
progressed not much beyond the 18% of 2007, from the 13% of 1991. It
has never been easier to buy stocks, and with two major booms, so few
people availed themselves the chance to ride the big one. Clearly, the
stock market does not represent America, where 80% of the population is
not participating directly in the fortunes of the corporate assets of
the country, and are not a participating part of a fundamental of free
market capitalism.

 

Contemporary culture is slathered in headlines of Wall Street, the
DOW, and NASAQ, giving the impression of a country deeply wired to the
fortunes of the market across all demographic spectrums. Stock market
participation analysis however, clearly identifies serious barriers to
entry that make Wall Street a decidedly closed, club.

 

A closed club of rich, educated men in high status occupations.

 

Wealth (like male pattern baldness), is inherited. If you
are clever enough to be born to rich, beautiful parents, odds are you
are clever enough to have your own kids repeat the trick. Progeny of
wealthy households inherit much more than trust accounts. The basic
knowledge and principles of the responsibility for all that family
capital comes with the suitcase. Other folks, who lack both the capital
and the joie de vive, make their first market acquisition from a
decidedly disadvantaged place. In a very undemocratic fashion, a major
barrier to entry appears to be to whom you were born.

 

The Federal Reserve Board Survey of Consumer Finances also reveals
it\'s better to be born a male. Men dominate the world of finance, and
women have a long way to go, as you are more than twice as likely to be
a man if you invest directly in the stock market.

 

Education also forms a barrier, as there is a direct correlation
between rates of stock market participation and levels of schooling.
Not surprisingly, the world of finance being a complex and disciplined
world, better-educated Americans are over represented in the markets.
Thirty five per cent of College graduate households owned stocks, more
than all other classes combined. Easy access to transparent information
is a necessary part of an informed market decision, and college grads
it appears, know how to find it.

 

Another trait shared amongst the wealthy, smart and male is high
status occupations. It turns out very few wealthy, well-educated men
work in the bowels of fast food, and very few shopping cart handlers
invest in stocks to any degree. While no studies exist to support this
kind of detail, one imagines the most popular job description amongst
stock market participants is \"VP of something\".

 

Just being in the market carries a value added social cache on the
greens or at dinner parties, and knowing the lingo is a secret hand
shake of sorts on long, transatlantic flights in first class; \"Our
people are telling me I have to shift more trust liability into higher
leveraged, off shore asset classes. Who do you like in Singapore?\" If,
on the other hand, the big guy in the center seat keeps saying \"I gotta
go to the can\" all through the flight to St. Pete\'s, odds are you are
not in the markets.

 

In the end, stocks carry a degree of risk that most
Americans prefer to avoid. The greater the degree of risk assumed, the
greater the amount of the reward. In this fashion, not just stock
market participation, but market profitability are tied to degrees of
risk. Those willing and able to shoulder greater risk tend to
consolidate and get wealthier, and at rates beyond those whose risk
tolerance is just not up to it.

 

Economic Sociology tells us that both economic disposition and
social strata are indicators of higher risk tolerance, and thus are
rewarded more regularly with out sized checks. In essence, stinking
rich folks can afford to take it in the teeth occasionally, however
embarrassing that may be. Risk takes on another order of magnitude when
the difference in a loss is between the polite tut tut\'s at the club,
and living in your minivan with the family. The opportunity to
participate in risk is limited by the objective magnitude of failure.

 

Behavioural Finance suggests that risk tolerance is also governed
by human foibles. Most small investors understand that the markets are
a game fixed in favor of the Goliath and well connected. This keeps
market participation to only the foolhardy, or as researchers have come
to know them, gamblers. Gambling requires a certain set of unfortunate
human traits; a taste for un-rational risk, and the sad affliction to
always overestimate ability and profits, while to simultaneously ignore
or rationalize away the losses. Finance is another sport where
testosterone plays a deciding role. It\'s a male thing.

 

Entry to Wall Street is barred to those without high levels
of economic and social capital. The size and influence of that capital
dictates the amount of risk aversion, and acts as a limiter on the
opportunity to consolidate great wealth from the markets. In this way,
free markets, capitalism, and liberal economics have fashioned a system
of wealth and power that is increasingly oligarchic, self perpetuating,
and completely undemocratic.

 

The staggering bull market just ended only served to speed up the
process, as boom markets favour those who can push the limits of risk
with mountains of capital. The limits of risk apparently being highly
leveraged in a head scratching soup of acronyms, with absolutely no
idea of what will happen if for once, you were wrong.

 

The brutal market collapse and general maelstrom of economic
disarray in late 2008 laid bare the inequities of free market equity
investing. The greater part of America that invested in the markets had
their hopes and dreams shattered, and their ability to spend
cauterized. That spelled job loss and eviction for the four fifths of
the country that was living beyond their means, trying to keep up with
a dream they were silently denied entry to, and dependent on the
largess of the market investors seemingly endless disposable income.

 

For those who had the opportunity to take the biggest risks, and
for whom those successive risks had ensured survival in an
ever-decreasing club of consolidated wealth and power... they all took
\"haircuts\". For this elite class of investor, boom and bust did little
more than jiggle about very big numbers on streams of personal
financial statements. If you found you had to sell the home in the
Hamptons in the worst real estate market in history, you were not in
this class.

 

Far from spreading wealth, boom markets concentrate gain, and
solidify ownership of America\'s real power elite. In a crash, the
process is the same but brutal, when those without the resources to
stay the course and take real risk on recovery are shut out, or worse,
lose all faith in the value of risk and the hopelessness of the Wall
Street game.

 

When the Dow Jones Industrial Average rises, who does it
benefit? Those with investments in the stock market, who have the
social standing and resources to accept the risks that reward so few.
The great balance of traders - small, individual traders alone or in
groups - can seldom do any better than average - and average barely
keeps ahead of inflation. For the two thirds of Americans not in the
markets at all, it hardly matters a whiff.

 

There is nothing democratic about \"the markets\".