Photographer: Stuart Westmorland / Corbis Documentary RF via Getty Images
Photographer: Stuart Westmorland / Corbis Documentary RF via Getty Images
Do you plan to pack it all in and trade a stock for a commission-free brokerage account? Good luck with that, says recent research.
Academics from Brazil looked at people trading short-term in iBovespa contracts and found that of 1,551 retailers, only 1.1% posted a higher average net return than the Brazilian minimum wage in just over a year. About 0.5% of traders, who were followed for 300 sessions, earned more than the average Brazilian bank teller.
The study, which agree with others findings about the unavailability of market timing, focuses on trading that is in time and place at a distance from the crazzy of Robinhood – futures trading by Brazilian individuals, as opposed to stock trading in America, although its authors say that the yeast could have a wide application. Written by Fernando Chague and Bruno Giovannetti of the Sao Paulo School of Economics and Rodrigo De-Losso of the University of Sao Paulo, the paper said “it is virtually impossible for individuals to live day to day trading.”
Do-it-yourself investing is booming amid the coronavirus pandemic and, to be sure, many new coin makers have done remarkably good – so far. A portfolio of Goldman Sachs Group Inc. of popular shares among individuals has increased by 78% since the low of March 23, making the 51% climb of S&P 500. But although profits have easily come in one of the rapid returns on the stock market, Chague says the paper, which traders actively traded in the years 2013-2017, gives cause for skepticism.
“You can be lucky and perform well enough in a few days, but over time it gets harder and harder,” he said. “Most lost money.”
Day traders are a growing force in stock markets after the coronavirus pandemic left millions at home with little to do. Retail-friendly brokers have seen opening accounts, with free-to-trade trading apps like Robinhood making the market more accessible than ever.
While an individual investor may not have as much leverage as institutions, they do appear in size. Retailers are now the second-largest cohort in the U.S. stock market, accounting for 19.5% of stock trading, according to Bloomberg Intelligence data. While high-frequency market makers and traders still earn the most trade with 43.5%, the retail segment has a greater presence than quantitative investors, hedge funds, traditional long-term participants and bank-affiliated traders.
Traditional money managers are watching the renaissance for retail with a careful eye. Megacap tech stocks – in retail fan-favorite – have boosted day-trading portfolios over the past few months as investors pile into home-trading. But over a longer time frame, even above-average professional stock pickers are lucky to get more than 60% of their decisions correct, according to Gradient Investments.
“It makes you a little nervous when you see all this retail money as people buying stocks and suddenly making 20%, 30%, 40% in a few days and weeks and thinking it’s that easy,” Keith Gangl, portfolio manager for Gradient, said by telephone. “What is happening is that more and more people are trying to do that and suddenly too many people are trying to do that and it is not succeeding and they are losing a lot of money.”
– With the help of Lu Wang
.
