I met a hardworking guy who sees day trading as his ticket out of poverty. “Sometimes I make $500 a night!”. It made me want to weep, scream, howl, and laugh. Out of all the wretchedly bad ideas on how to misuse the amazing stock market, this one is one of the most unkillable, despite innumerable studies demonstrating, “no, you really don’t know the future”. Ironically, Jill Schlesinger had just written about the disastrous effects of market timing (getting 4.66% return instead of 9.85%). Rick Ferri also has a good post on this.
Why do we think gambling (of any sort) gives a good return? Most of us would agree that on the average, the house wins, whether for day trading or lottery tickets. On the other hand many gamblers believe that gambling works for them. What’s messing up the gambler’s logic? The fact that we tend to remember the good things much better than the unpleasant things. That can trip any of us up, so pity the poor (and getting poorer) day traders.
