Why I Don’t Trade Investments

We were going to talk about trading and I ran a blog post on the.

On the blog about a month ago. I wrote it, I don't know, a.

Year before that, before we ever got around to writing it, I called that post 11 reasons I don't Trade Investments. And you can go search the blog. You know, there's a search tab at the upper right on the website. If you go to white coatinvestor.com and just put in 11 reasons I don't Trade Investments. And you can see this post. I'm not going to read the post to you, but I wanted to talk a little bit about some of the ideas in that post because I get emails all the time. I see people posting spam comments on whitecoatinvestor.com on the blog post or on the forum or subreddit or whatever all the time talking about trading. And usually they're selling some sort of system to help you to trade. So you can be super successful jumping in and out of stocks or options or crypto assets or whatever. But I want you to be very skeptical when you see these things, when you talk to people doing this, because when you really step back and think about it, none of this really makes much sense, right? I get that maybe some people just learning about this stuff or wanting to evangelize it and really believe that it's true, but most of the time it's just not true.

Okay.

I wish people that are doing it well. But I encourage you to do a few things if you're really into trading.

Okay?

The first is to actually calculate your returns. If you will do this, and you will do this faithfully, especially if you will adjust for the value of your time and the additional taxes and expenses you are generating by doing it, most of the time, you will discover that you would have been better off not spending that time trading, that you would have been better off just spending your time doing something else in your life.

Right?

And, you know, something hopefully more fun for you. Although most traders I talk to say they enjoy it, but really what they enjoy is they think they're making money. And in the end, a lot of times they aren't making money. And that's really unfortunate. Whether they are scalp trading, you know, buying in and out of a stock every few seconds or minutes, whether they are day trading, whether they are swing trading or position trading, usually has the same issues with it. How do people try to do this? Well, they're trying to divine the future. They're trying to look at the daily economic news and figure out which way the value of a stock or the market itself is going to go. Or they're doing technical analysis, which is a nice name for what's mostly black magic or voodoo. It's a lot of guesswork. It's a little bit of gambling and a lot of guesswork. And sometimes it works out okay for people, but most of the time, it does not work out okay for people. They lose money. The SEC has statements out telling you basically, don't do this. There are lots and lots and lots of people out there who have lost money doing this. But let me just tell you what the 11 reasons are that I don't trade investments. The first one is that trading doesn't add any value to the world. Maybe it helps keep prices a little bit more efficient than they would otherwise be in the market, but you don't need these people buying in and out every day in order to do that, okay? I'm already financially independent. I don't have to work for money, okay? So when I do work, because fun is, most of the time, a lot more fun than work, when I do work, I want to do it because I enjoy it and because I'm making a contribution to the world. Well, I don't enjoy trading. It's not fun to sit behind a computer and analyze the numbers and buy in and buy out. I'd rather go rafting or climbing or canyoneering or whatever, right? And it's not adding any value to the world, Right? I mean, I'm not helping anybody. At least here, recording this podcast, hopefully somebody out there is getting something beneficial out of it. They'll change their life. They'll be happier. They'll take better care of patients. They'll be a better parent, better partner, whatever, right? When I go to the ER and try to take care of people, you know, I actually enjoy that. You know, I enjoy putting in a chest tube. I enjoy suturing up a laceration. I enjoy talking to people about their belly pain and trying to give them some relief. I think it's fun. I don't enjoy trading. And so you got to think about that, all right? Another reason why I don't trade is that most people have not adjusted the returns for the risk they're taking on the additional taxes they're having to pay and the effort they're having to put in. If you actually calculate all that stuff, you might not be making as much money as you think you are. In fact, there's a good chance you're losing money. And so if you do want to trade Please account for all that stuff. The taxes by themselves are a huge nightmare, right? You might make 2,500 transactions in a year. And guess what? They all come to you. If you're trading in a taxable account, they all come to you on 1099 at the end of the year. And granted, most software can just download it directly from Vanguard or Fidelity or whatever, but imagine if you had to put that in by hand, how many days would you spend doing your taxes for this, know this activity you've decided to do? Okay, a bigger problem, I think, with people trading is I think a lot of them are just addicted to gambling, right? Gambling addiction is very real. There's a reason they have gamblers Anonymous and all these kinds of, you know, help lines for gamblers. And whether you are gambling in a casino or you are gambling in the market, it's really kind of the same thing. So if you really enjoy gambling, you think gambling's fun, you know, block out $400, go to Vegas and lose it. Maybe sometimes you'll come home with some money, and that's great. But real investing is not a casino. It's not about figuring out if Apple's going to be worth more in 16 minutes than it is today. It's about owning Apple because Apple makes a whole bunch of iPhones. And iPhones are cool and really useful, and they make a whole bunch of MacBooks. And MacBooks are really cool and really useful, and a whole bunch of people buy them. And Apple makes profit. And when you own Apple for 10 years, you get a share in those profits. That's an investor. If you're buying it hoping the price goes up in 16 minutes, that's a gambler. You're speculating at that point. That's not what investing is all about. So don't do that. You might also end up having to register with Edgar, which is a regulatory agency, if you're making too many trades. That's apparently a big pain to have to register with Edgar. And I don't think you want to necessarily do that. The biggest issue, though, is just that most traders are not successful, okay? They're just not. They lose money. I've talked to lots of docs that were trying to day trade in between patients in 99 through 2002. It didn't work out well for them. They quit doing that because they realized, hey, this is stupid, okay? It's not a smart way to manage your money. The SEC will tell you that. Every investing authority I know out there will tell you that. And yet there's still people that believe it's not true. Who's on the other side of these trades you're making?

