Day trading stocks: waste of time and money?

[rseiser]

Thanks to everyone for their insight on this thread. I joined a monthly meetup group about trading, and I am always a little curious about what strategies are out there. In general my findings are similar to my experience in the energy sector. I have looked at 100 “new” alternative energy schemes, and 100 didn’t work.
At the same time you will find thousands of people telling you how much money they make in trading, and that their software really works, bla bla… But the only pattern I found is that when you ask for their track record, then they all of a sudden get offended.

Most of the time it’s clear mathematics. First, let’s say I am a happy investor ala Buffet, and got to a 20% annual return on my investments. Since I hardly trade, I pay about 25% tax on my capital gains and dividends (15% federal + 10% state tax). It’s actually not applied every year, since I can defer tax payment until I sell. On day trading (stocks) I will be taxed 45% (35% federal and 10% state tax). So that alone shows that I would have to make at least 30% annual return to be even with my investment return. But wait there is more. Now I also have to pay some serious money for software, tools, data feeds, and of course the time that I am tying up. Depending on one’s wealth, let’s just call that another 10% extra that I have to make, meaning 40% annual return. Now that’s unleveraged for an apple-to-apple comparison to my investments. Well, I haven’t found the strategy yet that makes me 40%, but I will report when I find it…

Next is risk. That’s a difficult one. Some trading schemes could be safer than a tied up investment, since you could get out quickly, have stops in place, etc. But others could be riskier, if you have a few losses in a row, or something happens to the position you are concentrated in.

Now add leverage, the magic word of the trader. In general, I would say that this just increases your return at the expense of higher risk. Yes, you can leverage different amounts in different assets, but even in some investments you can leverage quite a lot (think real estate). So let’s keep talking in terms of the unleveraged return.

A lot of strategies are skewed to the nature of the market. There are some shallow and wide strategies that attempt to make an average of say 0.2% per day which would give you your >40% annual return. But then you notice that they are mostly long strategies, and in an up year most days might be indeed up a little. But this might not work in a down year (what I am more interested in).

Last, higher inflation is slightly in favor of the investor. If we enter a time like the 70s, or even worse, where the value of the dollar drops every year, trading in and out of cash will have you more exposed to the losses in the dollar. Right now prices have probably doubled in ten years, despite the productivity gains. If that gets worse, trading back and forth might make you a return just to keep even with the price of eggs or milk, while every investment might perform equally.

I met a few people that do trading as a full-time job, so they must do something right. But maybe they made their money on their house or just inherited a few million and are really just treading along. I will report if I meet someone really trading himself from the bottom up (like Chris J?).

For myself I would consider putting 10% of my capital into a trading strategy if I think it gets close to the above criteria (return/leverage/risk), and if it makes sort of fundamental sense with some statistical evidence. At least it diversifies me a little which could be great in a down year.

[blahblahblah]

Anyone considering quitting their job to become a day trader needs to watch a few episodes of Wall Street Warriors and have a look at who’ll you be up against. For example, the 25 year old in Manhattan who’s managing a multi-million dollar hedge fund; he watches news and stocks all day, waiting for the small fry to come in and place their bets the way he knows they will — Bad news? They’re gonna short, so he drives the price up using volume. Good news? They’re gonna go long, so he drives the price down, again using volume. When they panic, he chews ’em up and spits ’em out. And this is the 25 year old just starting out. Anyway, you get the idea. I know I’ve learned my lesson (multiple times, actually). Your mileage may vary…

[blahblahblah]

Anyone considering quitting their job to become a day trader needs to watch a few episodes of Wall Street Warriors and have a look at who’ll you be up against. For example, the 25 year old in Manhattan who’s managing a multi-million dollar hedge fund; he watches news and stocks all day, waiting for the small fry to come in and place their bets the way he knows they will — Bad news? They’re gonna short, so he drives the price up using volume. Good news? They’re gonna go long, so he drives the price down, again using volume. When they panic, he chews ’em up and spits ’em out. And this is the 25 year old just starting out. Anyway, you get the idea. I know I’ve learned my lesson (multiple times, actually). Your mileage may vary…

[Ash Housewares]

How does a 25 year old get to manage a hedge fund? Don’t hedge funds have minimum investments in the 6-7 figure range? Who would entrust that kind of money to a kid one year out of business school?

[Ash Housewares]

How does a 25 year old get to manage a hedge fund? Don’t hedge funds have minimum investments in the 6-7 figure range? Who would entrust that kind of money to a kid one year out of business school?

[blahblahblah]

How does a 25 year old get to manage a hedge fund?

Simple. Just turn your $12K in Bar Mitzvah money into $1.65M. That sort of success gets noticed…

[blahblahblah]

How does a 25 year old get to manage a hedge fund?

Simple. Just turn your $12K in Bar Mitzvah money into $1.65M. That sort of success gets noticed…

[Ash Housewares]

If you have enough monkeys pounding on typewriters, one of them will eventually write Moby Dick. No one turns 12k into 1.65M in a few years (legally) through skill alone.

