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Six Things You’re Doing Wrong When Buying Stocks on Your Own

Lena Birse is a stay-at-home mom who loves buying tech stocks during market crashes. Jay Smith is a former pro gamer who switched from cryptocurrencies to blue chips. Heloise Greeff is a data scientist who uses machine learning to analyze trading patterns. And Mik Mullins is a retired hotel executive who’s betting the market is about to…

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Photographer: Michael Nagle/Bloomberg

Lena Birse is a stay-at-home mom who loves buying tech stocks during market crashes. Jay Smith is a former pro gamer who switched from cryptocurrencies to blue chips. Heloise Greeff is a data scientist who uses machine learning to analyze trading patterns. And Mik Mullins is a retired hotel executive who’s betting the market is about to plunge.

These four amateur traders use different approaches but have one thing in common: They’re killing it in one of the wildest markets in memory, with returns ranging from 20% to 60% this year.

While many institutional investors bailed out of the market in the early stages of the Covid-19 pandemic, retail investors have piled in and pocketed big gains, especially in surging tech stocks. The U.S. digital brokerage Robinhood signed up 3 million new users in the first five months of the year, giving it 13 million total customers, which is almost as much as at Charles Schwab Corp. Stockpicking, which has long been eclipsed by investing in index-tracking funds, is suddenly back in vogue.

Playing the market is fraught with risks, of course, and stories abound of newcomers making rookie mistakes, never mind professional investors who’ve fallen short during the relentless rally in American stocks. To learn how to avoid pitfalls, Bloomberg News picked the brains of these four top performers on eToro, a digital trading platform with 14 million users that’s regulated by the U.K.’s Financial Conduct Authority. EToro lets people copy the trades of investors with proven track records, like this quartet.

They all believe newcomers make mistakes by not investing for the long term and for failing to diversify their portfolios with at least 30 well-researched names. Here are the other things they see people doing wrong, based on their experience:

Jumping In Without Testing Out Trading Strategies

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Oxford researcher Heloise Greeff relishes data about trading.
Photographer: Hollie Adams/Bloomberg

When Heloise Greeff decided to plunge into the stock market in 2016, she did what any good scientist does — she experimented. Greeff, a 30-year-old research fellow in machine learning at Oxford University, used a “demo account” on eToro to execute simulated trades with $100,000 of fake money. She discovered straight away that trying to time the market and trade in and out of positions everyday was a bad idea.

“I was impatient, and I didn’t want to wait for things, so I started off looking at commodities, and I was drawn to oil, which was quite volatile,” says Greeff via Zoom from her flat near Oxford’s historic cluster of colleges. “Using the account, I could do that without losing any real money, and I learned some hard lessons before I put real skin in the game.” 

Greeff loves looking for patterns in oceans of market data. When the S&P 500 Index and other benchmarks were hitting all-time highs late last year, the data was sending her a powerful signal: It was time to retreat. “I am a conservative trader so I liquidated 60% of the positions in my portfolio, and while I missed the highs of January, I had peace of mind,” she says. Since then, Greeff has waded back in, and two of the biggest holdings in her 60-stock portfolio are MasterCard and IBM. She’s up around 20% this year. 

Chasing Hyped Stocks Instead of Doing Research

After dropping out of school at age 14, Jay Smith sought glory on the virtual playing fields of eSports as a digital warrior in StarCraft, the fabled sci-fi military game. In time, Smith, who lives in southern England, became smitten with Bitcoin and other cryptocurrencies, as well as solar energy stocks. He would livestream his trades and observations on Twitch for hours. When the digital coin bubble popped in 2018, Smith’s portfolio fell almost 54% and he learned a painful lesson in the dangers of hype. 

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Jay Smith is a longtime bull on solar stocks.
Photographer: Hollie Adams/Bloomberg

These days, the 32-year-old’s bets are a far less racy mix: Chipmaker AMD and Microsoft are longtime favorites, and this year he started buying shares in Home Depot and Lowe’s, the home improvement giants. Still, he doesn’t hesitate to dial up the risk when the need strikes him. Anticipating a crash from the coronavirus, he started converting a big chunk of his portfolio to short positions in February, betting the stocks would fall. It was a good move: He eked out a 0.24% uptick in March, a month when the S&P 500 Index lost a third of its value.

