Financial planners warn of ruin as stock trading takes on video game traits

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The individual investor has never had more power.Platforms like Robinhood have made it possible to trade stocks — for free — from your phone. Millions have signed up, and many jumped into the trading frenzy around GameStop stock in the past few weeks.But what played out in the market didn’t look like investing to many financial planners.”I’d almost put it equivalent to gambling,” said Paul West, Managing Partner at Carson Wealth. “The best long term investors look so far out into the future instead of what’s happening today.”For many of those armed with trading apps, that’s not what’s happening. Free trades and easy access on mobile phones has created a new class of day traders. West says a central theme of day trading is a desire to ‘get-rich-quick.’He notes it rarely works.Still, traders seem to be hooked. And West attributes that to the way the apps, like Robinhood, are designed: bright red and green displays for losses and gains, alerts for big moves. Industry watchers have called it ‘gamification.'”So why are investing apps creating gamification? To get people to keep coming back,” he said.Warren Buffett’s long-time business partner Charlie Munger put it more bluntly at a February 2019 meeting.”I regard that as roughly equivalent to trying to induce a bunch of young people to start off on heroin,” he quipped. “It is really stupid.”Robinhood, the platform most popular among these newly-minted day traders, says its technology allows “investing for everyone” and that it’s “on a mission to democratize finance for all.”The company pushed back hard on ‘gamification’ criticism in a statement to Bloomberg: “Those who dismiss new and younger investors, who come from increasingly diverse backgrounds, as unsophisticated or unserious perpetuate the myth that investing is only for the wealthy.”Some in the finance industry say making trading like video games might actually be helpful for investors and key to drawing in younger people.Willis Towers Watson noted in a report that “gamification … may be one way … to engage and educate future investors.” West is skeptical.”While getting people knowledgeable about the market is a good thing, the behavior of how they interact with it is very worrisome,” he said.West argues free stock trading on your phone has come with a hidden cost: Replacing long-term investing strategies designed to build wealth and support retirement with “FOMO,” or fear of missing out.”Now I go and make my trade and I’m looking 30 seconds later to see if I made money,” West noted of the behavior traders are learning on the app-based platforms. “So let’s say you have a yard and you plant an oak tree. Are you going to look every day to see how much it grew? No! You’re not!”

The individual investor has never had more power.

Platforms like Robinhood have made it possible to trade stocks — for free — from your phone. Millions have signed up, and many jumped into the trading frenzy around GameStop stock in the past few weeks.

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But what played out in the market didn’t look like investing to many financial planners.

“I’d almost put it equivalent to gambling,” said Paul West, Managing Partner at Carson Wealth. “The best long term investors look so far out into the future instead of what’s happening today.”

For many of those armed with trading apps, that’s not what’s happening. Free trades and easy access on mobile phones has created a new class of day traders. West says a central theme of day trading is a desire to ‘get-rich-quick.’

He notes it rarely works.

Still, traders seem to be hooked. And West attributes that to the way the apps, like Robinhood, are designed: bright red and green displays for losses and gains, alerts for big moves. Industry watchers have called it ‘gamification.’

“So why are investing apps creating gamification? To get people to keep coming back,” he said.

Warren Buffett’s long-time business partner Charlie Munger put it more bluntly at a February 2019 meeting.

“I regard that as roughly equivalent to trying to induce a bunch of young people to start off on heroin,” he quipped. “It is really stupid.”

Robinhood, the platform most popular among these newly-minted day traders, says its technology allows “investing for everyone” and that it’s “on a mission to democratize finance for all.”

The company pushed back hard on ‘gamification’ criticism in a statement to Bloomberg: “Those who dismiss new and younger investors, who come from increasingly diverse backgrounds, as unsophisticated or unserious perpetuate the myth that investing is only for the wealthy.”

Some in the finance industry say making trading like video games might actually be helpful for investors and key to drawing in younger people.

Willis Towers Watson noted in a report that “gamification … may be one way … to engage and educate future investors.”

West is skeptical.

“While getting people knowledgeable about the market is a good thing, the behavior of how they interact with it is very worrisome,” he said.

West argues free stock trading on your phone has come with a hidden cost: Replacing long-term investing strategies designed to build wealth and support retirement with “FOMO,” or fear of missing out.

“Now I go and make my trade and I’m looking 30 seconds later to see if I made money,” West noted of the behavior traders are learning on the app-based platforms. “So let’s say you have a yard and you plant an oak tree. Are you going to look every day to see how much it grew? No! You’re not!”

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