Don't gamble


Don't gamble

Sometimes, it is good to get into a rallying market, but that can also be the time when most money is lost even though the company itself is still performing.

September 26, 2021

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In the US retail trading now accounts for about 20% of daily volume. That’s a lot. It has been on the rise in America for a number of years now and seems to grow exponentially every year. Having said that, the recent pullback in popular stocks such as Tesla has reminded investors that, contrary to the online mantra, stocks do not only go up.

This has led to a recent fall in retail trading flows to a 21-day moving average of about $1.2bn. This is still a very significant amount. Some have learnt the hard way that timing is important. Everyone has a friend who will tell them stories of how they entered the market last year and can’t seem to do anything other than make money. It was a buyers’ market, and those who bought, did make money.

BUT, things will now start to settle down and, as stocks most definitely don’t always go up, we might start to see a little more caution. For those who entered the market for the first time in January, they might be sitting on losses and are less likely to invest more capital. Tesla is down over 20% since January and this will confuse the crowd who are new to the game.

Trading is a skill. Sometimes, it is good to get into a rallying market, but that can also be the time when most money is lost even though the company itself is still performing. Tesla’s share price has been inflated for some time. Many, including myself, would say it still is. So why would you buy it? The answer is because everyone else is buying it. As I said, this can work, but as a long-term strategy, it’s not a good one.

Is the time to buy after a crash? It can be, but then you run the risk of the company going under and the shares going to zero. This is where there is an art to stock picking. Find a strong company with a strong balance sheet, that is undervalued in the market. However, there is little short-term glory in this and it’s not what the retail crowd want. What they are after is a quick win and this is where we have to liken it to gambling.

In the past, I have been asked many times if what I do is gambling, and my answer is always that it isn’t if you know what you’re doing. By definition, gambling is

  1. Playing a game of chance – investing isn’t chance if you know what you’re doing.
  2. Take risky action in the hope of a desired result – possibly this comes close but if you control what you’re doing, it’s not always a risky action in the same sense. If we liken it to a horse race, the company you buy doesn’t have to win, it just has to not fall.

If you trade for a living, it isn’t hard to pick companies that progress steadily and won’t fall over. If you are after a quick buck and a very high return, then yes, it would be gambling. Stocks that double, or treble in value in a short space of time, are very hard to find.

It isn’t a coincidence that eToro are now a sponsor of 3 major football clubs and one of the biggest club sponsors in Europe. Brokers and betting sites fill most of the football match advertising spaces. What they are encouraging is gambling, high risk, high reward leverage trading and it’s very dangerous. Doing this with a little spare money is one thing, doing it with capital that you need is another, and you have to know that the odds are not in your favour. Done like this, it is not investing and the crowd need to be aware of the difference. One advert I saw during a break, showed footage of a footballer celebrating a winning goal, as another man in a shirt and tie is pumping his fists after executing a winning trade on his smartphone.

The website for the same platform carries the statutory warning that 74 per cent of retail investor accounts lose money when trading CFD’s. The ad would be more accurate if it showed Gareth Southgate missing the penalty in ’96 and the man in his shirt and tie crying next to him.

The best way to invest is to give it to people who know what they’re doing. What we are trying to do at The Portfolio Platform is meet the new world of retail investors halfway. Investors on our platform can choose the team they want to back. All the teams showcased are very good at what they do. Risk is managed carefully, but can also be increased and decreased by the account holder to be in line with their appetite and suitability.

If you want more from your investments, then take some of the risk, but don’t gamble. Link your account to a professional, then cheer when they make a winning trade. It’s a lot easier to let someone else do the work but you can still take all the glory. By using our autotrading technology, you can simply link your account to multiple traders who have all shown proven track records and qualify to be on TPP.

If you want to gamble, then gamble, if you want to invest, then look at The Portfolio Platform; it’s the best of both worlds.

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- London Stock Exchange 2020