Online investment platforms: Entertainment or not? – With insights from The Wall Street Journal

Among the most memorable admissions made during the past year's Rational Radio webinars (which are taking a break until January) was when Purple Capital's CEO Charles Savage explained his group's strategic switch to a long-term via its low-cost, high-tech stockbroker EasyEquities. Savage said Global Trader, the core of the group for over a decade, was a dead-end because 80% its clients – traders – lost their shirts so needed to be replaced annually. In other words, trading shares is a mug's game – but that still doesn't stop hordes of the self-confident betting they'll beat the odds. Especially in the USA, it seems. Our favourite personal finance columnist, Jason Zweig of The Wall Street Journal, decided to see what the hype was all about by signing up with day-trading phenomenon Robinhood. – Alec Hogg.Use Spotify? Access BizNews podcasts here..Use Apple Podcasts? Access BizNews podcasts here..___STEADY_PAYWALL___.I started trading hot stocks on Robinhood. Then I couldn't stop..Spinning prices, scratch-off rewards and flying confetti? Even the most sceptical investor can be drawn in. .By Jason Zweig of The Wall Street Journal.Updated Dec. 4, 2020 1:03 pm ET.Is the stock market a form of entertainment?.I went on Robinhood, the popular stock-trading app, to find out..You've probably heard of it, even if you aren't among the 13 million people already using it. Robinhood makes trading stocks, options and cryptocurrencies fun and exciting, and analysts have attributed some of this year's skyrocketing stock prices to novice Robinhood traders..My editor and I decided that I should see what the fuss is all about. I started trading on Robinhood on Oct. 27, expensing my $100 investment. Any profits I made would go to charity; any losses would go toward public humiliation. I closed all my positions on Nov. 17..My editor ordered me to try making as much money as possible as fast as possible, to become part of the momentum-investing crowd. That called for a makeover. I'd have to become the polar opposite of the patient, research-intensive, risk-averse investor I've always been..So I created a crude stock screener on FinViz.com, a popular market-data site, that any do-it-yourself speculator could replicate. I would mechanically buy any stock that was up at least 30% over the past week, moved at least 50% more sharply than the market and had volatility greater than 15%. As soon as it dropped off that list, I would sell..I never did any research; the companies would be just ticker symbols to me. Such insanely risky, wildly fluctuating stocks would either make—or lose—a ton of money. That was the plan..Signing up was fun and easy. Three mystery cards emblazoned with question marks popped up. I scrubbed to reveal which free stock I had won, like in a scratch-off lottery game. Confetti showered my phone screen: I'd gotten one free share of Sirius XM Holdings Inc., at $5.76..The next morning, my phone lit up: "Your free share of SIRI is up 1.05% today. Check on your portfolio now." Two hours later, Robinhood nudged me again: "Start Trading Today." An email from Robinhood proclaimed "You're Ready To Begin Trading!".Still, I didn't start for a few days. Then I was swept away..Whenever a stock's price changes, Robinhood updates it not just by showing an uptick in green and a downtick in red, but also by spinning the digits up and down like a slot machine. This flux of direction and color quickly becomes hypnotic..'The ever-changing numbers and colors put me into a kind of trance.'.Madhu Muthukumar, senior director of product management at Robinhood, says the gambling-like visuals aren't there to create "a Vegas-y look" but to "make it feel like something that's familiar to populations that historically have not been served" by the investing industry. The firm says most of its customers "use a buy-and-hold strategy" and that 98% of them aren't day traders..Even so, with a few moments of exposure, the ever-changing numbers and colors put me into a kind of trance. Robinhood showed me a list of "Top Movers." They were bright lime green. They were beautiful. I had no idea what most of them were. My plan flew out the window and I bought a fistful of Top Movers instead: SRRK, EXAS, HOG, RDIB and EXPI..I was immediately caught up in a comedy of errors. One minute after my last buy went through, I was down 29 cents..Eleven minutes after I started, SRRK was down 2.2%, but the app displayed it in green. That's because it was up for the day, even though I was losing money. Forty-five minutes later, it was still showing green, even though I was down 8.8%. I dumped it. Meanwhile, RDIB had dropped 4.2% in an hour and 48 minutes. I dumped that, too. Robinhood immediately warned that if I made too many day trades, I could be marked as a "pattern day trader" and be required to post $25,000. So much for selling EXAS, which was down even more..Frustrated after less than two hours, I did something I'd always advised investors not to do. I bought a "leveraged" exchange-traded fund, TQQQ, that seeks to triple the daily performance of the Nasdaq-100 index. If tech stocks went up the next day, I'd make a bundle..But the Nasdaq-100 ended up falling 3.9% the next day. I jettisoned TQQQ as early as I could, at a 5.2% loss. I bought SQQQ instead, a leveraged ETF that goes up when tech stocks go down. And I went back to my original plan: I bought the five stocks up the most on my FinViz screen..SQQQ went up 11.7%, but I was busy all afternoon and couldn't lock in the gain. I sold it after the close and made only 4.6% when the trade went through the next morning..Meanwhile, Robinhood kept sending me alerts, lighting up my phone anytime anything I owned moved more than 5%..At 2:30 a.m. on Oct. 29, I woke up, my mind racing. I needed a big winner!.A few hours later, I sold all my losing stocks and put the proceeds into two funds: DRIP, a leveraged ETF that seeks to go up $2 for every $1 an energy-industry index goes down, and VIXY, a volatility fund that goes up when an index of S&P 500 volatility rises..That day, stocks went up and volatility went down. I took a beating..The next day, I bet on a reversal, buying back SQQQ. I also put in a late order to buy HIBS, a leveraged ETF that bets against the riskiest stocks. It had shot up 248% during the February-March market panic..The next trading day, Nov. 2, stocks and oil opened down, so I was looking good. But they turned up after 20 minutes. By 10:15 my bets on falling markets were down almost 5%. I sold SQQQ and VIXY and went back to my original plan, buying the top stocks on my FinViz screen. After dozens of trades, I'd somehow gone nowhere, except slightly backwards. I was down to about $95..By Nov. 3, Election Day, the constant whiplash was curing me of the temptation to trade leveraged ETFs; I sold HIBS at a 10.6% loss. I got back to the discipline of my original plan, selling my other losers and gamely buying what my FinViz screen suggested. I never did land a big winner..Robinhood doesn't think my experience is typical. "We're proud to have made investing relevant to a new generation and to help first-time investors become long-term investors," the firm said in a statement..In the end, after three hectic weeks, I finished with $95.01. I'd lost 5% of what I'd put in. Counting the free stock I'd gotten, I was down 10.2%..Over the same period, the S&P 500 went up 7%..The lesson?.You can't invest without trading, but you can trade without investing. Even the most patient and meticulous buy-and-hold investor has to buy in the first place..A short-term trader, however, can make money—for a while, by sheer luck—without knowing anything. And thinking you're investing when all you're doing is trading is like trying to run a marathon by doing 26 one-mile sprints right after the other..To invest means, literally, to clothe yourself in an asset. That gives a stock the chance to work for you over the years it may take for a company to prosper. It also minimizes your tax bills—and your stress..Write to Jason Zweig at intelligentinvestor@wsj.comCorrections & AmplificationsVIXY is a volatility fund. An earlier version of this article incorrectly described it as a leveraged ETF. (Corrected on Dec. 4)Copyright ©2020 Dow Jones & Company, Inc. All Rights Reserved. 87990cbe856818d5eddac44c7b1cdeb8.Appeared in the December 5, 2020, print edition as 'My Wild Ride On Robinhood.'

Online investment platforms: Entertainment or not? – With insights from The Wall Street Journal

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