Newbie investors: ‘I didn’t know I’d lose money so fast’

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Kelly Mills

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Kelly Mills is a props assistant turned day trader

Stuck at home without a job during the pandemic, Kelly Mills initially turned to video games for escape. Then she decided to try her hand at a real world game: the stock market.

“I figured if I’m putting this much effort into the trading of these fictitious turnips, then surely I can figure out how the actual stock market works,” she says.

Soon the 34-year-old from Louisiana, who worked in the film industry, was following company rumours on Reddit, dialling into executive conference calls and tracking share prices as obsessively as posts on Instagram.

“I’m cooped up, I’m bored, I’ve got nothing better to do,” she says. “This isn’t me trying to make money. I’m just trying to pass the time.”

Like Ms Mills, millions of new investors in the US have piled into stocks in recent months, enabled by a dramatic crash in share prices in March, online brokerages offering low or no fees, and pandemic payments from the government.

Online brokers – Charles Schwab, TD Ameritrade, Etrade and Robinhood – together saw more than 4.5 million new accounts in the first three months of the year, with many opened at the height of market fears in March.

Eric Sutherland, who works in sales and lives in Colorado, created an account on Robinhood after hearing about the app from a friend. He has bought about $1,300 (£1,040) worth of shares since March.

“You see the market crash and it’s like, ‘Oh wow.’ It’s not like these aren’t going to come back at some point, so why would you not?” he says.

Wall Street worries

Demand from the newbies has been one of the factors driving the rapid market rally, despite warnings from economists that recovery is likely to be slow and uneven.

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Eric Sutherland

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Eric Sutherland has bought shares in the last few months. “Why would you not?” he says

In the US, the Nasdaq index hit new highs in June and has continued to climb. The S&P 500 is down just 5% from its pre-pandemic record, while the Dow is off 10%.

While some investors are dabbling in penny stocks, many are investing in well-known consumer names such as Amazon and airlines, which are likely to rise as the economic recovery gains traction, says Nick Colas, co-founder of DataTrek Research.

“Their timing, by luck or by skill, was impeccable. They bought the absolute bottom, when things looked very, very bad and have been riding the wave all the way back up,” he says.

But the quick rebound – faster than the rally that followed the financial crisis – has raised concerns about the risks being taken by the amateurs.

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In the financial media, their presence has drawn comparisons to the late 1990s surge in so-called day trading that is now seen as a warning sign of the dotcom bust.

“They are just doing stupid things and, in my opinion, this will end in tears,” billionaire hedge-funder Leon Cooperman told broadcaster CNBC in June.

The worry isn’t so much for people like Ms Mills, who are looking for a pandemic pastime. It’s for the people who may invest so much that they end up losing everything.

Last month, one 20-year-old Robinhood trader was apparently so distraught over how much he thought he had lost that he killed himself.

Amid the outcry, Robinhood this week said it was postponing its launch in the UK indefinitely.

‘I had no idea’

The phenomenon of amateur investing is not confined to the US. Tom Priscott, 28, is from the UK but currently working for a US software company in the Spanish capital, Madrid, where he lives with his girlfriend.

“We were confined to our flat and I was thinking about supplementing my income,” he told the BBC. “Some of my friends were talking about stock prices being as low as they’ve ever been.”

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Tom Priscott

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Tom Priscott didn’t last long as a day trader

He spent hours watching online tutorials and studying how to trade, but when he opened an account, he burned through his stake in a matter of minutes.

“I started off with €100. I felt super-confident watching the ticker as stocks and shares were going up and down,” he said.

He piled into oil at $16 a barrel, thinking the price was sure to go up, but it fell almost immediately to $14.

“I didn’t have enough money to cover the loss, so it crashed out my position and I got an email. I had no idea what had happened.

“I thought I was owning barrels, but I wasn’t, I was borrowing. It was the fastest €100 I’d ever spent.”

‘Not stupid’

Ms Mills says she is well aware some of the current trading activity is little more than speculation.

One drone stock she followed, for example, climbed rapidly as investors caught wind of a video by the founder’s daughter that seemed to tie the firm to Amazon, only to tumble again when no partnership was announced.

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Kelly Mills

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Kelly Mills initially played video games before deciding to play the stock market

But Ms Mills – who sold her holdings before the decline, turning her $5 investment into about $100 – bristles at the tone of some of the comments.

“I’m not stupid,” she says. “I’m assuming I’m never going to see this money again and if I get some money back or I break even, that’s really cool.”

As the novelty of stockpicking wears off, and more people return to work, interest may fall off – but not necessarily for everyone.

Mr Sutherland says he’s bought stocks with money he would have spent going out with friends if lockdowns hadn’t been in place. But as restrictions loosen, he says, “We’ll see. I might have to create a new line on the budget.”

— to www.bbc.co.uk

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