He feels comfortable with such tactics because he does his homework on companies. “In the past I spent too much time communicating about investing,” said Smith, who goes by the handle Jaynemesis on eToro. “Now I spend a large amount of time reading product user manuals and watching launch events on YouTube. A solar company I follow recently held a training day online, so I watched to see how they install their equipment.”

He’s up about 50% this year.

Making Big Bets Instead of Starting Small

A few years ago, after Lena Birse and her husband sold their heating business in Bristol, England, they decided to invest the windfall in stocks. Birse balked at paying fees to a money manager. She started small, buying modest stakes in household names, such as the U.K. retailer Tesco. Eventually, she grew confident enough to switch to high-octane tech stocks like Facebook and Netflix.

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Lena Birse takes a relaxed approach to trading.
Photographer: James Beck/Bloomberg

Birse knew concentrating her portfolio in tech was a perilous move, and sure enough she lost 3.8% in 2018 when the Nasdaq index swooned. But she stuck with her strategy. When the industry rebounded in 2019, so did she. The mother of two teenagers splurged on a beachfront dream house on the Mediterranean and a London flat.

Investing Money You Need in Five Years

Mik Mullins says he felt like a blind, drunk monkey stumbling in the dark when he started investing in the early 2000s. Eventually, Mullins, a British expat in Singapore, found his footing by getting in early on companies that were disrupting global industries, like Facebook and Zillow. In 2012, he retired at the age of 42 from his profession as a hotel marketing consultant to tend his portfolio. And he advised friends to follow one primary rule: Never invest money that you’re going to need for big ticket items such as a house or college tuition. 

Like his fellow eToro investors, Mullins is a true believer in investing for the long term. He doesn’t even like to look at his portfolio more than once a week. Yet in May, he wavered. He doubted the rally in the S&P 500 and the Nasdaq 100 was sustainable as the global economy deteriorated. So he started shorting the indices, as well as soaring stocks like Tesla and Hertz, the car rental giant that’s jumped 84% since June 1 even though it’s going bankrupt.

So far his bearish bets are in the red but he’s still up almost 29% for the year thanks to his long positions. Mullins, a white-haired man with a tropical tan, laughs at his skepticism. “Human nature being what it is, sometimes you don’t stick to your plan, and so far it’s been a wrong move,” he says over Zoom from his garden patio. “But I have to mitigate the risk of catastrophic losses. The sooner the market goes back to being boring the better.” 

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Early retiree Mik Mullins tends his portfolio in Singapore.
Photographer: Wei Leng Tay/Bloomberg

Getting Yourself Into Complex Trades Before You’re Ready

It’s never been easier for retail investors to use leverage, options and short-selling, but amateurs should avoid complicated tactics like these until they understand how they can backfire, say Mullins and Smith.

The rush of newbie traders into flashy equity-trading apps have already led to some grim consequences. In June, Robinhood pledged to change elements of its options trading platform after the suicide of a 20-year-old user who had an account that showed a negative balance of more than $700,000.

The company’s co-founders said they would consider additional eligibility requirements for users who wanted to tap more advanced options strategies.

Obsessively Checking Your Portfolio

It can be tempting to keep looking at the daily swings in your stocks’ prices, but if you do this every day, it spurs panicky trades and losses.

Over time, Birse said she built a tolerance for risk. After the pandemic hit, she resisted the urge to panic. Instead, she bided her time and prepared to add to her positions in longtime “winners” like Shopify, the Canadian ecommerce firm that’s skyrocketed 148% this year. 

“I used to turn off the computer during selloffs,” says Birse, 50, who goes by the handle Onegirl on eToro. “But then I wanted to be more active, more aggressive, so in March I steeled my nerves, waited three weeks, and then it was time to go shopping. It felt like the sale of the century.”

Her portfolio is up 61%.

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    Donald Trump blasts ‘fools’ who oppose good Russian ties

    US President-elect Donald Trump has posted a progression of tweets censuring the individuals who contradict great relations with Russia as “‘dumb’ individuals, or nitwits”.

