Most investors go through the masochist phase. They hurt themselves over and over again. OK, I should not call them investors. This is the path to becoming an investor. Many start out trading and speculating. And by trading I mean losing money. The folks at Wealthsimple should not be surprised to see investors behaving badly. There I go again, sorry. Traders are behaving badly.
Wealthsimple is often congratulated for their content strategy. It’s hip and provocative. This is a common theme.
Devin Dzladyk is giving a Twitter shout out to Wealthsimple for this article.
And I just love the illustration. Someone threw a cartoon rock at that back window of that Tesla cybertruck. The windows are supposed to be bullet proof actually. But they failed a recent test or two. You just know Elon is going to fix that.
Bullet proof Tesla stock?
But the question at hand might be – how bullet proof is Tesla as a company? As a stock. As an investment.
Thing is, it does not appear that Wealthsimple Trade clients are looking for an investment.
Now you may have seen that Tesla stock went absolutely bananas last week. After closing at $650.57 on Friday, January 31, Elon Musk’s electric-car company swung wildly in all directions over the next five trading days, peaking at $968.99 before ending the week at $748.07. It was trading at about $510 on January 17, so you’re looking at a stock that nearly doubled in price in less than a month — and came close to that inside of a few days. Also interesting to note: it was trading at $179 in June 2019.Wealthsimple Magazine, February 12, 2020
And then on to the bad behaviour (masochist activities).
Here’s what was especially interesting to us: during the period from February 3rd to February 7th, Tesla accounted for roughly 40% of all USD trading volume on Wealthsimple Trade. Forty percent! And that capped a period that was already unusually Tesla centric — since the beginning of the year it represented between 13 and 15% of U.S. trades on our platform. Prior to 2020, it never exceeded 10%. And that gives us some insight as to how the behaviour of this single stock relates to a lot of us, even folks who have never bought or sold a share of Tesla.Wealthsimple Magazine, the traders behaving badly bit.
And here’s the scary investors behaving badly chart of the year and decade, so far.
And on FOMO – fear of missing out.
It seems to suggest people wanted to get in on Tesla; that the soaring price of a stock was a bright shiny object that brought all types of people in from the sidelines.
Yes, traders and poor investors like shiny stuff at times. And heck even ‘real’ investors like to chase. They will often buy high and sell low. We should not allow traders to have a monopoly on that financial self-flagellation.
Now Tesla might still turn out to be a wonderful investment. But perhaps it’s obvious that the traders are there to well, trade. They likely don’t know what they’re doing. On Twitter (I’m at 67Dodge) I had suggested that it was likely young investors allowing life and experience to deliver some wonderful ‘teachable moments’.
I was a guest speaker again last night at the University of Toronto Intro to Investing course. It was suggested to the class of 25 that most of them will go out and discover the joy of losing money. Most of them will then run into the arms of sensible, diversified, low-fee investing. Some of them will quit while they’re behind.
Investing vs speculating.
We then briefly discussed the difference between investing and speculating. Of course this is not my first foray into that subject. Please have a read of the Cut The Crap Investing post that crashed the Canadian cannabis market.
And again, apologies to my friends at Horizons for that one. 🙂
Investing is largely and mostly investing in stocks or baskets of stocks that make monies (aka profits). Speculating is investing with the hope that the company or companies will one day make monies. I prefer profits. I like them to prove it too, by way of dividends. OK, Warren Buffett gets a pass on that, but he’s special.
Tesla boom or bust.
I have no problem as Telsa as a speculative investment. It is an incredible company that owns some 80% of the Global electric car business. A few years ago my son wanted to invest in Tesla. “No brainer, Dad”. That was not the first time ‘no brain’ and ‘Dad’ were organized into a punchy sentence in the Roberts household.
I told him he should do it as his first stock purchase. I offered that it would be a great lesson either way. You will either make a ton of money or loose every penny. I offered to backstop it. It would have been in my account ‘anyways’ as he was not yet 18.
He would have made some good monies. I think my stock market genius son made ‘the call’ when Tesla was in the $300 US range.
And the thing is, he was thinking long term. He said eventually most everyone will be driving them. It might not be too late to look at this as an investment. Tesla turned profitable. But those profits are modest to say the least.
Of course the lesson to the class and to my son would eventually turn to proper diversification and low fees.
And don’t tip the house.
Be careful when you trade US stocks in a Canadian dollar account. You lose 1.5% on the currency conversion charges. A little tip for the house you might say. 3% with a buy and sell. Another 1.5% if you move the monies out.
Wealthsimple Trade allows you to make buys and sells ‘for free’. But you lose 1.5% each way when you trade US stocks in a Canadian dollar account. Do the simple math. It appears that Wealthsimple does not yet have US dollar accounts.
But mostly, I would suggest that you invest. Don’t trade. Don’t chase.
There’s absolutely nothing wrong with creating a portfolio of individual stocks. I do that in certain accounts. I’d suggest that you follow Mark Seed at myownadvisor.
Watch and learn from Mike The Dividend Guy.
Check out the incredible success story at milliondollarjourney.
Common theme – they are all investors. Join them, one day.
You might stick to the Wealthsimple Robo platform.
Thanks for reading. Please fire away in the comment section with your thoughts on investors behaving badly. Is that you?
Don’t forget to follow Cut The Crap Investing.