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January 29, 2021 | Speculative Mania is a Losing Game

Danielle Park

Portfolio Manager and President of Venable Park Investment Counsel ( 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:

The ‘Reddit mob’ has legitimate reasons to feel retaliatory against a financial sector that has increasingly been run by and for predators that are afforded advantage at the expense of their customers, economic strength, taxpayers and workers, worldwide.

But there should be zero delusion that broker/dealers, including the deceptively named ‘Robinhood’ (presently working with investment dealers to cash out its founders in an initial public offering), are platforms designed to “help the little guy.”

The truth is that the zero-commission services were adopted when it became clear that this would attract more users and financial intermediaries could make much larger profits selling their customer order flow to high-speed predators.

Decades of data and experience attest, meanwhile, that individuals expending their time and emotional energy trading financial instruments may ‘win’ periodically, but almost always end up losing money in the end.  See a few of the studies noted in Attention Robinhood power users: Most daytraders lose money:

Given this evidence, why does day trading persist, and why is it so popular? The authors concluded that very active traders seem to believe they know more than they really do. “Overconfidence can explain high trading levels and the resulting poor performance of individual investors,” the authors said.

Their conclusion echoes those of the other studies. “Our central message is that trading is hazardous to your wealth. … Those who trade the most are hurt the most.”

A world of financial platforms, news providers and services are designed to lure individuals with the ‘easy money’ siren song of security market participation.  The more fevered and long-lasting the buying frenzy, the wider the capital losses in the end.  This time won’t be different.

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January 29th, 2021

Posted In: Juggling Dynamite

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