It’s the Rage on Some Campuses:
Here’s What the Motley Fool Thinks About It.
You will no doubt hear of people brag
ging of the ease with which they’ve
made a mint in a matter of weeks by
day trading. Day trading is the attempt to
trade into and out of stocks on a minute
by-minute basis, trying to make money on
rapid price moves. Sound seductive? It is,
but we don't like this get-rich-quick
approach. We simply don’t think that peo
ple can sustain it over time. Here’s why:
It’s extremely difficult to make money
over time by day trading. Just as in gam
bling, the odds are stacked against you,
and the longer you play, the more likely it
is that you’ll lose. You’re attempting to
guess which way a stock is going to move
in the next few hours, minutes and even
seconds. We just don’t think this is possi
ble—at least not any more possible than
guessing which number is going to come
up next on the roulette wheel. Any gambler
can hit a _
hot
streak;
the streak
has very
little to
do with
strategy and everything to do with the law
of averages.
Just as in gambling, there is the dan
ger that you can become addicted. This
isn’t Monopoly money you’ll be playing
with or worthless plastic chips—it’s your
hard-earned cash, the money you need for
everything from that shiny new VW Beetle
to your rent and your retirement. And like
most things that are addictive, it just isn’t
good for your long-term financial outlook.
Sitting in front of a computer screen
all day, developing eyestrain, acid indiges
tion and strategies for fending off panic
does not seem to us to be the way to live.
Rather, we’d like you to educate yourself
about great companies, invest in them for
the long term, and then move on to the
more important things in life, like finding
your One True Love, spending time with
family, fulfilling yourself in a stimulating
career, contributing to society, and, of
course, perfecting your backhand.
The costs can kill you. Even if you’re
using a discount broker, commissions can
easily add up to thousands or tens of
Any gambler can hit a hot streak The streak has
very little to do with strategy and everything to
do with the law ol averages.
thousands of dollars when you make so
many trades. Then, too, there are added
costs: quote services (so you can find out
instantly the price of a given stock), mar
gin interest (the interest you pay on
money that you may need to borrow in
order to trade), and higher taxes on short
term profits.
If you guess wrong, you’ve lost the
power of compound returns over time,
which is the way that Fools think you will
get rich. Instead of falling victim to the
allure of day trading, we urge you to get
rich slowly. Slow and steady wins the race.
And if you choose good companies, it may
happen faster than you think. •
Source: Motley Fool (fool.com). Reprinted
by permission. For more questions at
FoolU, go to fool.com/foolu/askfoolu
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