An Unemployed College Graduate’s Irrelevant Opinion
This is a post written by Avishai Shuter, and up-and-coming zoologist who lives in his parents house while waiting to hear back from the Bronx Zoo.
About a two years ago, I decided I wanted to get some experience in the market. After doing some research, I created a TD Ameritrade online account (they were the first company that didn’t require a Social Security card for signup, and as a college student away from home, I didn’t have mine) and bought $1,000 worth of stocks. Two years later, my portfolio is worth about the same as a result of significant losses but equally significant gains. So what have I learned?
Why Casual Traders Get Hammered
The stock market wasn’t designed for college kids with $1,000 to wager, and as a result, isn’t especially friendly towards them. I started investing, as many people do (whether they admit it or not), fantasizing about stumbling onto a stock that would make me millions overnight. But, I quickly learned, it simply doesn’t work that way. In order to make real money in the stock market, you need to start off by investing a sizable amount.
Starting with $1,000 simply won’t do it. The expensive stocks of well-known companies don’t have swings as large as smaller, less reliable companies do. So I could have taken my money and bought two shares of apple, thereby risking about $600 in order to make about $30, in addition to the $9 a trade I was being charged (this was an actual scenario when I first started out). And even if it wouldn’t be the riskiest move in the world, it would have been a waste of time. In order to justify that type of investment and time, I would have needed to invest way more at the get go.
Unless you have the money to buy a few hundred or few thousand shares of Coke, or Apple, or Google, where strong returns are as close to a guarantee as you get in this business, it just isn’t worth it. So why do casual traders get hammered? Because they’re casual. They simply aren’t putting up the money needed to make back money they could potentially live off of.
The House Always Wins
You know why joe-shmoes don’t make millions in the stock market? Because they don’t put millions in. In a system which is essentially complicated gambling, many of the big players are also making the rules. And, same as in a casino, the house rarely loses. Casual traders simply aren’t privy to the information required to make decisions resulting in million dollar returns, nor the bankrolls required to take advantage of the information even if they had it.
So what’s the main thing I learned?
The main thing I took away from this learning experience is that in order to make a significant amount of money in the stock market with the stock of giant, dependable companies, you better have the money and the will to buy a few thousand shares.
Otherwise, I just can’t see the justification for buying those types of stocks. On Wall Street, it seems to me that casual equals increased risk or don’t even bother. But I’m by no means an expert. Happy investing.