We’ve all been conditioned to see meme investors and Wall Street in opposition, but they seem to have a lot in common. Both believe in picking stocks and think they can beat the market. The important distinction is that Wall Street stands to make a lot of money off meme investors simply from trading costs. For those who say apps don’t charge for trading, think about it: When was the last time Wall Street gave away anything for free?

I think the best long-term investment strategy has little to do with prediction or stock picking and everything to do with investing in human ingenuity. Human ingenuity is the engine that drives the stock market. The real anti-Wall Street revolution began in academia in the 1960s. It evolved into the formation of index funds more than 50 years ago. The academics spearheading this revolution found no compelling evidence that any individual can consistently beat the market, but the market itself returns, on average, about 10% a year.[1]

Why do individuals have trouble beating those returns? In transparent public markets governed by the rule of law, enormous numbers of buyers and sellers come together to trade. Both sides of every trade must feel like they got a good deal. Otherwise, they wouldn’t trade. That’s what people mean when they say prices are fairly set.

When Wall Street or meme investors think they can capitalise on “mispricing,” they’re not betting against Wall Street so much as they are betting against human ingenuity. 

When you bet on individual stocks, you might win, or you might lose, but over ten years, you’re unlikely to harvest a better return than if you invested in the whole market. If you stop and think about it for a minute, this makes sense. Markets only work if they are unpredictable. After all, they constantly respond to new information every day. If we could predict when the market would move, there would be no market. Nobody knows when a certain stock will go up or down. Contrary to what both Wall Street and meme investors want you to think, there is no analysis method, no matter how “proprietary” or sophisticated, that tells us what will happen.

So when Wall Street or meme investors think they can capitalise on “mispricing,” they’re not betting against Wall Street so much as they are betting against human ingenuity. I’m referring to the millions of people working hard to maximise the value of their companies and millions of investors trying to make the best possible trading decisions based on all available information. Sometimes speculators get lucky, and sometimes they don’t. Regardless, I don’t call what they’re doing investing. I call it speculation—even gambling.

Buying the market is a different approach. It’s investing in human ingenuity. People working to maximise the value of public companies are innovative and resilient. They adapt to improve products. They create new processes to solve problems. While you can’t predict what a person will do on any given day, you can predict that humanity will persevere. The market reflects this simple truth.

The market can reward us for having faith in our fellow human beings. Investing—like life —is full of uncertainty, but at the end of the day, it’s uncertainty that drives opportunity and returns. Investing is not about trying to outguess Wall Street or meme investors on which stock will go up or down and when. It’s about choosing to side with human ingenuity and betting on a better future than today—because of the hard work of everyone you know and the many millions you will never meet.

Reproduced with the permission of David Booth, Executive Chairman and Founder, Dimensional Fund Advisors.

1. [1] In US dollars. S&P 500 Index annual returns 1926–2021. S&P data © 2022 S&P Dow Jones Indices LLC, a division of S&P Global. All rights reserved.

Duncan R Glassey
Managing Director – WealthFlow
duncan.glassey@wealthflow.com

This article is distributed for educational purposes and should not be considered investment advice or an offer of any product for sale. This article contains the opinions of the author but not necessarily the Firm and does not represent a recommendation of any particular security, strategy or investment product. Information contained herein has been obtained from sources believed to be reliable but is not guaranteed. Past performance is not indicative of future results and no representation is made that the stated results will be replicated. Errors and omissions excepted.

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WealthFlow Group Ltd. Registered in Scotland No SC635011. Registered Office: 10 Charlotte Square, Edinburgh EH2 4DR.

Head Office & Consulting Rooms: 10 Charlotte Square, Edinburgh EH2 4DR.

Mail correspondence to our Central Scotland Admin Hub: WealthFlow Group Limited, PO Box 14947, Grangemouth FK3 3AU.

WealthFlow Group Ltd is authorised and regulated by the Financial Conduct Authority.

The guidance/advice contained in this website is subject to the UK regulatory regime and is therefore restricted to consumers based in the UK.

For your protection, unresolved complaints can be referred to the Financial Ombudsman Service.

To contact the Financial Ombudsman Service, please visit www.financial-ombudsman.org.uk.

WealthFlow Group Ltd. Registered in Scotland No SC635011. Registered Office: 10 Charlotte Square, Edinburgh EH2 4DR.