    Mr Trump promised to work with Russia “to comprehend a portion of the numerous… squeezing issues and issues of the WORLD!”

    His remarks came after an insight report said Russia’s leader had attempted to help a Trump race triumph.

    Mr Trump said Democrats were to be faulted for “gross carelessness” in permitting their servers to be hacked.

    In a progression of tweets on Saturday, Mr Trump said that having a decent association with Russia was “no terrible thing” and that “lone “idiotic” individuals, or simpletons, would believe that it is awful!”

    He included that Russia would regard the US increasingly when he was president

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    Bulls and Bears Took on More Currency Exposure in Week Through January

    he most striking improvement among theoretical situating toward the finish of a year ago and the primary session of 2017 is not that modification were little. There was just a single gross theoretical position modification of more than 10k contracts. With sterling apparently not able to maintain even humble upticks, the bears added 13.1k contracts to the gross short position, lifting it to 120.2k contracts.

    Or maybe, it is eminent that examiners for the most part added to positions, long and short, as opposed to close positions at the very end of the year. Examiners added to net long outside cash prospects positions, aside from in the Japanese yen and Swiss franc where 2.6k and 2.5k contracts were exchanged separately. Examiners likewise added to gross short positions. Here there was just a single exemption, the Japanese yen. Despite the fact that the dollar shut comprehensively higher in front of the end of the week, every one of the monetary forms we track here, spare the Mexican peso, picked up against the dollar in the three sessions since the finish of the CFTC reporting period.

    Every once in a while it is helpful to review why many market members take a gander at the theoretical situating in the cash fates advertise. It is not that the outside trade is essentially a prospects showcase. It is principally an over-the-counter market in which every day turnover midpoints in abundance of $5 trillion a day.

    Trade exchanged monetary forms and alternatives represented around 3% of the normal day by day turnover as indicated by the BIS study. Be that as it may, past reviews have discovered some contemporaneous connection between’s market heading and net position changes. We think it additionally offers knowledge into a specific market section of pattern supporters and energy brokers. It is not by any means the only device, yet one of a few data sources.

    One ramifications of this is albeit theoretical positions in the money fates market are moderately extensive, it is still little contrasted and the money showcase. Along these lines, it is difficult to see the genuine essentialness of a record vast position, as though there is some market top. At some point, examiners are not driving the costs, possibly there is another fragment, national banks, enterprises, as well as genuine cash that is more essential at any given minute.

    We invest some energy taking a gander at gross positions instead of just net theoretical positions, which is the more customary approach. We think a more granular look is frequently fundamental. There is a distinction between short-covering, for instance, and new purchasing, however it appears to be identical in the net. Additionally, the gross position is the place the introduction is not the net position. A net position of zero does not mean the market is nonpartisan. Net positions could be huge, which implies a short press or a negative stun could in any case troublesome. The positions that must be balanced are captured in the gross measure not the net figure.

    We find numerous customers are likewise keen on theoretical situating in the US Treasuries and oil. The net and gross short theoretical Treasury position has swelled to new records. The bears added 23.8k contracts to the as of now record net short position, lifting it to 616.2k contracts. The bulls attempted to pick a base and added about 20k contracts to the gross long position, which now remains at 471.2k contracts. These modification prompted to a 3.8k contract increment in the net short position to 344.9k contracts.

    The bulls delayed in the oil prospects toward the finish of 2016. They exchanged short of what one thousand contracts, leaving 608.1k gross in length contracts. The bears added 4.1k contracts to the gross short position, giving them 168k. These conformities trimmed the net long position by very nearly 5k contracts to 440.1k.

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    3 ways to profit in the ‘year of the dollar’

    In December, the Federal Reserve raised loan fees for the second time since the Great Recession and included the desire of a 2017 financing cost climb to its gauge. Furthermore, only a couple days prior, the abundantly anticipated minutes from the most recent Fed meeting demonstrated the most hawkish tone from the national bank in two years.

    In the meantime, Europe has been dove into political turmoil after a year ago’s Brexit vote and the later abdication of Italy’s leader. Somewhere else, the Bank of Japan proceeds down the way of negative rates and forceful security purchasing.

