To buy stock, a man gives his order to one of these brokers or dealers and pays a fee based on a standard schedule of rates. When he sells stock, this involves another fee, unless he's bought stock in a company that waves the fee.
The more frequently a customer buys and sells, the more fees he pays. A broker or dealer cannot make much income on a customer who buys stock and holds it for many years, except for the few customers wealthy enough to own a large amount of stock. So a broker or dealer is likely to prefer active speculators as customers; and the stock exchanges handle transactions in a manner designed mainly to please speculators, with extreme emphasis on speed.
A stockbroker or dealer may buy and sell stock on his own account rather than for a client. He acts as a cushion, making it easier for his clients to buy and sell quickly. But from the viewpoint of a long-term investor, he resembles a speculator.
A speculator aims to buy a stock that will soon rise considerably in price, so that he can then sell at a profit. Or if he expects a stock to drop in price, he "sells short," a device that enables him to borrow and sell stock he does not own, and to make a profit if the price falls soon enough and far enough. Either way, he needs a forecast or a tip on how the stock's price is going to move. Brokers furnish these as a free service to their customers. Or a speculator can subscribe to one or more of the advisory services that issue forecasts frequently, usually weekly.
An outfit that makes a business of offering advice on the stock market has a better chance of selling its forecasts to a customer who keeps close watch on the market and acts frequently. So while one adviser may differ sharply with others as to what is going to happen and which stock is best to buy or sell, the advisers have the effect of working together in arousing speculators to act, and frequently. The great majority of the advertisements issued by advisory services and brokers are aimed at people inclined to do at least a little gambling.
Does stock gambling pay? Of course most speculators sometimes guess right, and in a period of rapid rise in the average level of stock prices, as in 1954 and 1958, the odds are in favor of a speculator's being able to sell his stock for considerably more than it cost him. But is there proof that some method of speculating has worked well, on the average, over a period long enough to include all sorts of conditions? It seems likely that no experienced gambler has adequate long-term records, at least not that he cares to publish.
Wall Street contains numerous brokers and other advisers, apparently quite prosperous, who recommend speculation, the implication being that they can show a client how to gamble successfully. But a cautious amateur needs the answer to two questions: First, did the adviser's wealth come from his own skill in speculation, or from some other source; and especially, is it the result of his skill in inducing large numbers of get-rich-quick clients to pay his fees? Second, if the adviser has actually been consistently successful in speculating, does he understand how he did it, and can he explain well enough so that his client can have long-term good results?
Keeping records of one's successes and failures when investing in the stock market can be very telling, but few if any people actually do so. We highly recommend finding a broker you can trust and keeping careful records of your investments.