Millions of people are lured into buying stocks by promises of the financial industry. Gains of others that make jealous are the temptation to pursue less sophisticated strategies:

• Watch TV or read the newspaper and simply go with the flow, do what other do, buy some arbitrary stocks and hope for the big money.
• Have a friend who is -of course- an expert and recommends something.

Or these promises may be presented more subtly disguised as smart success strategies:

• Use charts, find patterns and calculate precise entry points to have an edge.
• React to news and price changes quicker than everyone else and have a speed advantage.
• Be a fundamentalist, analyse and examine every data that comes out of a company, and then buy only cheap at a reasonable price.
• Make global judgements about the economy and hit the right turning point for a general entry into the market to elegantly avoid analysing details of pea size.
• Buy the broader market with index funds, based on the idea that overall the stock market reflects the ongoing advance in the world and thus stock indices are doing well long term.
• Delegate the work of making investment decisions to a professional, who, because being a professional, should outsmart the market.

Most people adhere not only to a single pure form of these strategies. They rotate between them, they try different flavors of them, they mix things up, they even start an investment with one strategy and close it with another. Or they start trading and end up with an investment. Nonetheless the latter behaviors seem to have all good arguments. The former types of investors are in one sense rare - if a statistical inquiry were conducted, most participants would think of themselves belonging to the smarter group and would associate their reasoning of what they are doing to the latter strategies. This widespread optimism probably causes the general belief, that investing in the stock market will make people wealthy. Now let's consider a different view of the underlying mechanism.

In the middle we have Mr. Doe, the private investor, left to him sits Mr. Clever who is a professional fund manager and at the right of him is Mr. Smart, a professional money manager for individual clients. On the other side of the table we have Mr. Broker, Mr. Market-Maker and Mr. Company. They all are doing what the market does - they are exchanging stock shares and bank notes, putting them on the table and taking them away at times. Let us concentrate on the money only, after all the money is the only thing that counts. Neither has the table a hole through which money could vanish, nor does money rain onto it. All money put onto or withdrawn from the table has to go through the players' hands. Let's have a look at Mr. Broker first.

He charges a fee for simply forwarding an order from Mr. Doe, Mr. Smart and Mr. Clever to someone else. All that without risk and pain, and after doing so he pockets the fee. He can't make a loss, so with a bunch of marketing tricks he animates everyone to give him as fast as possible a new order. Important here is, what he does with regard to the table. He never puts money onto it, he only takes money away.

He is the one who takes the other side of a trade and makes a mostly riskless business with the spread, the difference between buy and sell price. Furthermore he has state of the art equipment, which he watches like a hawk all day in a big room with other's doing the same, hoping that many hawkish eyeballs are seeing more than single prey's ones. But that's not all, he is known to be in a strong trading position, too. He works for a big company with much money, which other traders fear, so he is able to drive prices up and down, enticing euphoric Doe into high prices and shaking out trembling Doe with a loss at low prices. He initiates breakouts, which Doe falsely interprets as signals. Doing so he himself buys low and sells high. Some badmouthing tongues even argue that Mr. Market-Maker makes money with illegal insider information, front running or stock pumping. Not enough with that, he is supposed to create up- and downgrades, something like home made news, just to influence supply and demand of a stock to force its price to a level where he can sell or buy with more profit or a smaller loss. Overall Mr. Market-Maker seldom makes a loss, on average, he always wins. To make it short, he too takes only away money from the table.

He has a special seat, with a big sign above it, on which is written - on his side so that especially Mr. Doe can't see it - "capital source". The other side of this sign could be labelled "capital drain", but that would lower the mood, so it only says "welcome". Mr. Company comes to the table right away from the printing press, with a big chunk of newly created stock certificates - paper, which he dumps on the table while cashing in tons of money. Will he ever give this money back? Hehe, stupid question, no he won't. The alternative for him is to borrow money by issuing bonds, which he obviously thinks of being more expensive in this case than selling paper. After all in the bond market he would have to give back what he borrowed after paying interest for it.

In very few cases his company survives and prospers. Then - in the far distant future - it is expected to pay back something to Doe, Smart and Clever. Mr. Company can ignore such an expectation for a long time or even for the whole lifetime of the company, there is no law requiring him to fulfil it. But he can do so by paying a marginal dividend or by buying back directly some shares from current holders, preferably when stock prices are low. That looks good and may cost him no money at all, because there are some nice ways to offset such payments:

• First, while making these payments, he can do a secondary offering. Mr. Company simply comes back to the table and dumps again a chunk of paper on it. Sounds primitive? No problem, he can mask the operation a bit.
• He does it just a bit before or after the phase of payments, preferably when stock prices are high. Selling high and buying back lower is a profitable business on its own.
• Or he creates sort of options by printing the words "warrant" or "convertible bond" on the paper. That means that he starts two dumping actions, one now for the option paper and one later in the future for exchanging the option paper for the original paper, cashing in twice.
• Even better he splits off a part of his company, declares it being a new one and sells paper with a new company name printed on it.
• If he is lazy, he simply distributes paper with the old name to the employees of his company. He can pay smaller salaries this way. Employees get shares proportional to their importance, meaning that he gets the biggest share, because he considers himself of being most important. Instead of one big, many smaller lots of paper are now sold at the table.

There is another rare and special case how money comes back from Mr. Company, a cash paid take over. Another Mr. C arrives at the table and buys with real cash all paper of Mr. Company from Doe, Smart and Clever back. But usually this other Mr. C got the whole money from the table himself, so this way nothing really comes back.

