It’s fair to say I’ve listened to far more economic and market updates over the years than the average person. Keeping a pulse on these things is a big part of what we do as financial planners and investment advisors.
Over the past few months something has entered into these market discussion that surprised me. When I heard the words, sports betting and gambling I did a double take. Never would I have imagined this to be on the agenda.
What could sports betting and gambling possibly have to do with an economic and market update? Well, it’s 2020 and it seems anything is possible. Here is the connection.
The pandemic brought the closure of casinos, professional sports, and therefore the traditional forms of betting and gambling. Now add in lockdown conditions and government stimulus cheques. You’re left with a population of frustrated gamblers with nothing to bet on, quarantined in their homes, with time on their hands, and money in their account.
Layer in the increasingly easy apps and online platforms that put betting at your fingertips.
We end up with a group of restless gamblers looking for a new diversion who have switched focus to the world of day trading. Evidently it is an easy transition from a betting app to a day trading app.
The surprising thing to me was; I never really considered the volume of gambling and sports betting that was present in our pre-covid world. To have enough increase in day trading volumes sourced by traditional gamblers and sports betters entering the market to be considered a factor worth mentioning in economic reports was astounding to me. For anyone who knows economics and the many variables that may affect the market, you will know this would have to happen at a significant rate to hit the radar of macro economists.
Seeking the thrill of the win is one thing, but understanding the risks is another. The losses can be significant. The online day trading model is typically built on a no-advice, do-it-yourself platform which means investor education is not part of their traditional value proposition. In other words, you’re on your own. It may very well be a risk gamblers and sports betters are willing to take but they do need to understand what these risks entail. It is very easy to not recognize the risks you are signing up for. Educating yourself in market trading and complex investment instruments is a full time job.
One Washington Post wrote “Studies have shown repeatedly that the typical investor has a less than 1 percent chance of beating the market.” And added, Billionnaire hedgefunder Leon Cooperman told CNBC “They are just doing stupid things, and in my opinion, this will end in tears.”
In one particularly devastating case, 21 year old student Alexander Kearns died by suicide in June amidst some confusion on his online trading app that indicated he owed $730,000 after trading using complex options and investment instruments typically used by sophisticated investors.
There are ongoing investigations into his death but Kearns family indicates he left behind a note that he was distraught and confused over his online trading account, indicating “The puts I bought/sold should have cancelled out, too, but I also have no clue what I was doing now in hindsight”
Evidence now shows he did not in fact owe this balance as he feared, but rather, it was an unfortunate interface issue on the app.
This tragedy amidst other stories of true losses among amateur day traders has drawn attention to the potential dangers of online day trading for those who do not know what they are doing.
It will be interesting to see what happens as sports eventually return and gamblers tire of their stint in day trading.
For some people, day trading is an enjoyable hobby and following the market is what they enjoy. But for most people it is not. It can be a full time job and a slippery slope. Before you wade into these waters, it is important to realize in many cases the original enthusiastic get-rich-quick day trading dreams do not have a happy ending.
The benefits of professional money management, particularly in uncertain times, cannot be overstated.
Stephanie Farrow, BA., CFP., Stephanie has over 26 years' experience in the financial services industry, a diploma in Financial Planning from the Canadian Institute of Financial Planning and Certified Financial Planner designation. Stephanie has been writing a financial column for local business magazine Elgin This Month/This Month in Elgin since 2010. Stephanie and her husband own Farrow Financial Services Inc. About our Farrow Financial Team.