[Ash Housewares]

If you have enough monkeys pounding on typewriters, one of them will eventually write Moby Dick. No one turns 12k into 1.65M in a few years (legally) through skill alone.

[blahblahblah]

Hahaha, that’s true but the kid’s actually pretty clever. Watch the show and you’ll see. If I remember correctly though, he worked that magic during the dot-com days so he obviously had it a bit easier back then.

[blahblahblah]

Hahaha, that’s true but the kid’s actually pretty clever. Watch the show and you’ll see. If I remember correctly though, he worked that magic during the dot-com days so he obviously had it a bit easier back then.

[tugg49]

I traded for a few years with 10K just to see what I could do. Nothing big but like a casino…fun. I was down to 4k at the worst and up to 12k before I pulled the trigger and sold out. Plus 7 bucks each way. I used 500 buck blocks buying up and would sell out in minute. Skitteshness saves money. Scottrade is the only way.
What’d I learn:
Trick is not to lose
Know your exit on entrance
Take the profit and be happy
I wouldn’t daytrade anything but .pk and .bb watch for the trend and in two weeks you can see 500%.
Don’t fall in love. Treat stocks like whores.
I hated the weekends and every minute was watching for the MM’s to manipulate the stock down 20% before the next 100% run. Don’t use stops….which means you’re stuck to the monitor.
It’s a brutal hobby and Scottrade needs 25K for DT accounts which knocked me out at the end. I did about a half year of heavy trading before they sent me the warning. If you manage to stay liquid it’ll be brutal. Best thing to do is lose it all and get it behind you. Not for the perforated stomachs.

[tugg49]

I traded for a few years with 10K just to see what I could do. Nothing big but like a casino…fun. I was down to 4k at the worst and up to 12k before I pulled the trigger and sold out. Plus 7 bucks each way. I used 500 buck blocks buying up and would sell out in minute. Skitteshness saves money. Scottrade is the only way.
What’d I learn:
Trick is not to lose
Know your exit on entrance
Take the profit and be happy
I wouldn’t daytrade anything but .pk and .bb watch for the trend and in two weeks you can see 500%.
Don’t fall in love. Treat stocks like whores.
I hated the weekends and every minute was watching for the MM’s to manipulate the stock down 20% before the next 100% run. Don’t use stops….which means you’re stuck to the monitor.
It’s a brutal hobby and Scottrade needs 25K for DT accounts which knocked me out at the end. I did about a half year of heavy trading before they sent me the warning. If you manage to stay liquid it’ll be brutal. Best thing to do is lose it all and get it behind you. Not for the perforated stomachs.

[one_muggle]

This is only anecdotal, but with a couple of rare exceptions, the only people I knew who made real money on Wall Street were professionals–traders, bond issuers, analysts, and actuaries. Each of them has at least one story where they were down (with their own money) six figures or more. It takes serious stones (or a huge trust fund) to weather those moments. On the plus side, they get paid to follow the investing world, so it isn’t hard for them to spend a bit extra time for their own portfolios–BUT when your job and your investments are that related, watch out for the busts! I know one woman who lost a mint (I think is was $100’s of Millions) of client money in ’89–it was Black Tuesday or something like that. The kicker is, she lost her entire bonus that year, which is most of her income, she lost a huge part of her own portfolio AND almost lost her job…
Almost twenty years later she owns real estate in NYC, Park City, Vancover, and Hawaii–so I guess it pays to stick with it. IF you can afford the Malox!
I stick with boring buy and hold. I probably will never buy my own island, but I should be making as much or more in dividends when I retire as I do now.
In stocks like real estate, it is easy to look smart and make money in a bull market, but it is the professionals, die-hards, and lucky SOB’s that can keep it in a downturn.

-one muggle

[one_muggle]

This is only anecdotal, but with a couple of rare exceptions, the only people I knew who made real money on Wall Street were professionals–traders, bond issuers, analysts, and actuaries. Each of them has at least one story where they were down (with their own money) six figures or more. It takes serious stones (or a huge trust fund) to weather those moments. On the plus side, they get paid to follow the investing world, so it isn’t hard for them to spend a bit extra time for their own portfolios–BUT when your job and your investments are that related, watch out for the busts! I know one woman who lost a mint (I think is was $100’s of Millions) of client money in ’89–it was Black Tuesday or something like that. The kicker is, she lost her entire bonus that year, which is most of her income, she lost a huge part of her own portfolio AND almost lost her job…
Almost twenty years later she owns real estate in NYC, Park City, Vancover, and Hawaii–so I guess it pays to stick with it. IF you can afford the Malox!
I stick with boring buy and hold. I probably will never buy my own island, but I should be making as much or more in dividends when I retire as I do now.
In stocks like real estate, it is easy to look smart and make money in a bull market, but it is the professionals, die-hards, and lucky SOB’s that can keep it in a downturn.

-one muggle

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