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A Cautionary Tale Against Day Trading in a Global Pandemic

Day trading is like gambling, which is why we don’t advise it. But that didn’t stop neophyte investor Dave Portnoy from doing it in the midst of a pandemic.

Roulette Gambling

Day trading isn’t something we write about or advocate for much here at Cabot Wealth. In fact, in my five-plus years with the company, I can’t recall a single article we’ve written about day trading. We specialize in investing; day trading is something different.

More to the point: day trading is like gambling. We know that the stock market goes up over time. Day to day, you have no idea which direction the market is headed, and individual stocks can even more difficult to pinpoint. Sure, people can succeed in doing it, but it takes considerable practice. You can’t just dive into day trading and expect to make money with any consistency.

Which brings me to one Dave Portnoy.

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Day Trading Gone Wrong

Dave Portnoy is the founder of a popular sports website called Barstool Sports. Portnoy may know a thing or two about sports gambling – he hosts a sports gambling radio show on Sirius/XM, and a public company called Penn National Gaming (PENN) now owns a majority stake in Barstool. But he knows nothing about day trading, as evidenced by this quote he gave in an interview with Business Insider earlier this month: “I’ve never really day traded before. I think I’ve bought one stock in my life, maybe two.”

Nevertheless, Portnoy decided to become a full-time day trader on March 23, the day stocks were bottoming after falling nearly 34% in little more than a month. That’s right: a man with no day trading and no real investing experience decided to become a day trader in the middle of a global pandemic!

To his credit, Portnoy has copped to the foolishness of this strategy. In his March 23 “announcement,” Portnoy said, “To be very clear, I have zero idea what I’m doing.”

Portnoy promptly deposited $3 million into a new E-Trade account and changed the name of Barstool’s daily sports gambling radio show from “Picks Central” to “Stocks Central.” With no sports to gamble on in the midst of coronavirus, Portnoy decided to do a full pivot to day trading.

You can guess what happened next.

Portnoy lost $200,000 in his first week of day trading. By April 17, he’d piled up $740,000 in losses before rallying to be down “only” $640,000 by April 20. In other words, Portnoy lost $640,000 day trading in less than a month.

Nobody needs sports back soon more than Dave Portnoy.

The larger takeaway, however, is that day trading isn’t for newbies. Even if you’re a seasoned investor, day trading is an entirely different animal; you’re not buying stocks for their long- or intermediate-term profit potential, you’re buying stocks that you think will rise that day. Under normal circumstances, predicting what stocks will do on a given day is like throwing darts with a blindfold on. In the middle of a global pandemic not seen in modern times, it’s like throwing darts with a blindfold on from the back of a bucking bronco.

A Better Way to Make a Quick Profit

We’re not completely averse to short-term trading. After all, we have an advisory called Cabot Top Ten Trader, which every week recommends the 10 hottest stocks on the market, complete with buy ranges and loss limits. But the timeline for owning the stocks Top Ten Trader recommends is weeks or months—not days, and certainly not one day.

There’s nothing wrong with trying to make a quick profit. In fact, the quicker you profit from your investments the better. But to make money in investing, the longer your timeline, the more the odds are in your favor. With day trading, your odds are a flip of the coin—at best.

I’m not worried that you’ll end up like Dave Portnoy. You’re smart, which is why you’re reading this cautionary tale in the first place. You know how to make money investing.

And if you’re really desperate to make some quick profits, perhaps to recoup some of your losses from the past two-plus months (we all have them), I suggest you subscribe to Cabot Top Ten Trader. It has handed readers hundreds of short-term winners, including 1,031% in Tesla (TSLA), 400% in Nvidia (NVDA), 303% in Vipshop Holdings (VIPS), and many, many more.

To learn more, click here.

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Chris Preston is Cabot Wealth Network’s Vice President of Content and Chief Analyst of Cabot Stock of the Week.