Should I quit my day job to become a stock trader?Submitted by S. F. Ehrlich Associates, Inc. on February 17th, 2021
February 15, 2021
Whenever someone used to try a new task that didn’t turn out well, the line used against him/her was “Don’t quit your day job.” If your neighbor saw you do a house repair that didn’t go well: “Don’t quit your day job.” Fail to properly change the oil in your car: “Don’t quit your day job.” The point, obviously, was to continue doing the job that someone is paying you to do because you weren’t going to make a dime doing anything else.
Ever hear of Robinhood? Or Reddit? Even if you’re not as well versed as others on trading platforms and social media sites, there’s a good chance you’ve heard those names, as they’ve been in the news a lot lately. The businesses may have started for all the right reasons, but there’s some question as to whether or not they’re getting publicity now for all the wrong reasons.
Robinhood is a trading platform designed to allow anyone to buy and sell stocks. (Its name implies that Wall Street is not just for the wealthy.) To make trading even simpler, Robinhood introduced a mobile app in 2015, making it very attractive to tech-savvy investors. No account minimums and no trading fees; who can resist that type of offer?
Imagine, if you will, a website where social news can be easily discussed among its users. Imagine a website where people have the opportunity to highlight a stock, espouse its virtues, and are persuasive enough for others to follow their lead. Imagine a group calling itself the WallStreetBets community encouraging the purchase of a stock that sold for $17 a share and eventually surged to $483 a share one month later. Yes, we’re referring to the hoopla around GameStop, driven by postings on Reddit.
If you missed making a gazillion dollars on GameStop, we’re right there with you. And regardless of the next GameStop, we’ll probably miss that hype as well. And also the next one.
You may have read one of the many stories of ‘traders’ who had never invested before, buying GameStop because of a message they read, and then making tens of thousands of dollars. They were the lucky ones because there also was a prominent story about one young man who committed suicide when he didn’t realize how much money he had actually lost. As of this writing, GameStop is selling for $52 per share, painful to everyone who bought it for more than that price expecting gains to flow their way.
There are professional traders who meticulously research companies before buying or selling their stocks. (NOTE: When you buy a stock ‘long,’ that means you’re buying it with the hope that the stock price will appreciate. If you sell a stock ‘short,’ that means you believe the price will go down further. Short sellers sell at what they believe will be a high price, hopefully replacing the shares they sold with shares purchased at a lower price.) Professional traders do both, knowing that there will be a lot of misses along the way. In short, a trading app is not just another game on an iPhone; a trading app can cause a lot of pain for people who don’t really know what they’re doing.
There’s a reason why we don’t trade in and out of stocks for our clients, and it’s because we’re long-term investors. Building diversified portfolios that will support clients for decades is serious business, and shortcuts, like trading apps, can cause terrific damage to a person’s finances.
So don’t quit your day job to find the next GameStop. If making money was that easy, everyone would be able to do it.