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).

who makes money on wall street
(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.

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