Question

QUESTION:
I am a student in Canada and I came here in December 2017. I’ve had a lot of interest in day trading, and in few months I will be finished with my studies and I will have a valid work permit and that’s when I want to get started. I want to day trade but I only have $1,000 to start with. Many videos I’ve watched about day trading said that you can start as low as possible and some said that if you want to trade regularly you need at least $25,000 USD in your account for PDT. How much I need to get started? As a foreigner in Canada, is it okay if I day trade? Can I trade US stocks or any other country’s stock? How do I pay taxes if I am making money?

Yes, to anser your question, you can trade from anywhere. I wasn’t going to respond or contribute more to your question because my only advice would be to reconsider. And it sounds like you are too ademant about day trading to do so. I get it, trading can be exciting and the opportunity to beat the market tempting. Aside from playing the lottery or gambling in Vegas, where else are you able to seek out supra-normal returns. It allows you the opportunity to pick that stock that may outperform the market or to test your proprietary trading strategy as the next “sure thing”. Or maybe you are just seeking the rush from being in the game. However, simply based on the expected risk-adjusted return, day trading is a losing strategy.

I was a successful trader in Chicago, then an executive for a proprietary trading firm. At my peak I traded on average over $1Billion/day. And do you know how I forecasted the markets? I didn’t. I had no clue where the markets were headed or which securities would outperform, and that’s despite being a technical analysis expert (with over 30 charts on 9 screens). In fact I never met any professional who knew where the markets were headed. I made money mostly by swing trading the market volatility, trying to get on the right side of a move, then surf the market for a profit. Many times I would get caught in positions, not knowing if they would come in. And that’s trading with the latest technology, co-located servers, quickest news aggregation services, and every other advantage that professional traders have. When you start to day trade, you’ll be competing with those folks. It’ll be very likely that one of these professional traders, or Goldman Sachs, or any of the other high-powered trading firms are on the other side of your trade. What makes you so sure that you’ll know something that they don’t? I think I like their chances better than yours. And even more than 90% of these professional traders fail. Turnover is high.

Here’s what I tell individual investors who are thinking about day trading to consider:

• You will be competing against professionals who use the latest technology, co-located servers, and immediate news aggregation services. Even with these advantages, most professionals fail (over 90% of traders don’t make it).
• Many who succeed usually found an edge swing trading market volatility. It’s virtually impossible for you to do that successfully net of costs.
• When you do get filled, it’ll be likely that an institution or a professional is on the other side. What makes you so sure that you know more than the counter-party?
• By the time you get actionable information from the financial news channels on cable, it’s already being priced into the markets. Professionals rely on immediate news aggregation services that charge considerable fees for access. For all practical purposes, if you are looking for an edge in the short-term, the news on these financial channels is already outdated.
• And the conveyor belt of “market-gurus” and talking heads in the financial news media make predictions that on average turn out to be worse than a flip of a coin. Why would you follow their advice?
• Consider also that with high-frequency trading, competition is in the milli and micro-second time frames. Additionally, algorithms can filter news headlines for actionable word triggers, then instantaneously begin to price that information into the markets.
• Technical and fundamental analysis is usually useless as a trading edge. Mindless strategies like mean reversion work until they don’t and you suffer a blow-out. Fundamentals are priced in. And no one can predict tomorrow’s news.
  Backtested and paper trading strategies don’t translate well to live markets.
• We are not wired for consistent emotional risk preferences. We tend to take profits much sooner than we get out of losses. So, we’ll stubbornly hold on to losing positions longer, hoping that the market comes back in our favor. This means that our individual losses are usually much larger than our individual gains.
• Security picking and market timing are myths. On the contrary, decades of data, research, and real-world evidence suggest that less than 2% of managers have shown any skill to outperform the markets net of costs.
• Disciplined investors tend to perform much better than those who try to beat and time the markets.

What does this all mean for the individual investor? Actually, it’s awesome news. It means that it’s not necessary to take on so much uncompensated risk. You don’t have to try to outguess or outwit the markets to be successful. It also means that evidence-based investing does not equal average. You can still capture sources of higher expected wherever they may occur. Stick to a simple, well-diversified, low-cost portfolio of index or asset class mutual funds for the long term and you’ll already end up doing better than most of your peers.

Good luck.

