Retail traders are obviously LOSER, Henry Blodget's articles ALL suggest so!!!

Discussion in 'Professional Trading' started by kitty1996, Apr 15, 2010.

  1. Must Be A Bull Market: The Dumbest Job Ever, Day Trading, Is Cool Again
    Henry Blodget | Mar. 29, 2010, 9:58 AM | 4,624 | 50

    I know it's stupid! But it's just so fun!!

    Apparently, day trading is back. The New York Times says so. So it must be.

    And that's fine for those who understand that day trading is a nearly sure-fire way to do worse in the market than you would if you owned a low-cost tax-efficient index fund.

    Because the vast majority of day traders will do worse than index funds. Even though they're spending all day trading.

    Of course, a big chunk of those day traders won't know they're doing worse than index funds. Because they'll look only at their gross trading returns. In so doing, they will ignore:

    Brokerage commissions
    Taxes (~50% on short-term gains)
    Research costs
    The opportunity cost of the hours and hours they spend trading (which could be spent doing something else).
    But stocks are going up again, which means lots of day traders are making money (because that's what happens when stocks go up--traders make money). And so day trading is fun and cool again.

    Consider the fun one day trader was having the other morning, as described by the New York Times:

    [A]nyone hoping to join the day-trade caravan had better wear a seat belt, as Mr. Lindloff’s experience on this Wednesday morning demonstrates. Before lunch, he will buy and sell about 44,000 shares, in 17 trades. He starts off poorly, losing about $500. But a timely bet on a company called Rackspace Hosting (“I don’t know what they do,” he says), as well as quick investments in Applied Materials, Eagle Bulk Shipping and a few others, have turned things around.

    “Up $210,” he says, removing his headset. Factoring in commissions, he’s made $60.

    Which means that, after factoring in taxes, he's up $30. Which, pro-rated, is about $8 an hour. But it was fun.

    Academics like Brad Barber and Terrance Odean have studied the investment performance of day traders in detail. Not surprisingly, it's ghastly. Here's more from the NYT:

    The great mass of studies point to the same conclusion: trading is hazardous to your wealth.... The losers far outnumber the winners...

    The authors sifted through tens of millions of trades, from 1992 to 2006, and found that 80 percent of active traders lost money.

    “More importantly, we found that if you were to look at the past performance of these traders, only 1 percent of them could be called predictably profitable,” says a co-author, Brad M. Barber, a finance professor at the University of California, Davis. Everyone else, it seems, was on a short-term winning streak. Even those who did modestly well found their that profits were wiped out, and then some, by transaction fees like commissions and taxes.

    “It’s not impossible to make money actively trading,” Mr. Barber continues. “There are slivers of people out there who are quite good. And everyone thinks they will be in that group of 1 percent.”

    Those are some powerful numbers, so let's review them again:

    80% of day traders in the study lost money (something that is very hard to do in a bull market)
    Only 1% of day traders in the study were "predictably profitable."
    Put differently, far from this being an enriching line of work, 4 out of 5 people engaged in it pay to do it. Only 1 in 100, meanwhile, make enough to be worth writing home about.

    The folks who predictably make money from day trading, of course, are the folks who sell traders tools for their day trading: Information courses, "how-to" advice, data streams, stock charts, technical analysis, trading clubs, investment advice, stock picks, you name it. Those folks do quite well from day-trading. Unless they're dumb enough to actually trade.

    But day trading is fun. Right? And it's cool again. So, by all means, have at it.

    Here's What Day Traders Don't Understand

    Henry Blodget | Mar. 29, 2010, 10:02 AM | 12,638 | 111

    I have so many charts. So how can I lose?

    Must Be A Bull Market: The Dumbest Job Ever, Day Trading, Is Cool Again
    As we explained earlier, day-trading is one of the dumbest jobs there is: According to one academic study, 4 out of 5 people who do it lose money and only 1 in 100 do it well enough to be described as "predictably profitable."

    Most of the folks who do it, in other words, would be far better off working at Burger King.

    As is often the case when we bring up these facts, some readers screamed. One said that our brain-damage was made patently obvious by the fact that Wall Street professionals day-trade all day. If day-trading were so dumb, then why would professionals do it?

    Here's what that particular reader is missing:

    Most Wall Street traders get paid to day-trade other people's money.*

    That's a huge difference compared to what most stay-at-home day-traders do.

    The average professional trader gets paid somewhere between 1% and 3% of assets per year just to trade those assets all day. The average hedge-fund trader gets paid another 20% on top of that for any "gains" he or she makes (regardless of whether the gains are the result of the trader's trading or the bull market).

    The average stay-at-home day-trader, meanwhile, trades his or her own money. And while many of these traders do fine on a gross basis (before costs), once the costs of this trading are deducted (commissions, taxes, research and information, time), their performance is usually downright awful.

    The reason so many professionals day-trade, in other words, is that getting paid to day-trade other people's money is one of the best businesses in the world.

    Day-trading your OWN money, meanwhile, is one of the worst.


