We're going bust playing Wall Street slot machine

September 19, 2008 12:16 am

IMAGINE sitting down at a slot ma-chine and putting in a $20 bill.

You start pulling that handle, just to have a little fun, when, about $10 into the game, you hit a $100 jackpot.

All of a sudden, you're not playing for fun anymore; you're playing to make money--incredibly easy money. And while you know you should take your $90 in winnings and walk away, you don't. Greed takes over and you want to win more.

Anyone who has ever played a slot machine knows what happens next. The $110 that you had dwindles, and finally you end up losing both your winnings and your initial investment.

Oh, but that machine hit once and you know it can hit again. So you invest another $20, but this time you hit nothing. Then you put in another $20. Now you forget about winning big. All you're trying to do is get back to even.

That's the game that some people who are heavily invested on Wall Street are playing right now. With many stocks floundering and America's economic future filled with uncertainty, they're just trying to get back to even.

The difference is that the guy who sits down at the slot machine is usually playing with some extra money he really doesn't need, while investors are often gambling with their life savings.

In both cases, however, greed is the fueling factor.

We live in a society of people who don't want to work. Now, few people in history have loved to work, but we somehow feel that we can break free from the chains of everyday bills if we just invest wisely.

In fact, stockbrokers tell us that all the time: Put you money in stocks and you can retire when you're 50 and live the good life!

Such assurances started to seep into the American culture in the mid-1980s, and we began to believe this in the late 1990s when stocks soared. Suddenly, the word "portfolio" replaced "passbook savings" in our financial thinking.

The big plan, of course, was to outsource the physical labor and the 9-to-5 grind to someone else while we sat back and watched our stocks make us rich.

If making money were that easy, no one would have worked a real job since the stock market first opened. It's like playing a slot machine; you might win a little bit here and there, but when all is said and done, you're not going to beat the system.

Yes, there are a few people who make their living gambling and others who make a fortune in the stock market. But both groups are probably going to go broke several times during their careers.

And those who thought they were set for set for life because of their Wall Street investments in the 1990s are now working part time to subsidize their retirements.

Investing in a good, solid company may help you pick up a few extra bucks. But those investors who are now suffering through the second severe market downturn in five years are finding out that they're not going to get rich quick on Wall Street.

That's what the stock market has been for the past 13 years--a get-rich-quick scheme. As with slot machines, somebody always knows somebody who has made a fortune.

So we are attracted by the squeals and the bells and we lay our money down. Cautious investing turns to greed and pretty soon we are just trying to get back to even.

It used to be that we bought stocks to get a dividend check every three months. Now, most care nothing about dividends; it is that quick rise in the stock price that we want. Buy low and sell high! Make money quick and get out!

But just when does the average American get out of the stock market? Well, never, if you listen to the "experts." You don't want to get out when stocks are high because they might go even higher. And you don't want to pull out when stocks are down because you'll lose money.

And if you have a 401(k) or something similar, you face the prospect of paying delayed taxes on your money if you sell the stock.

You must stay invested "for the long term," so the experts say. The problem is that "the long term" is forever and your money does you no good if you never take it out.

Of course, we're all stockholders now. We own Freddie Mac and Fannie Mae, Bear Stearns and AIG--all at a cost of maybe $400 billion.

So where does the federal government get all that extra money? Well, it just starts printing more paper currency.

Isn't that what happened in Germany in the mid 1920s? When the economy failed, didn't the government just start printing more money and putting it into circulation? Didn't that cause massive inflation and lead to the greatest depression the world has ever known?

Oh, but that could never happen again!

Yeah, and banks and other lending institutions could never fail again. But they have.

And when companies fail, stockholders are left holding the bag.

But just put in another $20 bill and pull that lever. You might hit a jackpot that will bring you back to even.

Those who bought Cisco stock at $82 a share in 2000 are still looking for that jackpot eight years later.

Any way you cut it, the stock market is a gamble. And, as with slot machines, if you can't afford to lose, you've got no business playing.

Donnie Johnston:
Email: djohnston@freelancestar.com