Right.

Who's on the other side? Well, it's probably a very powerful computer managed by some very smart people working 80 hours a week sitting there on Wall street.

Right?

You are not trading with Average Joe. That's not who's buying the other end of your stocks, okay? They're better equipped than you. They have more knowledge than you. Bill Bernstein likes to use the analogy that, you know, day trading is like playing tennis with an invisible partner. And what you don't realize is that your partner is Serena Williams.

Right?

This is not going to end well for you. You don't have an advantage over this person and you're probably going to come out behind. You're trying to generate alpha, right? Beta is the market return, the thing you can get just by buying an index fund and forgetting about it for 20 years. It's super easy. Alpha is trying to beat. And that's what traders are trying to do. But remember, before expenses, before taxes, net alpha is zero. Just as many people as get positive alpha must have negative alpha, right? There's not like extra alpha out there you can tap into. You gotta take it from someone else. And you may or may not feel very good about that. But the point is they're working very hard not to give it to you. It's hard. And so these people coming to you saying, I'm gonna sell you my trading secrets for six payments of 499.9. This doesn't make any sense.

Right?

These people are saying they can beat the market. They're saying they can get 60% returns a year. Well, here's the truth of the matter. If you can get 60% returns every year, you are going to own the entire net worth of the world in 45 years. It's mind boggling that people believe this. It's like they can't do math. You're not going to own the entire world in 45 years. You're not going to get 60% returns every year. It's just not going to happen. And if somebody knew how to do that, they're not going to sell it to you for just a few thousand dollars. Are you kidding me? They've got a money printing machine. They're going to take their secret and they're going to use it and make gazillions. Right? And if you're a talented trader, you got this great system. Why in the world would you just be managing your measly little six or seven figure portfolio, there's no way you'd be doing that, much less your five figure portfolio, right? Doesn't make sense. You should be managing billions of dollars because people will pay you a lot of money. If you can beat the market by 1 or 2% a year reliably, you'd be amazed how much people will pay you to do that. And so it doesn't make sense to be just using your money if you truly are this talented. None of this is logical, right? People get sucked into these trading games, they get sucked into these schemes, they end up paying a bunch of money in taxes, they waste a bunch of time and they set themselves back financially. Instead, I would encourage you to spend your time and effort making a real contribution to the world that is valued by others. Carve out a big chunk of your income, invest it in some reasonable way that doesn't suck up all your time. Give it a few years and you will retire very comfortably and be able to leave lots of money to your favorite charities and your favorite heirs. This stuff is not that complicated. Don't make it more complicated than it has to be.

The hosts of the White Coat Investor are not licensed accountants, attorneys or financial advisors. This podcast is for your entertainment and information only. It should not be considered professional or personalized financial advice. You should consult the appropriate professional for specific advice relating to your situation.