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May 22, 2020 | Retail Participants Going for Broke (again)

Danielle Park

Portfolio Manager and President of Venable Park Investment Counsel (www.venablepark.com) Ms Park is a financial analyst, attorney, finance author and regular guest on North American media. She is also the author of the best-selling myth-busting book "Juggling Dynamite: An insider's wisdom on money management, markets and wealth that lasts," and a popular daily financial blog: www.jugglingdynamite.com

Lockdowns and layoffs have given the masses both free time and a plunge in income over the past three months. This has led to a surge in gambling appetite, hoping to win money through online trading.  Last October’s switch by brokers to commission-free trades has helped to grease the mania even as custodians make hidden fees on credit balances and selling advance notice of their customer order flow to frontrunners.

It has always been the case that the public buys most at market tops and least near market bottoms.  According to data from the Financial Times, 780,000 people opened accounts with three of the four largest brokerages in the US: Charles Schwab, E-Trade, and Interactive Brokers year to date.

Besieged by click-bait and ‘how to play’ tips from the financial sales side, most participants will lose money as usual.  The trouble is, very few can afford to lose what savings they have left, and this makes our collective economic situation even more precarious. Worse, many are drawing on margin and other credit to fund their bets in financial suicide.

The overconfidence and ignorance of so many participants are writ large in chat rooms and comments on financial sites everywhere today.  This is familiar and foreboding. See  It’s a perfect storm of stupid in the stock market right now:

This herd of newbies has charged into the market at a time of incredible uncertainty. Hundreds of companies in the S&P 1500 have withdrawn their revenue guidance for 2020, leaving these new investors with little to go on in the way of forward-looking statements.

…In sum, what we have in the market is an unholy mess. We have bored, unseasoned, emotionally conflicted investors playing around in a murky pool where one of the most opaque sectors [vacinne development] has the ability to make the biggest waves. It’s very stupid — people are going to drown.

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May 22nd, 2020

Posted In: Juggling Dynamite

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