Author Topic: Need compelling evidence to convince my friend not to day trade  (Read 7336 times)

gojiberries

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I am trying to find material to politely convince my friend that trying to become a successful trader is a fools errand. The problem is that he is an incredibly smart guy (former chess prodigy etc) who usually succeeds in most of his endeavors. Before I found MMM and read 'Thinking Fast and Slow' I was also attracted to the idea of trading but luckily never took it too far. I have suggested he read that book and MMM but they have 3 kids and time is scarce so I want to find the most compelling evidence that is specifically related to trading. Any help is much appreciated. Thanks!

nobodyspecial

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Re: Need compelling evidence to convince my friend not to day trade
« Reply #1 on: March 20, 2016, 12:30:08 PM »
Tell him to toss a coin 10 time.
If he consistently guesses correctly more than 60% then he is obviously luckier than the average by enough to cover the trading commission.
« Last Edit: March 23, 2016, 09:35:47 PM by nobodyspecial »

ShortStuff

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Re: Need compelling evidence to convince my friend not to day trade
« Reply #2 on: March 20, 2016, 12:32:39 PM »
This article links to a 2011 research study conducted in part by professors at UCal Berkeley school of business, showing less 1% of day traders are consistently profitable:

http://www.fool.com/investing/general/2015/10/09/why-day-trading-stocks-is-not-the-way-to-invest.aspx

bacchi

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Re: Need compelling evidence to convince my friend not to day trade
« Reply #3 on: March 20, 2016, 12:40:32 PM »
LTCM had noble laureates helping them. It didn't help.

The best way to learn is for him to establish a separate account and day trade with, say, $10,000. No margin or uncovered puts/calls. When his returns are much less than the S&P with more work, he'll have learned his lesson.


Indexer

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Re: Need compelling evidence to convince my friend not to day trade
« Reply #4 on: March 20, 2016, 12:45:09 PM »
I am trying to find material to politely convince my friend that trying to become a successful trader is a fools errand. The problem is that he is an incredibly smart guy (former chess prodigy etc) who usually succeeds in most of his endeavors. Before I found MMM and read 'Thinking Fast and Slow' I was also attracted to the idea of trading but luckily never took it too far. I have suggested he read that book and MMM but they have 3 kids and time is scarce so I want to find the most compelling evidence that is specifically related to trading. Any help is much appreciated. Thanks!

You already have the compelling evidence. He has 3 kids so time is scarce.

Day trading done correctly is extremely high risk and extremely time intensive. You could have great returns or terrible returns. Studies have shown the latter is more likely.

Day trading without the time commitment is basically a guaranteed way to lose money. If he doesn't have time to read MMM or a book on investing then he also doesn't have time to dedicate to day trading.

iris lily

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Re: Need compelling evidence to convince my friend not to day trade
« Reply #5 on: March 20, 2016, 03:13:21 PM »
What about gambling online? Someone II know does some of that one side, or did it dor a,few years. I hear that some can make some money doing that. Maybe those days are over, thoughh.

Travis

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Re: Need compelling evidence to convince my friend not to day trade
« Reply #6 on: March 20, 2016, 03:22:28 PM »
I am trying to find material to politely convince my friend that trying to become a successful trader is a fools errand. The problem is that he is an incredibly smart guy (former chess prodigy etc) who usually succeeds in most of his endeavors. Before I found MMM and read 'Thinking Fast and Slow' I was also attracted to the idea of trading but luckily never took it too far. I have suggested he read that book and MMM but they have 3 kids and time is scarce so I want to find the most compelling evidence that is specifically related to trading. Any help is much appreciated. Thanks!

You already have the compelling evidence. He has 3 kids so time is scarce.

Day trading done correctly is extremely high risk and extremely time intensive. You could have great returns or terrible returns. Studies have shown the latter is more likely.

Day trading without the time commitment is basically a guaranteed way to lose money. If he doesn't have time to read MMM or a book on investing then he also doesn't have time to dedicate to day trading.

He has no time for a book, but he thinks he has time to trade stocks?  How much time is he going to devote to researching these stocks?  There are people who do this full time and regularly get it wrong.

