The easiest day to put a noose around your neck in the stock markets and it is called short term investing, popularly known as day trading.
Basically this is where an day trader(this is what they are called) hopes to make money in the selling of various securities, be it stocks, warrants, stock options after having bought them at a lower price. The biggest difference between this guy and other investors is that he only holds the securities for hours at a time and not days or months or years like other real investors
While a large number of people do engage in this dangerous game, there are a few things that they do not consider;
Sometimes a trader may buy a value stock in the morning in the hope that the price will increase by a few points in the course of the day but the opposite happens and the stock’s price decreases. Because the trader wants to reduce the paper losses has already incurred, the will desperately try to sell the secutities at any price, even if it it lower than the price he bought them at.
This difference in the price he bought the stock at and the price he sold at is called market impact. While in that trade, the loss may not be so significant that is causes his death, this small losses pile up over time and in the grand scheme, a large loss is incurred. Those pennies and dimes really add up.
In another scenario, a day trader can be desperate to buy shares of the next big startup and this end up offering a higher price for the stock that the current price so as to lure sellers to part with it. This market impact will is a small loss that will pile up over time and will happen each time you desperately buy or sell shares desperately trying to get into “the next microsoft”
This i got from Benjamin Graham’s the intelligent investor that when one gravitates towards day trading than to investing, the turns long term gains into ordinary income. This also contributes to your demise because ordinary income is taxed higher than the long term gains. I will not put figures here because the tax retes vary from country to country.
Something else that will cause your death in day trading is the costs. Each transaction has a fee and so each time you trade a fee is deducted whether you make cash or not. So it goes without saying that the more you trade the higher this transaction fees and the less returns you take home.
So this post generally shows why value investors like Warren Buffett are for value investing meaning analysing the stock, analysing the bonds and scrutinising all the companies financials before buying even a single security.
Do you agree with my point of view when it comes to day trading??