
Mom and pop investors are on a stock buying spree, fueled by free trades - ilamont
https://www.latimes.com/business/story/2020-02-21/small-investors-pile-into-stocks
======
jacquesm
One of the best signs a crash is imminent (say within a couple of months) is
when your family members start bragging about their stock holdings at parties.
That's the time to get liquid if you haven't already done that by then. Of
course that means you're indirectly still trying to time the market but at
least you'll err on the safe side.

I've earned a fair bit of money trading and would never put it down to
anything but dumb luck and having enough reserves to be able to sit out the
worst. If you're trading with money that you need you're doing it wrong.

~~~
auspex
That is the old adage "when the shoe shiner starts giving you stock tips get
out"... but you cant time when it will crash or when it will correct and go
back up. You might save yourself from the single event "the crash" but over a
lifetime of trying to do this you actually will lose more money by not exiting
and entering at the right time.

For example you convert to cash because you hear a family member talking about
their stock. The market continues to go up another 20% before crashing 30%.
You really only saved yourself 10%... now hopefully you rebuy before it goes
back up... if you misread the entry point you might actually lose more than
just staying in the market. Unless you have a crystal ball you will likely not
time it correctly.

I prefer "time in the market beats timing the market"

~~~
Balgair
Just a reminder here to everyone about the shoe-shiner story:

You are the shoe shiner, not Joe Kennedy.

[https://en.wikipedia.org/wiki/Joseph_P._Kennedy_Sr.#1929_Wal...](https://en.wikipedia.org/wiki/Joseph_P._Kennedy_Sr.#1929_Wall_Street_Crash)

------
brianbreslin
Do we really think the reduction in trade costs from $10 to $0 is really
driving consumer investors to dive in? Or is it the surge in stocks like tesla
over the last year that is driving more speculation?

~~~
yellow_lead
It's more about the difficulty, but the cost is a part of it. People without a
lot of money aren't going to go to the trouble of opening a brokerage to
invest 200, 400, maybe $2000 dollars. Keep in mind you used to have to go to a
physical brokerage or get on a call with an online firm before you could
trade.

When it's an app, and you can do it all from your couch, maybe that makes it
worth it.

~~~
reaperducer
To build on that further, if you only have $100 in your existing account to
invest, you're may not think it's worth it to buy a stock if 35% of it is
going to be eaten up in fees.

But if you can suddenly invest 100% of that $100, then it's far more worth
doing.

------
greesil
Someone has got to be left holding the bag in the next downturn.

~~~
lotsofpulp
It will be the people holding USD due to the devaluation due to bailing out
equity owners.

And if the US isn’t in position to bail out equity owners, then it has bigger
problems and you should be investing in your network, food and water supplies,
and guns.

Just like in past bailouts, too much of the voting populace is invested in the
value of their equity holdings, including taxpayer funded defined benefit
pensions and regular 401k/IRA plan. It’s not politically tenable to let those
values go down, assuming the US has the ability to print money still.

~~~
andreilys
In the event of a global downturn, what would be the safe haven currency if
not USD?

~~~
lainga
It might go back to the good old days where shops would accept gold dollars,
silver dollars, treasury bills, or pieces of eight. I know the "reserve
currency" of Warlord-era China was the Mexican dollar.

------
Barrin92
>“There’s sometimes no fundamental reason for it. It just is based on
perception — a perception based on narratives that run only an inch deep,” he
said in a note. “Let’s see how much longer it persists. This kind of activity
often unwinds much faster than the windup.”

I think this is very, very risky. Families or individuals putting a lot of
money into stock that is largely driven by the media and rally around the
stock price increase is how you ruin people's financials. The Tesla stock
mentioned in the article being one of them, as the recent bitcoin-esque rises
are really hard to explain by fundamentals.

But it seems to me to be the case for a lot of tech stock in particular. Lots
of them going up 40% or 50% year over year yuo really have to ask at some
point if this is going to continue for another ten years or if it's going to
come down at some point.

------
yellow_lead
As others have pointed out, these "free trades" aren't actually free. In
exchange, you lose good order execution. Brokerages like Robinhood seem to
outsource this to other market makers which in turn give them a kickback for
sending those orders their way.

