December 16, 2021

There’s an old saying in poker. Look around the table. If you haven’t figured out who the patsy is within 5 minutes, you’re the patsy.

In recent months, there has been a surge in amateur day traders. Robinhood is the most well known of several easy-to-use trading platforms that are seeing a spike in users. Some new traders are bored at home on furlough. Others are gamblers who found a new game to play. Most of them will discover soon enough they are the patsy.

Given the glum economic news, the markets have been strange. Asset prices have rebounded and stayed high, and new investors who went long are doing fine, for now. I can’t predict the markets, but I do know about investing.

Successful investors study the fundamentals of a business. Before they commit their capital, they understand industry trends, customer needs, company strengths and weaknesses, and a lot more. It takes skill, experience, the right temperament, and a lot of hard work.

Day traders are up against highly specialized and extremely sophisticated investment professionals. The pros have the best research, the best tools, years of experience, and huge amounts of capital behind them. They are sharks who make a very good living from their expertise. Casual retail traders are easy prey.

When a novice poker player joins a high roller table, he might win some hands, but luck doesn’t last forever. Over time, he’s almost certain to lose. The talent, skill, and experience of the other players will show through.

But if they want a real return on their capital, they need to think again. Investing is a process, not a transaction. Buying or selling an asset is just one step in a long process of research, analysis, and risk management. Retail buyers who aren’t prepared to put in the work would be better off buying and holding index funds or hiring a money manager.

The world of investing is not the place for instant gratification. It’s a place that rewards continuous learning and patience. Investing is for the long term, gambling is for quick thrills. So which are you, an investor, or a gambler?

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