2006-07-07 19:25:22 · 9 answers · asked by jueyanz 3 in Business & Finance ➔ Investing
Academic answer:
Interesting question. In my finance program we had to read a lot of papers, though it was mostly theory or empirics related to corporate finance. We did review studies ofindividual investor performance while studying the behavioral finance literature, and individuals tend to underperform not just the market, but also professionals (mutual funds). People tend to be quick to take gains but slow to take losses. If you believe that returns are distributed normally, then taking early gains and late losses will lead you to hold a portfolio of losers. This is exaggerated by the momentum effect.
Practical answer:
Daytraders mostly got into the game in the roaring late 90's. Returns were so insane, especially on anything tech, that any schmoe who could raise $50k could find a seat at a SOES operation and daytrade his heart out. What they didn't realize is how hard it is to make a living trading $50k. First, most people have no special talent to be a trader. In fact, most people are wired to be poor traders. To make a living by day-trading $50k, you need to make at least 2%/week. Doesn't sound like much? 2% a week is equivalent to 170% per year. How many people do you think can reliably make those returns? Not to mention the psychic stress. Behavioral finance (ok, real credit due to the psych field here, probably Tversky) shows that losses are felt 2.5x as intensely as equivalent gains. If returns are distributed normally, then on a very short time scale you are going to have a lot more pain than gain in your emotional accounting. Take a few bad weeks where you're down, start making some big bets and losing on those, and then realize that trees don't grow to the moon (internet stock days are over), and the flies start dropping.
I've known good smart people who decided to day trade. I've never known anyone who consistently made money at it, though I'm sure they are out there.
2006-07-07 20:05:47 · answer #1 · answered by pluralist 2 · 1⤊ 0⤋
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2016-10-14 05:58:37 · answer #2 · answered by ? 4 · 0⤊ 0⤋
The sad fact is: most people lose money in the market at about the same rate they lose it at casinos. There are some exceptions. The history of even the large indexes is one of complimenting the gains of inflation. Of course Wall Street will say otherwise, but their business is making money off buying and selling markets.Yes there are a few winners, same as there are winners in Vegas, they post their pictures in Vegas. At some places you may have 20 pictures of moderate winners. These pictures go back for 50 years. Wow whoopie do.
2006-07-07 19:32:43 · answer #3 · answered by Anonymous · 0⤊ 0⤋
Read the book "Common Stocks and Uncommon Profits" by Philip Fisher for the answer.
2006-07-08 01:04:18 · answer #4 · answered by andrew f 3 · 0⤊ 0⤋
to make money in the stock market, it's best to think long term. some companies don't show any growth for weeks, months, years.
2006-07-07 19:30:21 · answer #5 · answered by blkrose65 5 · 0⤊ 0⤋
Well apparently if 90% of those schmucks failed, well that's 90% profit that doesn't get returned!
2006-07-07 19:27:16 · answer #6 · answered by CHHine 2 · 0⤊ 0⤋
they are not in for the long run. they flip it quickly for a profit and with the fees it isnt a profit.
stock markets are for the long run.
2006-07-07 19:30:27 · answer #7 · answered by ML 5 · 0⤊ 0⤋
BECAUSE THEY WERE TOO LAZY TO DO THE RESEARCH, AND NOT IN IT FOR THE LONG HAUL.
Sorry about the loud answer, but I know this to be true.
2006-07-07 19:27:52 · answer #8 · answered by rrrevils 6 · 0⤊ 0⤋
where did you get the 90% statistic?
2006-07-07 19:26:46 · answer #9 · answered by Anonymous · 0⤊ 0⤋