QUESTION:
I don’t know much about investing so I hired a broker with a well-known brand name. When looking at my account, I notice she sells and buys a lot every year. For instance, between March 2018 and March 2019, she sold and bought small shares (100) over 50 times in just one of my IRAs. Besides my minimum required distribution (I’m over 71 years old), there wasn’t much growth in the account to show for it. Is she just making money on the trades and not performing with growth in the account? I don’t know enough to understand and don’t want to be unfair by moving the account without researching. It seems that other brokers always disparage what someone else is doing to get the business.

Although that does seem very excessive, without more evidence, it would be unfair for me to suggest that your broker is squandering your returns by generating unnecessary trading commissions. Get an aggregate of all fees, commissions, and other costs for your account and compare to your account balance. If it is excessive (>1% of your balance), perhaps look elsewhere. Also, keep in mind that, besides simply generating fees, timing the market or turning over stocks/funds frequently to pursue outperformance is usually detrimental to your returns. Asset allocation and discipline in the long term can instead help your odds of success.

A fee only fiduciary investment advisor may be able to provide you with a second opinion. We work in the best interest of the client and get paid only by the client, never by commissions. This means that you are paying for our advice. Good luck.

QUESTION:
I want to invest for my retirement 10 years away. Are dividend-paying stocks superior to regular stocks for long-term investments?

Dividend paying stocks are neither superior nor inferior for long-term investing. There are time periods when dividend paying stocks have done better and times when they have underperformed growth stocks or the market. Generally, there is the fallacy that dividends are free money (am not suggesting that you fall into this camp), by which I mean that many investors strictly buy dividend stocks to get the dividend “bonus”. Dividends aren’t a bonus, nor are they free money, rather a dividend is simply a transfer of wealth from the company’s books to the shareholder. What does this mean? Well, when the company pays out the dividend, its book value drops by the amount of the dividend. Since the stock price will depreciate by the vaue of the dividend payout, your account balance will remain the same immediately post-dividend (except now you’ll own more cash).

Going back to your question, when dividend stocks do well, it may not be because they pay dividends. It happens to be that dividend stocks are typically value stocks, rather than growth stocks. And it’s been shown that over the very long term, value stocks have done better. Value is one of the identified “factors” or “dimensions” of higher expected returns. Also, dividend stocks may also sometimes be more profitable than non-dividend paying stocks. Profitability is another factor or dimension of higher expected returns. It could actually be that profitability is the underlying reason why dividend stocks do better. So, perhaps the dividend payouts aren’t the direct reason at all why those stocks tend to sometimes do better.

In my opinion–backed by data, peer-reviewed research, and real-world evidence–picking sectors or stocks based on expected future outperformance is extremely difficult. No one has a crystal ball or magical powers to forecast what tomorrow will bring. Your best bet is still sticking with a globally diversified portfolio of low-management fee index funds (or etfs). Good luck.

QUESTION:
I want to get started investing, but the issue I am facing is my financial inability to pay a portfolio manager to start investing. I don’t have the minimum capital required by an investment bank. Is there a possible gateway to the industry for a capital of less than $10,000?

You can absolutely start investing with less than $10k AND have access to high-quality strategies. There is nothing magical about the products that firms with minimums use. It’s simply about the fee generation (or lack thereof with smaller accounts). By simply investing in 2 or 3 Vanguard index funds with discipline for the long run, your odds of investment success will probably be as good as with any of the strategies that are touted by the portfolio managers and investment banks.

To determine your risk tolerance (which will suggest your asset allocation, ie the ratio of stocks to bonds in your portfolio), start with Vanguard’s questionnaire here, https://personal.vanguard.com/us/FundsInvQuestionnaire, or Dan Solin’s here, https://danielsolin.com/asset-allocation-questionnaire/. Then, remember to stick with your investment plan throughout the market dips and swings. Getting out when the markets get turbulent is one of the biggest mistakes that investors make. Finally, ignore the financial news media and the financial news headlines. You’ll be much better off. If you are not comfortable investing on your own, there are fee-only fiduciary advisors that don’t have minimums (and they don’t have to be local), or consider one of the roboadvisors that use low-management fee index funds in their portfolios. Some of these roboadvisors actually rely on Vanguard funds or etfs. Make sure their management fees are reasonable. Good luck.

QUESTION:
How does the stock market usually react after a long weekend? Is it slow to start, or does it hit the ground running first thing in the morning?

Volatility and trading volume have nothing to do with the time interval between sessions. The latest news, information, and expectations will drive how the market participants react when the next session opens.

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