The Old Shell Game - Now You See It! Now?~
When you gamble in a casino, all of the numerical odds are in the favor of the house. If you are at a roulette wheel and there are 50 numbers on the wheel and 4 gamblers are placing bets. 46 of those numbers are for the house except red and black and the house has a 50/50 chance on colors. Since the majority of all numbers in play at any given moment are covering the house, the house will always rake it in. All customers are losers more than winners and the house wins. The slot machines are not called "One Arm Bandits" for nothing and big losers are called "High Rollers".
Insurance Companies are just like a casino, in the respect that they always try to keep the numbers in their favor. Let's say I have an insurance company and I have 100 customers with late model autos. Now, let's say I make approximately $2000 for an annual premium off each customer, that's $200,000 in income annually. Now, the average customer does not want to have a wreck or file a claim but, let's say 5% of my customers have a claim filed and one was a total and I had to pay off a $20,000 bank lone. That's only $30,000 and I've still made money. In reality Insurance companies have thousands of customers and more money coming in than going out and more people not filing claims than filing. The cash flow is always in the favor of the house. Our illustrious Congressmen and Senators have given the books away to the highest bidder and the Insurance companies are now able to invade your privacy and ask you for your Social Security number, so they can check your credit records and pass their own judgement on John Q. Citizen. Even though they are not giving you any kind of credit, they are looking for a reason to increase your premium. This is a blatant display of presumptuous arrogance in order to stack the deck in their favor. I do not give insurance companies my Social Security number because I'm not asking for credit.
Brokerage houses operate the same way. They are like a bank. They know that on the average, all the daily numbers on the exchange fall more than they rise. That's why you see a small number of winners on the stock reports. Now, lets say I walk into Merrill Lynch with $10,000 and place my bet on the General Motors of Wigets (GMW) $26.80 a share. They are going to charge me a fee and let's say the stock was all over the place that day. All the way from $25.50 to $26.80 during the 6 hours of trading and the only time it hit $26.80 was at 1:00p.m. and it closed at $26.10 at 3:00p.m. The posting to me for the trade that day will be at it's highest mark. Now Merrill Lynch doesn't actually buy the stock certificates they just give me a piece of paper stating my transaction. Now they are hoping that the stock will go down and that I'll get disillusioned with it over time and sell all my shares for $8,000 therefore the brokerage house makes money. A bad day on the market is a good day for the brokerage house. The name says it all. If you had the ability to pick more winners than losers you could get rich. So, let me give you some advice about investing. Do not ever park your hard earned cash in volitile stocks and equities for the sake of greed in order to make money, you will lose. Only park your money in debt instruments only where the concept is "I loan you my money, you give me my money back plus interest" capital preservation. There are some good "Bond" mutual funds that pay 10% or better. The brokerage houses are very much like a casino, the numbers on any given day are always in favor of the house.