Want To Bet Online?

The Financial Times reported last week that online stock brokerages, like E-Trade, hit a record number of account sign-ups in March and April. Rich Repetto, senior analyst at Sandler O’Neill (investment banking firm) commented that the stay-at-home mandate plus no live sporting events for bettors to wager on motivated many to trade stocks online. Whoa! Think about that for a minute. These people were so starved to bet on something, they decided to bet on stocks!

As a reminder, here is the difference between investing and speculating, or betting.

Investing:

Investors think like owners. We research what we own and buy a portion of that stock or mutual fund because we believe it will earn money over the long term. Investors consider risk when purchasing stocks and mutual funds and attempt to achieve their returns with as little risk as possible.

We also buy investments that serve a specific purpose within our portfolio. For instance, while we may purchase a large company mutual fund for long-term growth, we also may invest a portion of our portfolio in bond mutual funds that provide income and whose prices are less likely to fluctuate. Investors have a strategy and know what they’re trying to accomplish.

Speculating:

Speculating is more like gambling. I love to play the ponies at Keeneland but do so for entertainment, not in expectation that my “skill” picking winners will fund my retirement. Buying a stock because one thinks, or hears, the stock is poised to take off is simply a bet.

Speculation is based on emotions - the enemy of all investors - not on reason, logic and strategy.

Investor:

Warren Buffett. The Oracle of Omaha invests in companies he expects to be profitable for many years.

Speculator:

The screaming, sleeves rolled up stock picker on CNBC tells us we’re crazy not to buy XYZ Company and then moves on to the next great pick tomorrow.

Let’s hope all those new online investors are taking advantage of their at-home time to research their investments, not just putting their dollars on the horse with the pink and green silks.

Steve Byars, CFP®