You just purchased 1,000 shares in Acme International at the opening bell for $3.29. Let the games begin. The stock moved up to $3.35! Should you sell? No, wait a bit longer. Darn! The stock tumbled to $3.28, and now it is down to $3.20. Why did you enter the market in this economy? You have a hamster that depends on you! If it goes back up to $3.29, you are just going to sell. Wait! The stock advanced to $3.50 in the blink of an eye. This movement has some legs. You are going to sit tight and see if it touches $3.75 today. What? How the heck did it top $4? It is time to hit the sell button, baby! By the time you log in to your brokerage account, click on your ticker, and unload your 1,000 shares, the stock fell to $3.30. By now, you are on your fourth cup of coffee, you are monitoring every minuscule increase and decrease, and you are praying to the heavens for gains – or breaking even.
Who needs basketball and casinos when you have day-trading? As the sports world is in a coma, waiting for a magical vaccine to restart athletic competition, many Americans are turning to securities for some adrenaline-pumping action. In the absence of baseball or hockey, gamblers have been trying to get that casino thrill by pouring their Coronavirus stimulus checks into the stock market. Other non-gamblers are just killing time. What are the chances that this has helped fuel the 30% rebound since March Madness? Perhaps Liberty Nation’s Managing Editor and chief gambler Mark Angelides knows the odds.
A Gambler’s Paradise?
When you received your $1,200 from Uncle Sam, how did you spend your funds? Food? Utilities? Debts? Or 100 shares in CVR Partners?
In recent months, U.S. brokerage firms have witnessed an uptick in retail trading activity. Charles Schwab reported a 58% jump in new accounts, TD Ameritrade saw a 149% increase, E-Trade experienced a 169% surge, and Robinhood witnessed first-quarter day-trading volumes triple from the previous quarter. With investing cheaper than ever before, thanks to greater competition and fractional trading, it is a prime opportunity for anybody, including gamblers.
A combination of factors, from more time to monitor markets to a paucity of sports-betting, has contributed to the upward trend in day-trading. Dave Portnoy, founder and CEO of Barstool Sports, told CNBC that he reactivated his E-Trade account and started investing massive sums of money in stocks, such as Alibaba and Boeing. For Portnoy, there are parallels between trading and betting.
“It’s the combination of no sports — so you can’t bet on that — and you can’t go outside. There’s a lot of people sitting in front of their computers who ordinarily can’t be day trading. For a gambler, investing has a ton of similarities,” he said.
But Portnoy concedes that “there will be a natural decline” once life returns to some semblance of normalcy. He admitted that he would not “be sitting in front of my computer, watching the stock market go up and down every second.” Portnoy already made the first mistake of day-trading; you do not watch the stock market all day from pre-market to the closing bell. But that is another topic for another day.
The Rise of Retail Investing
It is not just the gamblers searching for an adrenaline rush who got in on the bear market.
According to software and data-aggregation company Envestnet Yodlee, a lot of middle-class Americans transferred their COVID-19 money to the New York Stock Exchange. The firm revealed that trading stocks was one of the most common uses for nearly every income bracket, creating a large number of new accounts at online brokerage companies.
The numbers indicated that people annually earning between $35,000 and $75,000 hit the buy and sell buttons approximately 90% more than the week before receiving the checks. Americans making between $100,000 and $150,000 boosted their trading efforts by 82%, and folks bringing in more than $150,000 bought and sold 50% more often.
The rise of new traders highlighted that Americans wanted to buy the dip and participate in the comeback. If they bought at the very bottom on March 23, they are seeing green as the leading stock indexes have climbed about 30% to 40%.
Bill Parsons, group president of Data Analytics at Envestnet Yodlee, told CNBC:
“There’s clearly a correlation between Covid and people being reengaged with their money. Securities trading did see significant lift week-over-week and I suspect that that’s in part due to big changes in the market.
“There’s no doubt that Covid has caused people to engage with their money much more actively, whether they are more actively saving or actively trading out of positions into new positions or whether they are engaging with their advisor. This has created all sorts of dialogue about managing your money.”
Where have these folks parked their money? Research firm DataTrek says it has mostly been volatile low-priced tickers, such as Aurora Cannabis, Carnival, Delta Air Lines, and GoPro. Of course, traders took advantage of Disney, which slumped to as low as $80 and recovered to above $100. Many scooped up shares in GE and Ford, while others bought biotech on vaccination hopes and sold on disappointing trial results.
Long-term investing may not be the most exciting type of stock market participation, except the day you hit the sell button and receive a 41% bonus. Day-trading is where the action is, but, as in casino gambling, neophytes are more likely to lose their capital in a couple of days than to earn a fortune in eight hours of moving shares around. It is not for the faint of heart, especially if you are someone who lives paycheck to paycheck, has a family to care for, or possesses little savings. It takes years of trial and error, as well as a vigorous perspicacity, to succeed in day-trading. Until then, you might be better off buying a low-cost index fund or a company that has paid a monthly or quarterly dividend for 23 consecutive years. It may not be fun, but investing your hard-earned money is not supposed to feel like jumping out of an airplane.
Read more from Andrew Moran.