Valuation Is and Art and Science

"Valuing a business is part art and part science."

Warren Buffett

Why Stock Markets Have More Day Traders than Value Investors?

Actual Question:

Why does there seem to be so many more day traders than value investors in the style of Warren Buffett, etc.?

Answer:

Dear Friend!

Such a wonderful question!

I too wonder the same.

In my opinion there are three fundamental reasons for the gross aberration that there are more day traders than value investors operating in the stock market.

Greed:

Greed and fear are the most common and difficult to control human emotions. Of the two greed comes first and fear follows. When markets are rising (present situation) greed attracts more players. Most of the people enter not knowing anything about stock markets. They have simply overheard somebody saying that markets are rising and there is a killing waiting out there!

Desire for making a quick-buck:

Many people have a strong desire to make a fast-buck. They do not want a longer but surer path like value investing. This fundamental nature of human beings is further reinforced by modern technology, which strives to provide instant gratification of needs - people just don’t want to wait anymore - they want internet banking, immediate downloads, and so on. Marketers, online shops, et al, work hard to satisfy this craving for instant gratification.

Gambling Instinct:

Man seems to have been created with an inborn gambling instinct. This is not new. We have been having it since the Mahabharat times, with the Pandavas betting and losing even their beloved wife in fit of gambling rage.

Day trading provides a very convenient dignity to what is otherwise pure gambling. Families of day traders honestly believe that day traders are engaged in serious and respectable business or profession, and they spread this belief about their day trading family members among the larger family and the society at large.

Related:

• Trading/ Day Trading
• Margin Trading
• What is Short Selling?
• What is the Differences Between Fundamental and Technical Analysis?
• Why Day Traders Cannot Quit?
• Is Algorithms Based Trading Safe?
• How Warren Buffett Trades in Stocks?

Conclusion:

Finally, my dear friend, please do not think I am delivering this sermon standing tall from a high moral ground.

I had been once what I have described above, till one day I lost all my life’s savings in the fraction of a second during a market meltdown.

After this costly burning of fingers, I had abandoned the stock markets for a very, very longtime.

Fate touched me and made a value investor after a long interlude.

I too am striving my bit through my blog ‘Wealth Vidya’ to convert day traders into value investors, but cannot fail to wonder, just like you, why there are more day traders than value investors operating in the markets today!

Thank you,

With Best Regard,

Anand