Why We Invest

NEW YORK (TheStreet) -- You've seen the headlines: "Is Wall Street Fair?" The obvious answer is no, of course not. Never has been. But that doesn't mean we should stash all our excess cash under a mattress.

The controversy over Facebook's ( FB) disastrous initial public offering has been exacerbated by allegations that Morgan Stanley ( MS) only shared accurate information about the company's growth prospects with certain privileged clients.

The New York Times reports that investment banks are furnishing advanced information about changes in stock ratings by sell-side analysts to large hedge funds. Meanwhile, automated, algorithmic trading by computers that exploit early access to information make up an increasingly large portion of the trades placed on major securities exchanges.

This is merely a sampling of the growing body of evidence that the average investor is being snookered. How are the rest of us supposed to compete against the financial titans?

Simple: We can't. Many people seem to be catching on to this reality these days as if it comes as some revelation: "Hey... Eureka! Wall Street is a rigged casino, and the house always wins!" The fact that this comes as a surprise to anyone is testament to the power of the financial industry's marketing prowess, which peddles the services of major financial institutions with images of jingoism and paternalism.

The industry's long-nurtured brands have taken a well-deserved nosedive since the financial system came to the brink of disaster and numerous paragons of American capitalism had to accept bailouts from the federal government to avoid ruin.

Meanwhile, the performance of the stock market has become a long-term disappointment over the last decade for most, and this has people raising questions about the industry with a level of skepticism I haven't seen before.

The truth is that the financial industry is like any other industry -- it's trying to sell you products and extract as much money out of you as possible in the process. Like a casino, the industry plays on your aspirations to be richer in order to get you to invest.

Its methods have only become more craven in recent decades as the financial industry's influence in government and the media has increased while public standards have devolved. The false promise that someone can speculate his or her way to prosperity became accepted as a valid message that should be embraced.

The public's newfound skepticism is well-founded, but let's not throw out the proverbial baby with the bathwater.

It's easy in this climate to view the stock market as a casino game where prices go up and down based purely on chance, the whims of market forces that are beyond anyone's comprehension.

In the short term, that's actually not too far off the mark. But as I've written numerous times before, intelligent investing requires the investor to ignore the short term and adhere to long-term thinking.

In the long term, shareholders are part-owners in a business. If they're exercising their rights as shareholders properly, they should be sharing in the long-term growth in profits that the underlying business generates.

Don't try to beat Wall Street at its own game. Statistics show that even the pros, with all their advantages, usually can't win in the short term by accurately forecasting macroeconomic conditions and timing the fluctuations of the market. That's gambling, and in a casino the house almost always wins.

People shouldn't invest with the idea that it's going to substantially raise their socioeconomic profile. They should invest to preserve and grow the value of their hard-earned income over time.

Don't buy a stock thinking it's the next Apple ( AAPL) or a lottery ticket that is going to rocket upwards anytime soon.

Buy a stock with the knowledge that you're becoming the owner of a business that you believe, based on careful research, is going to be earning far greater sums of money long into the future than it is earning now, and then wait patiently through the ups and downs of the markets and the economic cycles.

If you can't do that, you shouldn't be buying stocks.

Why should we believe that stocks will generally rise over time? That is what has happened throughout American history so far.

Yes, there are valid concerns that the U.S. has become an empire in decline, but these concerns have gained traction in times of hardship before, and they have ultimately proven incorrect. That said, history doesn't always repeat itself, and there are no guarantees of success in this endeavor.

What are the alternatives? Cash is certain to lose value over time due to the insidious effects of inflation. Hard assets like real estate, commodities, precious metals, antiques or works of art can play a useful role in an investment portfolio, but long-term investments in stocks and bonds that avoid excessive fees should not be abandoned.

If you're saving money, then there's really no escape from investing. People shouldn't avoid making sensible decisions because they're paralyzed by fear.

At the time of publication the author held a position in AAPL but has no positions in any other stocks mentioned in this article.

This article is commentary by an independent contributor, separate from TheStreet's regular news coverage.

This contributor reads:
The Oil Drum
The Baseline Scenario
I Want Media
Zero Hedge
Gregor Macdonald
Chris Martenson
On Twitter, this contributor follows:
Doug Kass of TheStreet
Jesse Eisinger of Pro Publica
Daniel Alpert of Westwood Capital
Barry Ritholtz
Joshua Rosner, managing director of Graham Fisher & Co.
Bob Lefsetz, a music industry blogger

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