Playing The Stock Market Like A Casino

The COVID-19 pandemic and the new social norms brought about by its devastating effects have created a different breed of investors who treat the stock market as a virtual Vegas.

Bored Millennials bored stiff from the COVID-19-induced quarantine and social distancing aren’t just throwing bricks in the streets, they’re throwing virtual bricks at all investing norms and conventions.

It seems that this breed of investors not only doesn’t care whether they win or lose but actually relishes in amassing losses. With easy and convenient mobile transactions along with commission-free trading platforms like Robinhood, it has never been easier to play the market – virtually rolling the dice with no clear strategy or goals in place.

Free trading on Robinhood has fueled a small investor boom but it’s not without its dark side.

Don’t be fooled by Robinhood, contrary to its name, it’s not letting people trade for free out of the goodness of their hearts. They’re preying on novices and the inexperienced.

By offering free trades, Robinhood is generating tremendous trading volume but they’re not like your typical broker who executes trades directly on the various exchanges.

Instead, they’re bundling the transactions and selling them to high volume traders who pay Robinhood a fee. These high volume traders can then make instantaneous trades of their own before executing the high volume Robinhood trades to take advantage of any information and timing advantages.

For example, if a high volume trader is sitting on a batch of trades they know will move the price of a stock up, they can swoop in and buy the stock before executing the batch of Robinhood trades to take advantage of the ensuing price bump then unload the stock to extract the profit.

It’s just another variation on the pump and dump scheme.

The losers? The small traders using Robinhood who will see the price of their stock nosedive once the high volume traders unload them. It’s a lose-lose proposition.

The dark side of Robinhood and the rampant speculation by small investors on that and other free platforms is now coming to light.

A recent New York Post article detailed the suicide of a 20-year-old college student who committed suicide after seeing a $730,000 negative balance on his Robinhood account. University of Nebraska student Alexander Kearns stepped in front of an oncoming train on June 12 after leaving a suicide note detailing his shame and anger at finding the negative balance.

It’s clear these small traders don’t know what they’re doing and truly gambling with their futures. That’s the only explanation for the surge in demand for risky stocks, including Hertz and Chesapeake Energy, both of which have filed for bankruptcy.

The Stock Market Is A Dirty Sandbox

It’s not just the small traders like Alexander Kearns who are harmed from this rampant speculation. It’s the investing public in general who suffers as their investment portfolio stocks nosedive on these pump and dump schemes.

The Stock Market is a house of cards bound to crash over and over and over again due to extreme volatility fueled by inexperienced, jittery, and most dangerous of all – apathetic – traders.

This is not investing. It’s gambling.

Investing is putting your money to use with the expectation that your capital will contribute to something productive that will grow and reward its investors.

Finding those productive businesses and assets will require looking to the merits and analyzing the metrics of the underlying opportunity and not the odds of striking gold.

Seasoned investors jaded by Wall Street are yanking what few assets they had allocated to public equities and doubling down on proven, tangible, cash-flowing assets unfazed by market volatility. These investors don’t blink in the face of economic upheaval.

They know that as long as they stick to the fundamentals, they can’t go wrong. They leave nothing to chance by concentrating on assets:

• • with high risk-adjusted ROI.
  • in proven markets.
  • with proven demand.
  • that cash flow.
  • that appreciate.
  • that are tangible.
  • have a low correlation to the broader markets.
  • that are shielded from inflation.

Why trust your investing fortunes to speculators and high volume traders?

Avoid the Dark Side of Wall Street and Invest in Fundamentals.

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Michael Foley

Michael Foley, president and CEO of Humabilt Capital, oversees the entitlement process, funding, and operations for Humabuilt Capital. Mr. Foley has been a full-time real estate investor since 1995 during which time he has developed hundreds of single-family homes, townhomes, condominiums, and apartments. Mr. Foley started his investment ventures in Long Beach, California, and has expanded to Apex and Durham North Carolina. Mr. Foley is a graduate of the University of California at San Diego.