Why I will never win Wimbledon.
It seems we have all turned into avid armchair traders during our time in lockdown. Online trading platforms like Robinhood, Interactive Brokers, or eToro reported huge increases in the number of new account openings. Commensurately, trading volume surged, and the world watched in awe as shares in a select number of stocks soared, leaving many professional traders scratching their heads. Tesla going up by 800% in 2020 is one thing, but Hertz or JCPenney, two companies that are bankrupt, going up by as much a 500% is quite another.
Far be it for us to predict what the effects of all these new investors will have on the markets, other than making for some interesting price movements of course. As far as I am concerned, fresh blood is always good and long have we lamented the rise of the machines taking over much of our investment decisions. However, nothing is ever as good as it seems, and clearly having people with no formal education or training compete with those that do these things for a living will end in tears, no matter what the short-term performance may tell us.
Like everything else in life, to become good at something takes practice and just like you won’t see someone who just picked up a tennis racket win Wimbledon, you will also not find Joe Shmoe beating Goldman Sachs at trading. Fact is, 90% of day traders lose money and that is because everyone can get lucky, but it is very difficult to turn in performance day in and year on out. It is hard to beat the market, and without some sort of edge, be it technology, experience, or scale, there is simply no reason to give up the day job.
Does that mean we should all put down our guns and stop pressing those oh-so enticing buy and sell buttons? No, quite the contrary. Every investor should have their own trading account, but it is a matter of size of bet. It is highly recommended that the majority of one’s wealth is still managed by the professionals, but nothing’s wrong with taking 5% of our money, writing it off, and having some fun. Not only will the experience of winning or losing money provide the thrill we all need in these cold and gloomy winter nights, but it will also further the understanding of how markets work and how to manage risk. And before you say I am condoning gambling, at least in the markets the odds are not set for you. The casino will always win, but Tesla could keep going up forever.