Beware the 'Stock Market Trading Jones'
Written by: Doug Kass
Tickers in this article:
AAPL AMZN GOOG IBM NKE OAK RIMM
This column originally appeared on Real Money Pro at 8:47 a.m. EST on Dec. 24.
Societal pressures that favor short term over long term. As a society, we have grown increasingly impatient. The media (and for that matter our society) increasingly emphasizes short term over long term and instant gratification over building value through intermediate-/long-term value. Today, we even communicate more briefly than ever in staccato-like form via tweets of under 140 characters on Twitter and the acronym soup of instant messaging. How-to-profit books, teaching us how to gain money and fame quickly, outsell more thoughtful investing books such as Benjamin Graham's The Intelligent Investor. All of these pressures (in the pursuit of instant riches) contribute to excessive trading by individuals.
NEW YORK (Real Money) -- Today, I see many traders and investors afflicted with what I call the stock market trading jones. Market participants feel compelled to overtrade. It comes in the form of a near-obsession in overtrading both on news-based dislocations (to the upside and downside) and on non-dislocations in the normal course of business, typically through chart gazing. The need to play too many earnings reports and the desire to trade macroeconomic events reside among numerous other catalysts.
There are several obvious influences that contribute to the addiction of too-frequent trading:
- Brokers. Brokerage companies have made trading at home easy and inexpensive. Sophisticated Internet-based trading platforms allow individual investors to trade actively at markedly reduced commission rates relative to any other time in history.
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