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How Rigged is the Stock Market Actually?

Depends on your market position really.


The stock market is rigged insofar as there's an asymmetry between different people's financial position and their access to information and knowledge. But isn't that the case with almost everything else on Earth? The old adage - 'you've got spend money to make money' - holds true in securities (stocks and bonds) markets the world over. Because a 10% return on your Rs. 10000 investment yields a modest 1000 bucks, but on an investment of Rs 3 lakhs, it yields 30k a starting salary for some quarters.


How Rigged is the Stock Market Actually? New York Stock Exchange Art, NYSE Art

The rich get a head start; in fact what they call the 'smart money' - high net-worth individuals, hedge firms and investment banks - will at times bend the market laws just by their sheer financial might. The rest of us, the brave retail investors, the folks playing the market with more wit and will than with a bottomless piggy bank have to contend with choppy waters.


Perhaps, for many, the prospect of investing money in somethings as moody and manic depressive as the stock market, and dipping in the world of financial wizardry seems full of unnecessary risk. Especially, looking at people like Warren Buffet, George Soros, or the late Rakesh Jhunjhunwala, who appear built different from the rest of the crowd. Or looking at the Chase Manhattans, Goldman Sachs or HDFCs. How do we compete?


The ones professionally involved in finance have got all the time and resources in the world to examine, evaluate and deliberate the bargains, purchases and deals on stocks, bonds, and other such financial instruments. They get paid to do voluminous research and calculations for the most probable and profitable buys. Most retail investors do not have the luxury nor do they have the requisite skills to dive so deep. But they can always be honed with time and practice.


Because at the heart of it, investing remains very simple. One finds undervalued and underappreciated stocks, buys them and sells them for a profit. It is gospel, preached by legends like Warren Buffet, Benjamin Graham, David Dodd, et al, that the best business practice in investing is to do due diligence and practice patience. As long as we can understand the business whose stock we're buying, and as long as their fundamentals are good, the risks are minimal. Say you are thinking like ITC, or Hindustan Unilever, than all you have to do is learn a little about their business model, check to see their financial statements (income statement, balance sheet and cash flow statement), and their annual reports. As long as the businesses are fundamentally good, they don't have too much debt, they are making adequate net income, they manage their cash flow well, and a whole bunch of other such rudimentary considerations, it's all well and worth for purchase. For long term investing.



Learning technical analysis to follow the price movements of stocks to require a little practice. But once you've put in a few rounds with that and the fundamental analysis mentioned above, you've got all you need to play the game. Entering the world of (intra-) day trading, and of derivatives like futures and options get a little more complex. They are more speculative and riskier. The world of complex financial calculus and quantitative analysis also exists, but it's not nearly as important as you think. Or as Benjamin Graham puts it in his canonical classics of investment literature, The Intelligent Investor (1949) -


In 44 years of Wall Street experience and study, I have never seen dependable calculations made about common-stock values, or related investment policies, that went beyond simple arithmetic or the most elementary algebra. Whenever calculus is brought in, or higher algebra, you could take it as a warning signal that the operator was trying to substitute theory for experience, and usually also to give to speculation the deceptive guise of investment.

As long as prudence, patience and the notion of self-reliance and responsibilities stick with you, you'll be just fine.


Because the real deliberate malicious rigging doesn't occur from the aforementioned asymmetry of resources and knowledge, as much it comes from intentions. Financial wizardry and fraud are but next door neighbors, and there are people out there looking at every opportunity to be slick and finesse people out of their money.


The Harshad Mehta scam and the Bernie Madoff scam are examples of investors getting in with unscrupulous individuals. The Great Recession of 2008 with its junk bonds, the dotcom bubble crash of the late 1990s, or even the Great Depression of 1929. They all arise from the collapse of due diligence on the investors' part; people getting swayed by the promise of 'easy money'. So, for the individual retail investor, their biggest hurdle comes from keeping themselves cool and collected when it appears like a gold rush in in full swing. Often, such gold rushes are speculatory, and as they progress they further stary from what the fundamentals ought to be - is the business being run properly, is it making money, and does the value of the enterprise justify the price of the stock.


The Adani-Hindenburg controversy of earlier this year is perfectly illustrative of this conundrum. Hindenburg Research, a New York City based investment firm shorted stocks of various Adani enterprises listed in the stock market - finance-speak for betting against a stock rather than for it. The event became widely publicized, especially as Hindenburg put it out there that the stocks were artificially inflated, alleging that the Adani Groups had offshore shell companies purchase a large volume of shares jacking up their prices and making it appear more valuable to other potential investors. AKA stock manipulation. The stocks in question had a meltdown of their prices, and a whole big media tamasha ensued.


It must be noted that officially, the Supreme Court and Securities & Exchange Board of India (SEBI) are still probing into whether there has been market manipulation and fraud of any kind. Legally nobody has got anything on anybody. However, that doesn't matter for the small time retail investor, who must have seen the glorious run Adani stocks had since 2019 to early 2022 and thought of getting themselves a slice of action, only to be get cut by larger forces. Get cut up by 'smart money' financial firms and mega corporations doing their dance as they do.


The fact remains, in the end, for the average individual the stock market is rigged due to asymmetry in resources and information, but also due to the general inexperience and knowledge. The latter two, as will be vouched for anybody in investing, can balance out and even neutralize the former two disadvantages. If only we stick to the time honored virtues of patience and due diligence.



It is a political economic fact that the world is very different from the mid-20th century of industrial capitalism; and the so called golden days of a 9-5 job for 45 odd years and a neat little pension to cap of our lives. Real wages growth have been stagnant for decades, and the cost of living, the cost of property ownership, of education and healthcare, and taxes are all getting only more expensive. Neoliberal capitalism is more dependent on financial wizardry then ever, it is more dependent on debt-fuelled economic growth. As society good guy and reliable finance influencer, Akshat Shrivastava, very rightly points out, it is time to get savvy about finance, to build real long lasting, dare we say even dynastic, wealth. Something they don't teach you in school for some reason. Because the biggest disadvantaged most people have, once again, is the lack of experience in navigating the choppy waters with confidence. It's relying on someone else for the confidence to invest ones own money. Educating oneself to attain that self-confidence is sacrosanct.


The stock market game is something that absolutely needs playing, and everybody should stake their claim in it. It is one of the most unwitting and unique form of financial and economic democratic infrastructures to arise in thee modern world. Ironic, given that the modern manifestation of the joint-stock company has its roots with the parasitic imperialistic colonial firms like the British and the Dutch East India Companies. And yes, today's big businesses and corporations may be as soul-sucking and somehow as soulless, caring only for the bottom lines of profit. But the securities market remains one of the institutions where theoretically anybody can stake their claim.



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