Trading stocks can be addictive

It has never been so easy to trade stocks. There are now all sorts of apps and websites that allow you to buy or sell in just a few moments.  A video on the Bloomsbury Wealth YouTube Channel.

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Transcript: Robin Powell & Norma Cohen/ Journalist and academic.

RP: It has never been so easy to trade stocks. There are now all sorts of apps and websites that allow you to buy or sell in just a few moments. But Norma Cohen, a journalist with the Financial Times for many years, says it’s a worrying development.

NC: It can be very dangerous and there are some of these sites, and they’re very tempting. Some of these sites are akin to gambling sites. And I think that it’s not a moment too soon that regulators are starting to look at gambling and the extent to which some of these are gambling.

RP: Research has shown that many people are persuaded to trade stocks by the promise of commission-free trading. But how these sites make their money is complicated, and, in reality, trading is very rarely free.

NC: They claim not to offer any brokerage fees, but they do their transactions through sites where you pay for order flow, and it’s not clear that investors who are using these sites are necessarily getting the best price. It’s very complex, and if you cannot easily understand it, then you are best urged to avoid it.

RP: Another problem is that picking the right stocks at the right time is very difficult. Not even the professionals can do it with any consistency.

NC: How do you know what stock is going to do better than every other stock? You know you think you might know, but even if you have all of the publicly available information, you cannot necessarily see whether a stock is fairly priced or mispriced. It’s very difficult to tell. And periodically, this or that fund manager will tell you, I can spot those mispriced assets and I will buy them for you. And we have seen some of these fund managers spectacularly fall apart.

RP: Of course, if you want to speculate and you can afford to lose money, then trading stocks might be an option. But you shouldn’t expect to outperform.

NC: The track record suggests your odds over any period of time are Minimal to zilch, look, if you’re going in for a week, you know, and you’re out again and you haven’t borrowed any money, maybe you’ve made, you know, some money, but short of if you’re in it for years, over time, all of the studies of this kind of trading suggest that you will not come out any better than if you had put your money with a passive fund manager and just left it there.

RP: One final word of warning: stock trading can become addictive. For anyone with a gambling problem, it really is a bad idea. Investing for the long term in a broadly diversified portfolio makes much more sense.

Disclaimer — The information in this video does not constitute advice or a recommendation, and you should not make any investment decisions on the basis of it. If you do however require advice please do not hesitate to contact Bloomsbury Wealth.