Seppia

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Re: Need compelling evidence to convince my friend not to day trade
« Reply #7 on: March 20, 2016, 04:00:45 PM »
This seems like a recipe for disaster.
If he is a smart guy try explain him that the frictional costs he will be subject to will make it very hard for him to make any money.
Plus, if he doesn't even have time to research he's literally much better off gambling online, as most people are not very good with probability.

gojiberries

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Re: Need compelling evidence to convince my friend not to day trade
« Reply #8 on: March 20, 2016, 04:24:03 PM »
He actually put himself through college playing poker online but I think he feels he could make more trading. I should have explained that he is currently working a full time job which he does not like and day trading is something he is learning in the hope that he could quit his job eventually. He is also not opposed to reading books or research he just doesn't have time right now (they just had their 3rd baby). I obviously agree that I don't think it is a smart thing to pursue but he is not one to make decisions based on other people's opinions which is why I am trying to find good sources to present to him.

gojiberries

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Re: Need compelling evidence to convince my friend not to day trade
« Reply #9 on: March 20, 2016, 04:36:12 PM »
This article links to a 2011 research study conducted in part by professors at UCal Berkeley school of business, showing less 1% of day traders are consistently profitable:

http://www.fool.com/investing/general/2015/10/09/why-day-trading-stocks-is-not-the-way-to-invest.aspx

Thanks this is the kind of stuff I am looking for.

money_bunny

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Re: Need compelling evidence to convince my friend not to day trade
« Reply #10 on: March 20, 2016, 05:06:02 PM »
Is there a way to have a "Fake" account such as what they give kids when they are teaching them about the Stock Market? In elementary school Newsday ran "The stock market game" or something like that and each group of students had an amount of seed money. The top three winning teams got to ring the bell one day on the NYSE.

Here is your 100K go "Play" for 2 weeks and see how you do.

Hope that it's not an amazing week. Actually do hope, so the rest of us rise with the tide. For the sake of his kids hope he invests in poor performers.


Tyler

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Re: Need compelling evidence to convince my friend not to day trade
« Reply #11 on: March 20, 2016, 05:16:40 PM »
He actually put himself through college playing poker online but I think he feels he could make more trading. I should have explained that he is currently working a full time job which he does not like and day trading is something he is learning in the hope that he could quit his job eventually. He is also not opposed to reading books or research he just doesn't have time right now (they just had their 3rd baby). I obviously agree that I don't think it is a smart thing to pursue but he is not one to make decisions based on other people's opinions which is why I am trying to find good sources to present to him.

I have a friend like that.  Really smart guy who made money in online gambling before upping the stakes with options trading.  I wish him nothing but the best.

In my experience, trying to talk someone like that out of doing something is going to be very difficult.  The approach I've learned is to listen to what they have to say and to offer my own positive perspective on why I invest the way I do.  Your friend will remember "I like simple asset allocation strategies because I never have to be stressed out about my investments" the first time he hits a really bad spell and loses a lot of money.  I also like "I realized I don't need to spend so much energy trying to beat the market.  There are other easier ways that may not make quite as much but that easily meet my financial needs and allow me to spend my time on things I find more enjoyable." That one seemed to especially register with another friend who has a young baby, and opened a conversation to Mustachian ideas as well.

Some people have to learn hard lessons for themselves.  Set a positive example and maintain an encouraging tone, and they'll know who to turn to when they're ready to ask for advice. 

gojiberries

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Re: Need compelling evidence to convince my friend not to day trade
« Reply #12 on: March 20, 2016, 05:46:02 PM »
Incredibly well spoken advice. Thanks Tyler.

ScarElbow

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Re: Need compelling evidence to convince my friend not to day trade
« Reply #13 on: March 20, 2016, 05:58:34 PM »
I don't day trade, I trade options on a weekly and monthly basis. Practice often and adhere to well thought out principles could generate consistent cash flows for anyone. It has 100% replaced stock/index investing in my portfolio.

signhere

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Re: Need compelling evidence to convince my friend not to day trade
« Reply #14 on: March 20, 2016, 06:53:15 PM »
What about gambling online? Someone II know does some of that one side, or did it dor a,few years. I hear that some can make some money doing that. Maybe those days are over, thoughh.

