Stock trading apps that allow you to invest in the stock market with no minimum amount of money and charge you zero dollars per trade have become widespread.
These apps are very easy to use, you just download the app, deposit money into your account, and later watch your hard-earned money disappear over time while you make irrational investment decisions based on spur of the moment impulses that were made actionable by the fact that you had a stock trading app on your phone.
The appeal of these apps, is that they’re really simple to use, they’re free, there are no minimum investment amounts, there are no explicit fees per trade so you can make as many trades as you want with as little money as you want and the instinct to try to win money in a short period of time with minimal effort is a very strong one.
Here’s what I want you to remember:
When you buy a stock, you are buying an ownership interest in a company. So if you want to make money in the stock market, you should have the mentality of someone who is purchasing businesses because after all, that’s exactly what you’re doing.
In order to make an intelligent purchase of a stock you have to have two vital pieces of information: price and value. Price is the easy one. Determining value is where skill and effort are involved.
While apps like Robinhood may provide the prices of stocks, they provide little information in the way of the value of stocks.
Moreover, the value of a business doesn’t change that much from day-to-day or week-to-week or even month-to-month. Accordingly, there is no practical reason why you should need to have the ability to trade stocks at an instant, from the convenience of your phone.
The only thing this convenience seems to facilitate is making impulse buying and selling decisions that are based on spur of the moment urges and emotions rather than price-value analysis.
There is no good reason why you should feel a need to trade stocks frequently. If you’re doing things right, you aren’t buying and selling often, you’re buying good businesses (or well-diversified mutual funds) and you’re holding on to them for long periods of time.
If you think that you have a special skill at spotting short-term winners and losers in the stock market, I think it may be useful for me to mention here that according to one study of day traders it appeared that only a very small minority, in the neighborhood of 1% of traders, were able to make money after costs through their skill. The vast, vast majority of day traders were losing money.
I know, being told to “buy and hold” and “focus on the long term” is easy to say, but much harder to do — especially when you’re down 20% and some “expert” is making a reasonable argument for why it could go down another 50%. This is exactly why you shouldn’t walk around with tools in your pocket that make having the discipline to focus on the long term even harder.
Like a dieter trying to lose weight, having the discipline to avoid fatty foods is tough, having the discipline to avoid fatty foods in a house full of fatty foods is even more challenging. Similarly, having the discipline to focus on the long term and not panic when everyone else is panicking is much easier when you aren’t walking around with an app on your phone that allows you to do the exact opposite.
This is why you should delete any stock trading app on your phone.