Where do you generally stand on self-trading platforms like Robinhood
Self-trading platforms have a part to play in the democratisation of investing. As such, I think they are a net positive. However, they are very much open to the intention of the individual user and how they are using it. In some cases, ‘speculation’ is just a fancy word for gambling, and my view on investing is that it should be very different to gambling.
If they are dabbling in self-trading platforms, what should private investors beware of?
We've all heard stories about the grandfather who bought a share of Apple stock in the 1980s and is now a multimillionaire. But what about everyone else who bought shares in some other company and isn’t now a multimillionaire? The problem with identifying a single investment that's going to make money over the next few days/weeks/months/years/decades is that no one has a crystal ball. Sure, Apple now looks like a smart investment, but even this apocryphal grandfather is likely to have invested in things that caused losses as well.
In the wake of the GameStop story, is there anything else investors should be doing to protect themselves?
Investors can get anxious about missing out on what they perceive as a great investment. They may follow the crowd. News and financial commentary can influence people’s view of investing. Without a strong investment philosophy to guide them, they may also follow the advice of friends, neighbours or family, especially if the ‘insight’ promises a fast, easy return.
Warren Buffett’s mentor Benjamin Graham said: “In the short term the market is a voting machine and in the long term a weighing machine”. In other words, sentiment will often drive the stock market in the short term, but fundamentals will win the day over the long term.
So-called ‘meme stocks’ like GameStop are not investing. They are gambling. When you decide to gamble, my guidance will always be only stake what you are willing to lose. And remember: investment markets can remain irrational longer than you can remain solvent! While stories like GameStop are fun to watch, for serious investors there is no substitute for personalised, long-term guidance.
My guidance to anyone who is relatively new to investing is that investments should be made over the long term with specific goals. This way, you can ensure that it is tax optimised, while also taking the level of risk that is appropriate to achieve your goals. In short, before you start trading on any platform, you should look to understand ‘why’ you are making the investment to better inform ‘what’ the investment should be.
David is an associate director on the financial planning team at Buzzacott. To find out more, head to Buzzacott.co.uk