I gamble for a living but it's become exponentially harder in the last 5 years largely due to online poker being shutdown in USA. If you're living in the USA, you're basically limited to live poker and daily fantasy nowadays.

nobodyspecial

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Re: Need compelling evidence to convince my friend not to day trade
« Reply #15 on: March 20, 2016, 07:02:52 PM »
I gamble for a living but it's become exponentially harder in the last 5 years largely due to online poker being shutdown in USA. If you're living in the USA, you're basically limited to live poker and daily fantasy nowadays.
But at least you are still allowed to place highly leveraged bets on dubious mortgage backed securities in a totally unregulated derivatives market

Papa bear

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Re: Need compelling evidence to convince my friend not to day trade
« Reply #16 on: March 20, 2016, 07:09:45 PM »
Back when I worked at a large staffing / temp agency, we used to interview quite a few people with gaps from their most recent jobs.  They were "day traders" and had run out of money and begging for 12/hour jobs. 

Should have stayed at your old job, silly. 


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trashmanz

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Re: Need compelling evidence to convince my friend not to day trade
« Reply #17 on: March 20, 2016, 07:46:46 PM »
Can't convince them otherwise. If they are smart they have been in the top 1% all their lives. Any research showing how difficult it is will just solidify their resolve. "If it were easy everyone would be doing it."

johnny847

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Re: Need compelling evidence to convince my friend not to day trade
« Reply #18 on: March 20, 2016, 08:21:23 PM »
You can oftentimes categorize the reasons someone does something into three categories: inertia, ideology, and ignorance.

You can cure your friend of ignorance pretty easily. There's at least one study linked here.

Seems like it's not inertia. Your friend has three kids, so it's got to be hard for him/her to day trade.

Which brings us to ideology. Probably the toughest egg to crack. Honestly sometimes it's better to just let them be, because more often that not, with ideology, they've chosen to believe what they want to believe, even if it's contradictory to the facts.
For some people, at the end of the day it doesn't matter how much data you present showing how it's hard to beat the market by day trading after fees and taxes. They believe that they're part of the portion of the population that can beat the market.

ETA: And even if you can present enough evidence to convince your friend that their ideology is flawed, sometimes they're so butthurt that their whole belief system was disproven that they resent you. Because of this, I usually just leave such people alone.
« Last Edit: March 20, 2016, 08:23:44 PM by johnny847 »

Woody Viet

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Re: Need compelling evidence to convince my friend not to day trade
« Reply #19 on: March 20, 2016, 08:27:11 PM »
I would focus on getting him to use solid risk management. If he's dead set on it then maybe letting him lose a bit of money could kill the enthusiasm? Get him to set a fixed stake (which is small), to test the water and then make sure he sticks to it. If you come at this from the rational/prudent perspective then hopefully he will identify it as you being helpful rather than disruptive.

Also talk to his wife. If she realises how imprudent he's being that might slow it down.

Heckler

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Re: Need compelling evidence to convince my friend not to day trade
« Reply #20 on: March 20, 2016, 09:35:15 PM »
Without day traders, we wouldnt have an index, would we? 

okits

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Re: Need compelling evidence to convince my friend not to day trade
« Reply #21 on: March 20, 2016, 11:02:49 PM »
It's been a few years, but I've read a few posts by James Altucher about why you shouldn't day trade.  Typically along the lines of 1) you will lose all your money, and 2) even if you don't you'll hate what the activity does to you, mentally and physically.  He's written that people who entertain day trading fantasies are often looking for a magical escape from an unhappy job or life situation. 

I couldn't find the exact post I wanted, but something along these lines:

http://www.jamesaltucher.com/2010/11/8-reasons-not-to-daytrade/

jim555

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Re: Need compelling evidence to convince my friend not to day trade
« Reply #22 on: March 20, 2016, 11:21:08 PM »
You don't need to convince your friend of anything.  If he is as smart as you say he realizes the risks and rewards.  Also while MOST people fail at day trading I am sure a small number actually do well at it.

MustacheAndaHalf

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Re: Need compelling evidence to convince my friend not to day trade
« Reply #23 on: March 21, 2016, 04:52:43 AM »
What else is going on with your friend, that he feels taking the risk of day trading is a good approach to provide food and rent for his wife and 3 kids?  To bring up the Suze Orman show for a minute, is his wife's income greater than his?  I've seen Suze address several financial problems tied to men with a mentality of being the provider, who lose their footing when their wife provides more of the household income.  Out of control spending or gambling is possible - and maybe day trading comes from someplace similar.  Just being intelligent doesn't guarantee good decisions.