Actually Mr. Company is supported by two other persons behind the scenes. Mr. Investment-Banker helps carrying Mr. Company's paper chunk to the table. With much trumpeting he praises its quality as an investment. If Doe, Clever and Smart are still skeptical, Mr. Market-Maker, with his many tricks, makes the new stock's price going up. Then Mr. Doe loses all doubts and shoves the tons of money over the table to Mr. Company. Mr. Investment-Banker's risk is that he projects too big a chunk of paper, so that he has to push the missing tons of money to Mr. Company, but that happens rarely. Mostly Mr. Investment-Banker just gets his fixed percentage of the sale from Mr. Company. Seen as an entity both will of course always drain money from the table during the paper dumping action.

Mr. Company's second supporter, Mr. Venture-Capitalist, got beforehand his own chunk privately from Mr. Company in exchange for money, hoping that Mr. Company raises the seed and is invited by Mr. Investment-Banker to the table eventually. He may even get a chunk from Mr. Company later when the stock is already on stage, typically for a better than the price at the table. In both cases he hopes that he can sell his chunk for a profit, which may or may not come true, but at the table he will never do anything else than selling his shares and raking in money.

So we have three gentleman at the table taking away money. Some do it gently but constantly, some more raid-like.

Finally Mr. Taxman appears every now and then, grabs some money from the table and out of the trouser pockets of the participants and grins. Of course he never puts money onto the table either.

What about Doe, Smart and Clever? Well, they are fighting for who has to pay the least amount of money to feed the other side. We know that Clever and Smart are acting on behalf of Doe. They get a riskless payment from Doe for this fight, so it is not really that important for them whether they lose more or less.

It looks as if poor Mr. Doe is the real loser in this game. Interestingly Mr. Doe has a different perception of this.

This seems to be a paradox. Yet it is none. The table view of the stock market is a totalized one, a view which cares only for averages. Of course there can be many individual Does having made their profit in the market, but on average Doe is the big loser. There can be a market maker, who suffered a big loss, which he never recovered, because he went broke. Yes, there are even companies caring for their shareholders buying back stock shares and paying dividends with every free cash they earn, not offsetting these payments with tricks Mr. Doe is not aware of.

A second point of confusion is what happens away from the market. Mr. Market-Maker and Mr. Broker may have to pay a hefty monthly bill for their equipment, salaries and rent, so that they only break even. Mr. Venture-Capitalist may enthusiastically invest in any nonsense idea he hears of, so that he overall makes a loss. Mr. Company may have the wrong concept, not enough talent or too much competition, causing him to burn all money and go broke. He may be a genius, resulting in ever growing earnings of his company. All that is not important for the table model of the stock market. A rising price of a paper doesn't matter. It looks like Doe, Smart and Clever are winning in this case, but alas, high prices are only tempting Mr. Company to sell more shares instead of buying back his paper. The only question that counts, is

The futures market is called a zero-sum game, because for every contract traded, there is a buyer and a seller and what one wins must be paid by the other. There is the proposition that the stock market is a positive-sum game, because over a long term, let's say some decades, stock market indices went up. Well, the table model suggests that the opposite is true. For Doe, Smart and Clever it is a negative-sum game. How can that be? Over time problematic index stocks get replaced by fresh ones with brighter future perspectives, so indices are distorted. But the main reason is simply, that all the owners of stock own paper but not money. If they all wanted to exchange their paper into money to get what the ever rising indices promise, these indices would drop to zero immediately. The stock market is basically a pyramid scheme, which implodes eventually, sometimes self induced, sometimes triggered by external events. More often it implodes only partly for some stocks or temporarily and so that not all stocks recover. Every general bear market and every crash of an industry shakes out numerous stocks, but the indices look still well in the long run, which may be one reason why all this is so hard to believe.

Back to the beginning to the more smarter strategies how to beat the market: Will they not allow you to make money in the stock market? Doe, Smart and Clever are essentially fighting for a positive piece of a negative cake. That sounds as if you nearly would have to be a wizard to succeed. If you aim to be a wizard and turn your fate around, you have to have a niche, a specific system in which every part fits to every other. Every particle which doesn't fit, drastically lowers your chance of success. Amazingly you are yourself one particle of the system, your strategy must fit to your personal psychology, you must feel comfortable to follow it. It is possible to combine and refine above mentioned smart strategies, but never stop searching for the grain of sand that blocks the gear. Think about the tricks of Mr. Market-Maker, Mr. Broker and Mr. Company and design your private investment or trading system around their traps. You have to trade or invest not only wisely, you have to do it differently.

for which you may have been searching so long, is exactly the wrong way. You have to avoid everything prefabricated or you are perfect food for the sharks out there. Using a published system out of the box will always put you in a predictable crowd. You may even be riding a Trojan horse, originally designed by one of your enemies. Moreover it will not really fit to you, and it probably has other grains of sand in the gear. But beware, just mixing popular trading or investment system elements crudely into another system, disregarding the traps, will only add some big stones to the grains of sand. A better idea is to let existing strategies inspire you. Have a look at their elements from the perspective of the sharks, combine fitting ones and think through the whole. If playing a negative-sum game against sharks and random, you at least must not be predictable, as the mathematics of game theory shows. You have to create your own very personal and specific system.

What abstract characteristics must a trading system have, that could possibly work - of course only for a minority of users?

• At least some elements must set your trading apart from what others do. The market constantly adapts itself to the wisdom of the crowd.
• The system has to meander around the various traps of the market and still center around a real imbalance and exploit it. Traps and imbalances are hidden. If they were obvious for everyone they wouldn't exist.
• All parts of the system must fit together and you are part of your system. It must fit your personality, otherwise you can't execute it.