someone warned me Risk and Reward was the best seller1 Investing in the stock market this week:
There’s a pretty eclectic mix of investment styles here.
You have books on value investing (Benjamin Graham), growth investing (William O’Neill), risk management (Nassim Taleb), stock picking (Jim Cramer), and one day trading.
This is what creates the market. Something for everyone.
This is why it’s so hard to embrace the “retail” investor spirit.
There are a wide variety of investors.
There is around 5-6 trillion dollars in target date funds.
Vanguard manages $12 trillion. Blackrock is close to $15 trillion.
So there are a lot of set-it-and-forget-it Boglehead types out there.
But we’ve also been setting records in options and futures trading by retail investors over the last decade. You have meme stocks popping up like weeds. Take advantage of ETFs. Prediction markets. Sports gambling. There are speculations behind the scenes.
Some people go to both extremes. There are index fund investors who follow a low-cost plan religiously. There are corrupt gamblers who risk everything.
However, there are also many investors out there doing this business.
They often hold target date funds or index funds in their retirement accounts. Then they pick some stocks in the brokerage account, maybe do some speculation.
I used to believe there was only one right way to invest.
This is a topic on which I have changed my mind over the many years I have been writing this blog and working with wealth management clients.
There are many ways to become a successful investor.
I’ve met a lot of rich DIY indexers.
As difficult as it is to pick stocks consistently, I’m constantly amazed at the number of people I’ve interacted with over the last 5-7 years who have created tremendous amounts of wealth in concentrated stock positions.
There are also many successful real estate investors, private market investors, business owner/entrepreneurs, and of course those who have been diligently saving and investing slowly but surely over decades.
There are many paths to wealth, and that’s good because different personalities mesh better with different investment philosophies.
In fact, I see it as a sign of emotional intelligence that you have different investment strategies within the same financial plan. cognitive dissonance It is an uphill battle.
But there is one strategy that I believe is more difficult than the others: day trading.
I wrote an entire chapter on this subject in my book. Here are some studies I referenced:
A study of Brazilian futures traders found that 97% of those who traded for more than 300 days lost money. Just over 1 percent managed to earn more than the Brazilian minimum wage ($16 per day), while only half a percent earned more than a bank teller’s salary ($54 per day); Moreover, they took on a much greater risk. The longer these futures investors stayed in the day trading casino, the more likely they were to experience losses; This was the exact opposite of long-term buy-and-hold investing.
A study of individual day traders in Taiwan over a 15-year period found that even the most experienced traders tend to lose money. This is not surprising – but what is surprising is that even investors who constantly lose money continue to trade at losses. The vast majority were unprofitable, with only 5% of investors making a profit. While unprofitable traders accounted for 70% to 80% of total trading volume, those who lost money were more likely to overtrade. If you don’t succeed at first, trade, trade again.
There are many more like this but you get the idea.
Day trading is the least likely form of investing because the probability of profits over short time frames is much lower:
Can some people do this?
I personally know exactly how one person is day trading and I am successful at it. There are hedge fund managers and rocket scientist types of people who can do this with computers and things like that. But it’s a grind and your chances of success are very low considering who you’re up against.
And yet… day trading books are still hitting the numbers.
Hope is born eternal.
Further Reading:
4 Skills Every Trader Needs to Be Successful
1Thank you everyone for supporting the book.
This content containing security-related opinions and/or information is for informational purposes only and should in no way be relied upon as professional advice or endorsement of any practice, product or service. No guarantee or warranty can be given that the views expressed herein will apply to any particular case or circumstance and should not be relied upon in any way. You should consult your own advisors on legal, business, tax and other related matters regarding any investment.
The comments contained in this “post” (including any associated blogs, podcasts, videos, and social media) reflect the personal opinions, perspectives, and analyzes of Ritholtz Wealth Management employees making such comments and should not be considered the opinions of Ritholtz Wealth Management LLC. or its respective affiliates or a description of advisory services provided by Ritholtz Wealth Management or performance returns of any Ritholtz Wealth Management Investments client.
References to any security or digital asset or performance data are for illustrative purposes only and do not constitute investment advice or an offer to provide investment advisory services. The tables and graphs contained therein are for informational purposes only and should not be taken into account when making any investment decisions. Past performance is not indicative of future results. The content speaks only from the date specified. Any projections, estimates, estimates, targets, expectations and/or opinions expressed in these materials are subject to change without notice and may differ from or contradict views expressed by others.
The Compound Media, Inc., an affiliate of Ritholtz Wealth Management, receives compensation from various organizations for advertising on affiliate podcasts, blogs and emails. The inclusion of such advertisements does not constitute or imply endorsement, sponsorship or recommendation thereof, or any affiliation therewith, by the Content Creator or Ritholtz Wealth Management or any of their employees. Investments in securities involve the risk of loss. For additional advertising disclaimers, see here: https://www.ritholtzwealth.com/advertising-disclaimers
Please see the descriptions Here.
