The Ups and Downs

A great example of market ups and downs happened today. GameStop (GME) shared their Q1 reports today with lots of things to be happy about. They saw new hardware sales up by 25%, new software sales up 8%, digital sales up 3%, collectibles up 39%, and posted that they expect full-year EPS of 3.10-3.32 points. One would think with all of these positive earning results that they would see a massive price increase but instead Mr. Market decided to rear its ugly head and slam the stock in after hours for a total of -6.3%.

It's time like these that remind me that as much as one may try to predict the market, they can only do so much. And when that happens it's incredibly important for each investor to return to the books, blogs, and teachings that can reassure us that we are still moving forward with whatever certainty we can obtain through financial reports, investor sentiment, and general good-luck guessing. After all, we all have had or will have a day on Wall Street where this kind of shenanigans hits.

It's not for lack of trying to time or beat the market. It's just that investing is hard. There is a science to picking stocks but there is also a lot of luck and for those that believe in the efficient market theory, days like today prove that you really can't predict everything. The market will do what it wants to do and in the fashion that it wishes to do it. That being said, Bloomberg machine or not, we are all a little more humbled when we get taken for a brain-melting and head spinning trading day like GameStop (GME) saw today.

Foolish Day Trader

Once upon a time, all of us were opening up our first investment accounts with dreams of making it big. No amount of money seemed to be insurmountable. This was even more so for the folks who had been lured into investing by stories of millionaire day traders. The idea seemed to be so attractive. Invest a little bit of money, multiply that by the amount it goes up every day or short it while it goes down, pull out your money and bam, you’re a millionaire!

Unfortunately, this was not the case for almost everyone who decided to continue to go down the road of day trading. In fact, studies consistently show that a very small minority (some claim less than 1%) are actually successful over the long term. This is due to a multitude of factors that drive the market every day and even more so due to the way the human brain functions. First off, there are big risks around every corner, especially if you’re in the business of shorting. If the profits are big, you usually bet bigger, and therefore can lose that much more on your next bet. Secondly, even when you do win, taxes and commission charges are always knocking on your door to pay up. Because the day trader is taxed at a higher rate because they trade on short term investments, they constantly get hit much harder than those of us who hold our stocks long.