~~~
phyek
The average "mom and pop" investor can give 2 craps about trade execution. An
execution price with a 20bps delta is MEANINGLESS to them.

~~~
Mountain_Skies
A friend was trying to convince me that high frequency trading was a good
thing because of the liquidity it added to the market would allow me to sell
my stock in milliseconds. If I've been holding a stock for twenty years, when
I go to sell it, do I really care if it takes twenty minutes instead of twenty
milliseconds? From the look on his face it was obvious that in his world
investing in stocks long term is completely alien. Can't be too hard on him
though, he did warn me of the Great Recession months in advance, with problems
he was seeing in credit default swap pricing being what he considered the
Archduke Ferdinand of the financial system.

~~~
yellow_lead
> _If I 've been holding a stock for twenty years, when I go to sell it, do I
> really care if it takes twenty minutes instead of twenty milliseconds?_

I think you may care actually. To give an example, I was holding a stock for
several years that recently went up in price quickly, without much change in
the underlying business. Simply, analysts started changing their rating on it.
When this stock got high enough, I started to feel nervous, and I was watching
the market open on a day when I was prepared to sell. Immediately, the stock
started to tank, and I sold it right away.

I sold it at a good price, and even though I was a long term investor, I made
a short term decision to sell based off the (IMO) extremely irrational price.

------
m3kw9
If the trade is free you increase trade volume. Say fair weather stock
investors come out an play, the more they trade the more they usually lose,
and the more they need to refill their trading accounts from their hard earned
Money.

~~~
smabie
Why would they lose the more they trade? I mean yeah they’ll lose some on the
spread but not very much. You would expect their returns on average to match
the market.

~~~
perl4ever
People often imagine they'll make huge amounts of money by making a tiny
amount on each trade, very frequently and consistently. The arithmetic on the
percentages makes it appear possible. It just works just as well (or
better/worse) in reverse.

I'm not sure what's typical these days, but let's say the spread on a large
cap liquid stock is 0.02% and the spread on a small cap illiquid stock is
0.40%.

If you trade once a year, the cost is comparable to the management fees on an
index fund. Not much, but already you're paying more than someone who is fully
diversified.

If you trade everything once a month, and average -0.40% each time, you are
down 20% after five years!

If you trade more frequently, say 200 times a year (not every day, but most
days) and stick to the liquid stocks so that it only costs 0.02%, then you are
also down roughly 20% after five years, before the actual returns.

~~~
m3kw9
Also you tend to lose when playing the short game, short game is more easily
predicted by algorithms. So you are not only going against pros, you are going
against machines that has speed and world class math phds

------
altmind
Why the brokerages are free and how do they make money
[https://news.ycombinator.com/item?id=20276551](https://news.ycombinator.com/item?id=20276551)

(mostly, near zero yield for the cash on your brokerage accounts)

------
dehrmann
> The latest leg of their emergence times closely with October, when E-Trade,
> Charles Schwab and TD Ameritrade slashed commission fees to zero.

It also times closely with the most meaningful rate cut by the Fed in five+
years.

------
neonate
[https://archive.md/6PDmQ](https://archive.md/6PDmQ)

------
thefounder
So the moved on from Bitcoin...expect similar bubbles soon!

~~~
garmaine
Bitcoin is back on the rise btw... people are going into cryptocurrency not
out now.

~~~
lozaning
Anecdotally, in the last 6 months none of the parents of kids I went to
highschool with have cold called asking about crypto shit. People aren't
leaving crypto, cause they already have all left.

~~~
garmaine
Back on the rise doesn’t imply max hype. Those are different parts of the
cycle.

