The Playbook For The Modern Man

Twitter Trend Suggests ‘Weekend Warrior’ Stock Traders Are In For A Brutal Wake Up Call

“Stocks only go up!”

We’ve all been there: heart pounding, blood pumping; an unshakeable urge to play ‘We Are The Champions’ at top volume. But while most experience this sensation after a successful first date, a sports grand final or a promotion, there is a certain group of people who get that feeling looking at the ASX or NASDAQ – especially those who bought Tesla shares before their stratospheric rise at the start of this year (recently culminating in an all-time high closing price of 1546.01 on July the 15th, 2020).

Chuck into the mix the new phenomenon of retail (individual) traders spending their Jobkeeper or Jobseeker payments on the burgeoning scene of investing and trading apps and those who haven’t lost their jobs using their extra disposable income to take a punt on their mates’ (and Bar Stool Sports founder Dave Portnoy’s) stock tips while sports betting is out of action (or at least substantially reduced), and you have a recipe for disaster.

Except, so far, the stock market has fared better than the ~real~ economy. Surprisingly well, actually. US markets have spectacularly rallied since the initial COVID lockdown (market) scare and the ASX has followed. In fact, as we mentioned, certain stocks, like Tesla, have hit all-time highs.

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Portnoy and his followers have been part of one of the greatest rallies in history, adopting as a mantra the slogan “stocks only go up!” In doing so they have, intentionally or not, created confusion as to what degree retail interest has become a self-fulfilling prophecy.

Bloomberg reports that Millennials and Gen Zs, generations that have long been under-invested in the stock market, are now getting in on the action, inspired by figures like Portnoy: “Stuck at home with plenty of free time, government stimulus checks, no sports to bet on and, for better or worse, a figure like Portnoy [who live-streams his wins and losses] turning investing into entertainment, more and more young people are wading in for the first time.”

“It’s really been a perfect storm,” said Nate Geraci, president of investment-advisory firm the ETF Store told Bloomberg. “Investors are seeing firsthand the thrill of victory, the agony of defeat, and he’s doing it with large sums of money, so I think for younger investors, that’s really enticing.”

“With tens and sometimes hundreds of thousands of people watching, there’s some concern that people will take Portnoy’s advice to heart. But Portnoy said he’s made it clear to his viewers not to invest money they can’t afford to lose.”

“I’m not babysitting our readers,” Portnoy told Bloomberg. “People got to be responsible.”

Portnoy’s plugs appear to have had some effect. As Bloomberg reports, on Wednesday the 10th of June, “Portnoy mentioned penny-stock InspireMD, a company that makes products for vascular procedures.”

Though Inspire MD had already seen elevated volume since June 2, when the firm announced it would offer an additional 22 million shares, volume still “surged to an all-time high of 52 million shares after Portnoy’s exhortations,” Bloomberg reports.

Mathew Cassidy, ranked #8 on The Australian / Barrons Australia’s top 100 Adviser list for 2020 (and Managing Director at Partners Wealth Group, one of Australia’s leading business and financial advisory companies), told DMARGE that – though these retail buyers will have a small impact (and risk playing with fire themselves) – their behaviour is unlikely to affect the market long term.

“The market is sustained by really substantial flows. If you’ve got people at home having a punt, generally they’re not really substantial amounts of capital. What really swings the market is [when] people start to take out really large amounts of capital into the market.”

“Through history and events like the GFC, September 11, when stocks start getting expensive; when you start getting tips from the taxi driver because a lot of momentum is going on, it’s probably a good time to start selling them.”

The latest trend of retail traders boasting about their Tesla stocks on Twitter, without much apparent knowledge, would suggest a rude shock is imminent for a lot of people.

DMARGE spoke to AMP Financial Advisor, Andrew Heaven, to understand the most common mistakes rookie traders make. Unfortunately, many retail traders on Twitter appear to be winging it, and committing some of the very sins he told us about.

“There are plenty of mistakes that rookie investors make when entering the market,” Mr Heaven told DMARGE. The first is lack of research: “Making sure you do plenty of research on what types of investments are right for you is crucial. There are countless tools online with information on how to best enter the market, what to invest in and how to ensure you’re investing in something that aligns with your values and also financial goals.”

This means not just trusting a random tweet from ‘a guy that knows a guy’ (or internet shills with an agenda). Only take advice from experts you know and trust.

The second crucial error is not having a plan. As Mr Heaven told DMARGE: “Regardless of whether you’re investing for the medium or long term, you need to be ready to commit to that timeframe. If you invest more than you can afford, you’re not being realistic about your goals and your cash will be tied up – meaning you’ll find yourself short when budgeting for your day-to-day life.”

“Know what you’re trying to achieve.”

“By taking the time to align your investment strategy with your goals, it will be a lot easier to stay on track. If you know what you’re trying to achieve and why, you’ll be less likely to wander off in a different direction or get distracted by short-term changes and volatility.”

Mr Heaven said another common mistake is waiting until you ‘have the money’ to invest: “It’s often thought that for investing, in general or for specific assets, you have to have a large chunk of money but everyone needs to start somewhere. Rather it’s important to note that a lot of people make their money by investing smaller amounts.”

“In 2020, it’s now easier than ever to enter the stock market without a lot of capital. Young people and those looking to get into the market don’t need to have huge piles of cash, and can look to get started by making use of a fractional investment platform, which can get you started for as little as $5.”

Finally, Mr Heaven told us ‘following the crowd’ is another mistake rookies tend to make. Of course, as we reported on Sunday, you have to invest on what’s there not what theoretically should be, but that’s not to say you should blindly follow – lest you be the one standing up when the music stops.

“Next time you hear a friend or family member talking about their next ‘big investment’ take a moment to remember that everyone is in a different financial position and on a different investment journey. While the investment opportunity might sound fun and exciting, and your friend may sound very convincing and educated, take a moment to remember your financial goals and individual situation before jumping in.”

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