I think you should get to the bottom of what need he's filling by day trading.  It sounds like there's something else going on, or he wouldn't be risking the rent and food of his wife and 3 children.

thunderball

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Re: Need compelling evidence to convince my friend not to day trade
« Reply #24 on: March 21, 2016, 06:20:11 PM »
From (extensive) personal experience, I would suggest the following:

1. if he is set on trading, he should only do so with a tiny fraction of capital (<5%), assuming the rest is invested according to MMM norms.
2. NEVER trade when it is your sole source of income (too much pressure)
3. pick a market and timeframe, and stick to it.
4. he should check out tastytrade (selling options is how the pros make money)
5. Don't do anything without strict rules
6. See #1...

I've been down that road before.  And while there is evidence that good poker players can make excellent traders (Google Don Miller), financial life is a lot easier practicing Mustachianism. 

Financial.Velociraptor

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Re: Need compelling evidence to convince my friend not to day trade
« Reply #25 on: March 21, 2016, 08:37:05 PM »
I trade for a living.  Or at least partly; a large portion of the bankroll is in dividend paying names.  I'd recommend against day trading; its damn hard to beat the hedge funds with computerized millisecond trading algorithms.  I'd be willing to talk to him.  You can PM me for phone number and email address.

P0IS0N

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Re: Need compelling evidence to convince my friend not to day trade
« Reply #26 on: March 22, 2016, 04:38:40 AM »
Like others mentioned, I think convincing your friend not to day trade is a wrong approach.
If he came to you for advice, give him the necessary information, answer his questions and try to be as objective as you can.
If he didn't ask for your advice, then I don't know why you should meddle with his business.

Personally, I try to avoid talking about my investments with my friends, unless they are genuinely interested. I can ask them for advice, but otherwise, I wouldn't appreciate anyone telling me what to do with my money.

ransom132

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Re: Need compelling evidence to convince my friend not to day trade
« Reply #27 on: March 22, 2016, 04:51:35 AM »
I agree with Poison, even if you show all the proof in the world, if in his head he is convinced day trade is what he wants, he will do it regardless of evidence, unless he asks you for your opinion...then go ahead and tell everything that is in your mind...after that it's up to him.

gojiberries

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Re: Need compelling evidence to convince my friend not to day trade
« Reply #28 on: March 22, 2016, 08:07:21 AM »
Wow this thread has been fascinating. I really appreciate all the thoughtful responses.

I certainly agree that it is not my place to tell him what to do with his money or even to be too sure that active investing is wrong for him. I would not consider giving financial advice to most of my friends but he is different because I genuinely think he could hear what I say and consider the merits of my arguments without it becoming a personal attack. I've lost money on gambling, stock trading and drugs (thankfully not very much) so it makes me uncomfortable staying silent when I see a friend go down what has proven to be a bad path for the vast majority of people. However, if I imagine the personality type that make up the tiny fraction of successful traders he fits it to a tee so if he does decide to go for it I will absolutely be supportive and hope for the best.

TheOldestYoungMan

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Re: Need compelling evidence to convince my friend not to day trade
« Reply #29 on: March 22, 2016, 12:49:20 PM »
Have him fantasy trade for a bit and see how he does.

There's a way to "day trade" where you end up just constructing your own index over time, not substantially different from any other index strategy.

Before I started in investing I would regularly pick a stock, note the date and the price, and then see how it was doing years later compared to other things I looked at and decided not to pick.

After a couple of years of consistently having both hits and misses and reading about how difficult it is to do well consistently, I put most of my investing into indexes.

I still do dabble in picking specific companies, but only for fun.

If he's legit trying to day trade with exotic options and so forth, just tell him the story of the guy who ended up with a delivery of pork futures in his driveway.

jinga nation

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Re: Need compelling evidence to convince my friend not to day trade
« Reply #30 on: March 22, 2016, 01:06:57 PM »
Is there a way to have a "Fake" account such as what they give kids when they are teaching them about the Stock Market? In elementary school Newsday ran "The stock market game" or something like that and each group of students had an amount of seed money. The top three winning teams got to ring the bell one day on the NYSE.

Here is your 100K go "Play" for 2 weeks and see how you do.

Hope that it's not an amazing week. Actually do hope, so the rest of us rise with the tide. For the sake of his kids hope he invests in poor performers.

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