    Put it all together, and it isn’t astounding that the U.S. Dollar Index is up against 14-year highs.

    Speculators may have missed so much discussion on account of babble about the Dow Jones Industrial Average at the end of the day almost hitting 20,000. Be that as it may, paying little respect to your assignment to stocks or your venture skyline, this sort of huge picture incline in the dollar implies right now is an ideal opportunity to position your portfolio to benefit and, maybe most critical, to keep away from a portion of the pitfalls that can originate from a solid local cash.

    Here are a couple ideas dollar exchanges ought to consider:

    Residential plays over multinationals

    There’s a considerable measure of seek after shopper stocks in 2017 on account of an enhancing work market and any desires for a jolt under a GOP-controlled Congress and President Donald Trump. In any case, remember that not all retailers are made equivalent especially those with abroad operations that are adversely affected by the wide dissimilarity in monetary standards at this moment.

    For example, retailer Wal-Mart Stores Inc.(WMT) said troublesome money trade rates shaved very nearly 2.5% off profit for each partake in the second quarter of 2016. On the other hand consider that in the monetary final quarter of 2016, athletic attire goliath Nike Inc.(NKE) saw its income development cut down the middle because of forex weights, from 12% year-over-year in consistent cash measures to only 6% including real money changes.

    To take advantage of the “reflation” exchange that numerous financial specialists are counts on in 2017, you need to represent the headwinds that a solid dollar are making for multinationals at this moment. The most ideal approach to do that is to consider customer plays that do by far most of their business here in the U.S. – for example, Foot Locker Inc.(FL), which has been an uncommon splendid spot in retail throughout the most recent couple of years.

    Supported money ETFs

    Obviously, in the event that you need a steady portfolio, you can’t just purchase just local centered values. Geographic expansion is similarly as imperative as enhancement crosswise over parts and resource classes. Such a large number of financial specialists keep on holding worldwide plays in light of a legitimate concern for a balanced portfolio, regardless of the possibility that it implies battling a daunting struggle as a result of a solid dollar.

    The uplifting news, notwithstanding, is that you don’t need to leave yourself to torment through a solid dollar and a powerless euro when you put resources into Europe. Nor do you need to stress over the yen-dollar conversion standard when you put resources into Japan. That is on account of there’s an entire group of cash supported ETFs to permit financial specialists to put their cash in outside business sectors yet keep away from forex issues.

    Consider that Japan’s Nikkei 225 file is up around 25% from its July 2016 lows. The WisdomTree Japan Hedged Equity Fund(DXJ) is up 35% in a similar period on account of assurance from forex issues and a somewhat better-performing rundown of stocks – while the non-supported iShares MSCI Japan ETF(EWJ) is up only 10% in a similar period because of battling a difficult task against a solid dollar.

    In the event that you need to differentiate your portfolio comprehensively, you ought to consider supported assets that incorporate the Japan-centered DXJ, the WisdomTree Europe Hedged Equity Fund(HEDJ) to play Europe or the iShares money Hedged MSCI EAFE ETF (HEFA) for developing markets.

    Dollar list ETF

    In the event that you are searching for an immediate play on a rising dollar as opposed to putting resources into stocks, figuring out how to exchange remote trade can appear like an overwhelming undertaking. Gratefully, there’s the PowerShares DB US Dollar Index Bullish Fund(UUP).

    This ETF is attached to the U.S. Dollar Index, which is a measure of the greenback against a wicker container of other worldwide monetary standards including the yen and the euro. It’s a straight money play, however that doesn’t make it straightforward or hazard free. In the event that the dollar debilitates, you’ll lose cash similarly as though you’re putting resources into a stock that has fallen on difficult circumstances. Furthermore, obviously, PowerShares takes a little cut of your speculations en route that indicates 0.8% yearly, or $80 a year on each $10,000 contributed.

    Still, in the event that you need to conjecture on the dollar or support against a solid U.S. cash keeping down other worldwide ventures on your rundown, it’s maybe the least demanding approach to do as such for generally financial specialists.

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