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The Indomitable Investor: Why a Few Succeed in the Stock Market When Everyone Else Fails by Steven M. Sears

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Misperceptions and Illusions

It is not even clear that the Securities and Exchange Commission fully comprehends how disconnected it appears, and thus the financial market, from investors. In 1937, William O. Douglas, who served as SEC chairman before joining the U.S. Supreme Court, said the SEC was the investor’s advocate. If only that oft-quoted quote rang true. It seems the SEC is increasingly losing the ability to keep pace with change, and missing opportunities to fix major issues because it is so focused on minor issues.

This gives SEC’s pronouncements, at least as they relate to individual investors, a theatrical irony. The SEC says on its own website that the purpose of regulation is to insure companies selling stocks and bonds tell the truth about their businesses, the securities they are selling, and the risks involved in investing, and that people who sell and trade securities—brokers, dealers, and exchanges—treat investors fairly and honestly by putting their interests first. Yet, it is hard to find anyone short of a corporate lawyer, securities regulator, or Wall Street executive who thinks anything close to that ever occurs. Gib McEachran, of HMC Partners, a wealth-management firm in Greensboro, North Carolina, says many people feel the financial system is rigged. “Individual investors feel the system is so complicated that only Goldman Sachs and J.P. Morgan and others of their ilk know how to make money.” Therein lies the problem—and an indication of the solution. ...

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