    * There's another difference, too, of course: Most Wall Street traders have skills, information, and tools that day-traders can only dream of. Trading is a zero-sum game: Market moves aside, every dollar won by one trader comes out of the pocket of another trader. Day traders competing against Wall Streeters is the equivalent of a college football team (or Pee Wee team, depending on the day-trader's skill) competing against a pro team. Is it possible to win? Yes. But it's highly unlikely (1 in 100). Wall Street's winnings do have to come from somewhere, though, so Wall Street thanks the day traders for playing.

    See Also: Must Be A Bull Market: The Dumbest Job Ever, Day Trading, Is Cool Again

    Read more:
  2. In this job market you may be better off trading from you own home. There are many advantages, like seeing more of your family.

    Not having to pay for a car, or insurance. You can deduct for a home office. Trade futures taxes are cheaper. Keep you overhead low. Thats very important.

    Working for youself takes guts, you have to remove yourself from the noise in the markets, like the media. Keep you mind free from that noise.

    Nothing worth while is easy, trading is the hardest thing I have ever done, it's all about controlling your emotions.
  3. Who said it was not risky, running your own business is very risky.

    If you treat trading "as a business" you can succede. You have to control your costs, just like any business

    You must have a business plan in place, if you don't you wasting your time.
  4. More from Henry Blodget

    Another Reason Most Day Traders Are Deluding Themselves
    Henry Blodget | Apr. 15, 2010, 11:10 AM | 3,552 | 46

    One of the biggest delusions many small investors suffer from--from casual mom-and-pops to full-time day-traders--is that the market is something like a level playing field.

    It's not, of course.

    The average institutional investor has resources and information that the average small investor can only dream of.

    These include:

    Multi-million-dollar research budgets
    Full-time traders and analysts with years of experience and relationships all over the industry
    One-on-one and group meetings with the managements of several hundred companies a year
    Deep networks of industry contacts that help them sniff out any hint of fundamental change
    30 brokerage firms calling them all day long with every tidbit of information they unearth
    Quantitative and technical models that allow them to analyze more in seconds than a casual investor can analyze in a year
    Instant trading execution, sometimes provided by computers co-located at trading exchanges
    And so on...
    What they also have, as everyone was reminded this morning when news broke that Goldman Sachs director Rajat Gupta is under investigation for passing inside info to Galleon's Raj Rajaratnam, is friends.

    It doesn't matter how vigilant the SEC gets. There is simply no way to police facial expressions and body language. When you're at a cocktail party with your buddy who knows what is going on inside a particular company, you don't have to be a mind-reader to get a good sense of it yourself.

    The buddy doesn't need to tell you anything specific. The buddy doesn't need to pass you secret confidential documents. The buddy doesn't need to give you hand signals. All the buddy has to do is look at you in a certain way. To paraphrase the old saying, a facial impression is worth 1000 words (and it also has the convenient feature of not being persuasive evidence in court).

    Facial expressions don't have to just come from buddies, of course. When you're meeting one-on-one with a CEO, you can learn more from the way a CEO responds to a startling question than you can from a thousand page SEC filing. And no one will ever complain that you've been given material non-public information--even though that's just what you've been given.

    Unless all personal contact between executives of companies and investors or agents of investors is banned (which it obviously can't and won't be), this type of information will continue to provide professionals with a valuable edge. And only a tiny portion of it will ever be declared illegal or prosecuted--in part because it's not against the law.

    Read more:


  5. You clearly have talk yourself out of winning. The battle is won in your mind.


    If you think you can’t do it, you sure as heck won’t
  6. By the standard this a-hole sets no one would ever take the risk associated with doing anything that calls for talent as well as perseverance. Fully 98% of actors never have a year where they make $25,000 acting. Very few painters can pay their rent from sold work. Yet Picasso and Brando did just fine in those businesses.

    The fact that few succeed is the opportunity for those that do and, of course, the problem for those that don't. We live in a world that seems to praise a common wisdom that says the civil service job -- taking tolls at the Midtown Tunnel -- is the smart play.

    After all, everyone of those guys gets a check every week. How can you beat that?
  7. Bob111


    i didn't read the article, but i remember
    Henry Blodget...i remember this guy...and his calls credibility..look at the guy background..arts degree...

    Henry..look in the mirror and ask yourself-who is the loser?
    making the money by making buy calls during bull market is one thing,making money trading-is totally different huh?
  8. The writer of these blogs sounded very harsh but he is right. Retail traders don't have "an edge"/knowledge/technology/financial backup that institutional traders have. Deny all we can; deep down inside, we all know, it's the truth.
  9. Its called experience. Don't expect to go into any industry without it.

    Experience * capital = YourOutput
  10. JScott


    The author uses statistical data to make an assessment. Isn't that what we do as traders? How can he be a loser if he's right 90-99% of the time. I'll take those odds any day as a trader.

    Traderzones, as much as I think he's a troll, is always right in this area.

    But if you have a dream to follow and you've prepared all you can and weren't irresponsible or wreckless with your decisions, then nobody should pass judgement on your willingness to take a risk. Afterall, someobody has to make up the top few percent. I don't regret my decision, but talk to me in two - five years and we'll see if I was lucky or good. It's all a mirage until you've proven your ability over and over and over and over again.

    Keep trading.

    #10     Apr 17, 2010