July 30, 2020
Many of you may recall day trading became popular in the late 1990s among young people and retirees. The technology stocks, frequently unprofitable, still had increasing stock prices – until the bubble burst. Most day traders lost money.
It was thought those days were over but surprise, it is back.
Smartphone apps such as Robinhood entice young people to day trade with very little knowledge of what they are doing and the consequences. In an extreme circumstance, a 20-year old man thought he was $700,000 in debt and committed suicide. It turns out, he may not have understood the statement. While this is an unfortunate example, it speaks to the dangers of day trading without knowledge.
There is a crop of new investors among the young people sheltering in place. Add to that, the lack of sports. According to Frank Taddeo’s article in Sports Illustrated (May 28, 2020), the pandemic has changed the betting dynamic. Normally, baseball, hockey and basketball would be active and wagers by professionals and recreational gamblers would be betting on the outcomes.
With no sports, evidence shows these sports betters moved to the stock market.
Brent Weiss, co-founder of Fact Wealth, a Baltimore financial planning firm said, “Digital literacy does not equate to financial literacy.”
Trades with no commission make rapid, daily trading enticing.
Get rich quick headlines attract people as well. Professional investors tend to look at risk/reward over the long-term not believing that get rich schemes work. We think a long-term view putting money in the market over time is the best long-term strategy.