Common Stock and Common Sense

The concept of investing has taken a beating with an increasing misuse of the word.  For example, some marketers of expensive items, like new cars, describe the purchase as an investment when it is clearly consumption.  Except in a few, very rare instances, automobiles depreciate.

Investopedia defines investment as a way to set aside money while you are busy with life and have the money work for you so that you can fully reap the rewards of your labor in the future.  Warren Buffett defines investing as “the process of laying out money now to receive more money in the future.”

Day trading, Robinhood, and other similar platforms do not fit these definitions.  Jason Zweig has authored a series of articles for The Wall Street Journal outlining his experiences with Robinhood and is very clear about the nature of trading on that platform.

Recently, the Commonwealth of Massachusetts filed a complaint against Robinhood alleging that the company aggressively marketed to inexperienced investors and failed to implement controls to protect them.  The allegations include the claim that Robinhood does not highlight serious investing with substantial risk, but rather, presents its services as some sort of game that you might be able to win.

Riding herd on Robinhood is best left to regulators.  However, investors should understand what they are doing and should recognize the differences between a long-term portfolio strategy and a series of rapid transactions designed to “hopefully” produce quick gains.

All comments and suggestions are welcome.

Walter J. Kirchberger, CFA