Those who live off the fruits of your savings fall into two major categories: the enthusiastic incompetent and the determined conman. The first category includes the most reputable of brokerage firms, those which have stood the test of time (whatever that means) and which trumpet their virtues between segments of our favorite television shows.

These firms employ the best and brightest to analyze thousands of stocks, and to recommend those which are most likely to outperform the market. Why then would brokerage firms, which can afford the best minds out there, hire and retain people who are worse in their predictions than the coins in your pocket? To understand this is to understand Wall Street. The reason for this ongoing illogic is found in the set-up of the game. Wall Street analysts are under intense pressures to be right in the short run which is a very good way to be wrong in the long run.

Compounding this problem is the army of retail brokers, whose livelihoods depend upon the commissions from the trades you make — no action, no income. Jerry Seinfeld has noted that all you need to become a cab driver is a face; to become a retail broker, the only thing else you need is to pass the Series 7 test. Once licensed, these brokers (officially known as registered representives) "work the phones" from morning to night in search of commissions.

To make matters worse, the highest commissions are gleaned from the IPOs handled by another department of the same brokerage firms: the investment banking group. These IPOs generate commissions which are about ten times higher than those on regular stock trades; not coincidentally, IPOs have historically been lousy investments for individual investors.

The bottom line is that you are vulnerable to a system based on encouraging you to trade your portfolio when a long-term buy-and-hold strategy would serve you best, and to buy the "hot" ideas of the moment which are the easiest to sell to the unsuspecting. To highlight one real-world consequence of this system, let me mention a widow I know, about 70 years old, who dealt with two of this country's most renowned brokerage firms. In approximately a year, her registered representatives had reduced her portfolio's value by approximately 60%.

And these are the good guys. At the other end of the spectrum are the sleazy "chop shops", their only reason for being to fleece individuals, their stock in trade the promoting of bogus ideas based on unsupportable claims. As noted in Tom Jones, "To the thief, an honest man is a fool" — and they're very eager for you to be that fool.

One scheme is to sell shares in companies for which they are the only market makers — accordingly, once you buy from them, you can only sell to them and they're not interested in buying. Their business model is quasi-legal theft, and you likely won't see them coming until it's too late. If you don't think they're skilled at what they do, rent the movie, Boiler Room.

In the meantime, do yourself a great favor and steer clear of retail brokers, whatever their affilliation. If you receive an unsolicited call at home or at the office, just say no (immediately!) and then hang up. It's a shame to suggest impoliteness, but these people prey on your decency. Remind yourself: the livelier the sales pitch, the likelier the risk.

Suggestion: Go to Playing the Odds