From Sports To Day Trading

While Tesla's stock price continues to soar, breaking through the $1,500 level on Friday, there could be more to come.

Wall Street analysts are increasingly confident that the company will post a profit when it reports earnings on July 22.

This would mean four consecutive quarters of profitability which is a requirement for being added to the S&P 500 index, and if that happens demand will be driven up by all the indexed funds needing to re-balance their holdings to reflect the change.

With Tesla's market capitalization larger than 95% of companies of in the index, demand will be high.

The flip side of this is that if Tesla doesn’t get added to the S&P 500, its stock price could plunge.

It's certainly been an interesting stock to invest in, with hardly a day going by without some news.

Sticking with the theme of financial trading and the Robinhood trading app which I have mentioned before is coming in for some criticism for trying to make trading more like a game and attracting younger, inexperienced investors.

Robinhood, E-Trade, TD Ameritrade, Charles Schwab, Interactive Brokers, Fidelity and even Merrill Lynch have all embraced commission-free trading and zero-minimum balances in an effort to attract younger customers, many of whom have little understanding of the securities and markets they are dabbling in.

Last month, a 20 year old student, Alexander E Kearns, killed himself after running up an apparent loss of around $730,000 on Robinhood.

Like so many others, Kearns took up stock investing during the pandemic, signing up with Millennial-focused brokerage firm Robinhood, which offers commission-free trading, a fun and easy-to-use mobile app and even awards new customers free shares of stock.

During the first quarter of 2020, Robinhood added a record 3 million new accounts to its platform. As the Covid-19 stock market swung wildly, Kearns had begun experimenting, trading options. His final note, filled with anger toward Robinhood, says that he had “no clue” what he was doing.

It seems clear that many people who formerly invested on sports have moved to the financial markets during the COVID-19 pandemic. 

Some readers interested in US Sports may be familiar with Barstool Sports and their founder Dave Portnoy, who has:

...become the poster child of the day-trading craze, livestreaming his daily trading sessions on Twitter, giving followers a glimpse into both his successes and failures as he slings positions worth hundreds of thousands of dollars.

With 1.6m followers on Twitter, his profile cautions:

I’m not a financial advisor. Don’t trust anything I say about stocks.

Nevertheless it seems likely that several people have followed his lead as this Fox Business article discusses.

Portnoy isn’t alone in diving headlong into the stock market to help fill his sports gambling void. The sports-betting industry was a $150 billion business in 2019 and gamblers have since March been limited to wagering on South Korean baseball and other obscure sports, causing many of them to turn their focus to the financial markets.

“Sports gambling is a huge business in this country and a lot of sports gamblers and a lot of these millennial gamers are now playing the stock market, day trading,” Jim Bianco, president and macro strategist at Bianco Research, told FOX Business. The shift is evidenced in enrollment at Robinhood and other web-based trading platforms.
“The Robinhood numbers are just showing you parabolic increases in the amount of accounts opened, positions added and every other broker is telling us the same thing,” he said.

Nearly 800,000 people opened new accounts at the three biggest online brokers in March and April amid the heart of the COVID-19 lockdowns, according to the Financial Times. That wave of new accounts has infused life into an industry that had been left for dead.

Two years ago, everyone was throwing their hands up saying, “How do we get retail investors interested in the market again?” J.J. Kinahan, chief strategist at TD Ameritrade, told FOX Business. “Well, you know, all of a sudden, retail investors are interested in the market again.”

Back in 2013, maybe farther back, I wrote about the risks of day-trading here.

In the days of the Dot-com bubble, many of us probably knew at least one person who gave up a career to day-trade full-time. It was easy money, with tech stocks on an upward trend, but the bubble burst, as bubbles tend to do, and I do not know a single day-trader these days.

What made it viable for that short time wasn't that these full-time amateurs had an edge over the full-time professional traders, but that their gambles were kept profitable by the rising market.

I remember asking my former chemist acquaintance how he could possibly think that he (looking at a blinking screen) could have an edge over the full-time traders fully aware of what orders and why, were coming in to the market.

He never was able to answer that question, and like today, stocks are in another bull market since their 23rd March lows, and unless you are shorting, it seems easy to make money, but of course, it isn't that easy or we would all be millionaires.

Be careful.