Mistakes to Avoid-Dangerous Technology
As we’ve said, there is so much “financial noise” today. Information is coming at us constantly, pouring out of television, radio, computer, and from our buddies at the gym. It’s hard to block out the noise, and getting distracted from our long-term goals can be easy. Just remember, this is what Wall Street and their marketing departments are trying to do. Always be aware that the main goal of these various sources of information is to grab your attention, so you click on something or watch the next ad because that’s where the revenue is for them. Everything is stacked against the investor at home when it comes to making sound financial decisions.
Whenever you make a trade on one of the “low-cost” online trading platforms, these new do-it-yourself applications where they claim to offer zero-cost trading, there are major dangers involved. The SEC fined one of the big online trading apps, maybe you’ve heard of them; it’s not Batman; it’s….lol. This popular online trading app was penalized $65 million by the SEC because it misled investors. It’s not free trading. There’s no such thing as free trading. There’s no such thing as free anything; that’s the first thing you learn in Econ 101. When I was a freshman at Jacksonville University, where I played football in their inaugural year program back in 1998, our economics professor would always say that there’s no such thing as a free lunch, and the older I get, I realize, that could not be more true.
These low-cost brokers make money on what’s called a bid-ask spread. This means that if you bought a share of Apple stock at $100, they were charging you $101 and keeping the difference, worse of all, they were hiding this from their investors. In reality, the markups are not that bad. It’s more like a couple of pennies, but those pennies add up. They were telling the public that they offered “free” trading, but they weren’t, so they rightly got smacked by the regulators. The worst thing is that these trading apps try to make a game out of investing. When you make a trade, digital confetti falls down your screen, and you hear this lovely (and scientifically proven to be addictive) chime that rings once you complete your trade. They make it fun. Then there are chat rooms and meet-up groups where you can share and brag about your trades or post them on Twitter using a variety of hashtags. The entire experience is designed to lure you in, hook you, and keep you addicted the same way that social media companies keep us addicted with “likes”, bells and notifications.
In addition to the SEC fines, there was also a major lawsuit brought against the trading app when a young investor committed suicide after losing everything trading options on their app. These trading technologies have seriously dark consequences that go way beyond losing money. And all because this trading technology turned investing into gaming thanks to the Wall Street C-suite execs and their marketing cronies who built the technology, lured people in by praying on their weakest emotions, then kept them engaged by gamifying investing.
Wall Street loves when you trade. Every time you make a trade, the house wins because they make money on every transaction. Wall Street loves it when there are new fads and financial products to market. They start encouraging you to be very active with your investments because, as we’ve said, that benefits them. This is why you see financial names displayed proudly on all the big buildings when you scan any major city skyline; it’s no coincidence. In the Wild West, when the infamous Billie the Kid was finally captured, the sheriff asked him why he robbed banks. His response was, “because that’s where the money’s at.” Wall Street controls the money thanks to employing the best and brightest marketing executives in the world who are all out to distract you with the latest shiny new investment opportunity. This is the first and most important mistake to avoid. Block out the noise and remember that everything you’re hearing is stacked against you, and every time you trade, the house wins.