Let Them Trade...
Stop blaming the new, young traders for recent craziness
The GameStop ride to the moon and back continues to captivate both Wall St and Main Street. You just can’t get away from it.
Now that the stock has come crashing back to Earth, the blame game is in full force. Who ever saw this coming?
Well - just about everyone.
Conspiracy theories, the suits, a “rigged” system and a wave of new, young clueless traders are at the top the blame list. It’s easy to point fingers, but pointing them at the markets newest participants is just wrong.
Sure we need to educate and promote financial literacy more than ever, but we should also celebrate that they are interested and engaged in the markets. Some will leave scarred and hesitant to ever return. Others may have hit it big - good for them.
It happens time and again. Eventually there will be another event that causes a new mania. It’s a tale as old as time.
What really gets me going is people saying that we need to protect young investors from themselves. Give me a break. This is the greatest learning experience ever. It may be very costly to an irresponsible few, but the lessons learned at an early age will last a lifetime.
I know because I was once in those shoes.
I had just started working at the NYSE making a paltry $400 a week. I had my finest Today’s Man line of suits and subscriptions to both The Wall St. Journal. (yes, a period at the end) and Barron’s. I was going places.
That September, Barron’s had an article about an appliance store based out of Ohio - Sun TV. It was supposed to be the next big thing. They were expanding quickly and business had never been better. The stock was cheap - just under $2, I believe $1 7/8ths to be exact. It peaked my interest because I could afford it. It also became the chatter of the floor.
The partners at my firm were discussing the article I read over the weekend. Apparently they and several other floor members were involved. So there was hype, smarter people than me were involved, and it was mentioned in a respected financial paper. Since there was no social media or internet to turn to, this was more than enough info for me.
This could be a big winner. I had to get in.
One problem, I only had $1000 to my name. That’s OK, I can still buy 400 shares. If I skip a few meals, I’ll be fine.
I was in… crickets. The stock didn’t do a damn thing.
That winter, I got my first bonus. This made up for what I put in the stock. That should’ve been a huge sigh of relief, but it wasn’t. I casually asked around again and everyone was still in. So I took a large chunk of the $1500 check and bought another 600 shares to make it an even thousand. That sounded impressive. Sadly, it wasn't.
At this moment I had actually put my life savings into just one stock. I never thought to ask if the “smart money” around me had done the same. Of course they didn’t. Stupid in hindsight, but I didn't think it would ever go down.
The stock wallowed between $1 and $2 3/4 for years. I ended up holding it until they went bankrupt. Instead of this being my first 10 bagger and a road to riches, it was a giant waste of time and money.
However, I did learn some great lessons.
First, risk management. Never put an uncomfortable amount of your savings into one “investment”. Play in risky stocks with what you can afford to lose, but never ride it all. Thankfully, I was early in my earning years and did make up for it.
Second, sometimes the older crowd isn’t wiser. If I did more of my own research, I probably would’ve seen the bigger risks involved. Ironically, now that I’m older, I turn to the younger investor to see what works. They teach me more about the next trends than anyone.
Thirdly, having a large amount of shares sounds great, but it’s about percentage gains. Yes, I was that dumb kid at one point.
Lastly, have an exit strategy. How long do you hold onto dead money? At what point is enough, enough? Cut losses and move on.
I was gambling.
I was hoping to hit a home run right out of the gates, but struck out looking.
Today I continue to dabble in some “hot” IPO’s, take a shot at the next “big thing” or play in a highly speculative stock here and there. Yes, I even bought AMC for a moment last week; however when I “play”, it’s knowing it’s with an amount I can afford to lose, and I always establish my downside risk.
I’m glad for my life lessons in the market. I continue to learn new ones each day. There’s no better teacher than the market itself.
I hope all the new participants stick around and learn some lessons of their own. To try and lay blame at their feet and restrict them is silly. Just let them trade.
Feel free to share your loser story in the comments… we all have them.