Friends Don’t Let Friends Day-Trade

At least not without a supercomputer, an army of lobbyists to ensure you have every possible advantage and a staff of mathematicians to write novel algorithms to create a fractional edge over your competitors….

Barry Ritholtz on your three opponents:

The first is Mr. Market himself. He is, as Benjamin Graham described him, your eternal partner in investing. He is a patient if somewhat bipolar fellow. Subject to wild mood swings, he is always willing to offer you a bid or an ask. If you are a buyer, he is a seller – and vice versa. But do not mistake this for generosity: he is your opponent….

Second, there’s

everyone else buying or selling stocks. Recall what Charles Ellis said when he was overseeing the $15-billion endowment fund at Yale University: “Watch a pro football game, and it’s obvious the guys on the field are far faster, stronger and more willing to bear and inflict pain than you are. Surely you would say, ‘I don’t want to play against those guys!’ “Well, 90% of stock market volume is done by institutions, and half of that is done by the world’s 50 largest investment firms, deeply committed, vastly well prepared – the smartest sons of bitches in the world working their tails off all day long. You know what? I don’t want to play against those guys either.”… With billions at risk, they deploy anything that gives them even a slight advantage.

And finally, the most difficult opponent to overcome:

You. You are your own third opponent. And, you may be the opponent you understand the least…. The biggest disadvantage you have is that melon perched atop your 3rd opponent’s neck…. [I]t does not work nearly as well as you assume. At least, not when it comes to investing. The wiring is an historical remnant, hardly functional for modern living. It is overrun with desires, emotions, and blind spots. Its capacity for cognitive error is nearly endless. It was originally developed for entirely other purposes than risk assessment in capital markets.

Playing in the equity markets is a sucker’s bet.  When you look around the table and you can’t spot the sucker, it’s you.  Every time you hear about someone hitting it big in the markets it’s really a matter of pure luck and almost never skill.  That’s not to say there aren’t people who can do it, just that you’re probably not one of them.

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2 thoughts on “Friends Don’t Let Friends Day-Trade

  1. The only way to win in the markets is to become an investment advisor, in which case you pocket that sweet 1% even if your clients lose their asses. I could name some names.

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