standard The Internet Makes Gamblers of Day Traders

192012548_48c4043acd_mIt used to be, back before the dawn of history – say 1990 – that buying or selling a stock was an arduous process. Pick up the phone. Call your broker. Tell him what you want to do. Sit back and wait for him to call his people and consummate the transaction, earning a nice little piece of the action for all his trouble. The interesting thing to note here is that it took a matter of time before the deal was done, anywhere from several minutes to a few hours.

The very nature of the beast created a sort of forced patience that, for better or worse, created investors with a portfolio better suited for long-term thinking. In case you haven’t taken a look lately, things have changed a bit. Thanks to the Internet, instantaneous worldwide news distribution, and push button home trading software, anyone with a few hundred dollars to spare can open an account with one of the ubiquitous online brokers like Scottrade and start trading stocks, mutual funds, or currency like a squirrel on Red Bull. Heck, you can buy or sell hundreds of times a day if your trigger finger is fast enough.

As Jake Swank notes, the Internet has changed the nature of the stock market considerably. This is all fine except sometimes the Internet crashes. Other times it is manipulated by government officials who decide an information blackout is preferable to allowing the people to know what’s really going on in the halls of power (Hello China and Egypt. Syria, we’re watching you).

The bottom line is that for all the whiz bang devices we carry around to stay connected – Wi-Fi, smartphones, anything from Apple – it all relies on a physical infrastructure that is oh-so-precariously perched on the precipice of disaster. Build in as much redundancy as you want but a simple car crash in rural Iowa can still take Internet service away from 14,000 people for several hours. Maybe days.

How much damage could be done to an overleveraged day trading portfolio while crews are scratching their heads and piecing fiber-optic cables back together? It could be disastrous to your finances. This is why day trading on the back of the Internet feels a little like gambling to us. You might as well take it to Vegas and let it all ride on #23. You might lose everything but at least you get to eat at the free lobster buffett.

Ultimately this is why we still recommend real estate for those more interested in building long-term wealth and less interested in dying poor with an ulcer-ridden collection of internal organs. (Top image: Flickr | Lars Plougmann)

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The Swank Life Team
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