Trading with Focus – The Dukes of Moral Hazard
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Sometimes you shouldn’t sell things just because you can.
Remember those awesome musk-flavoured lollies that were sold to kids so they could practice smoking before taking up the real thing? They were renamed ‘Fads’ by the marketing set to make them less offensive.
Coupled with doctors and sportsmen punching darts on billboards. Coupled with pictures of hot-chicks pouting provocatively. Joe Camel and his uber-cool leather jacket and motorbike persona. Cigarette advertising of days gone by is an absolute masterclass of the art.
It certainly helped that nicotine was also highly addictive.
There was also a time when you didn’t need a licence to drive a car. But as they got faster, and enough people started driving them, the government introduced mandatory drivers’ licenses.
Driving is not easy, so we make inexperienced people learn how to drive before they pull out onto the freeway. Let’s face it, there are enough bad drivers and accidents on the road even as it is.
Cars themselves have to have a minimum level of safety built-in, and we all accept that it makes them cost more, surely. You can’t have a car without brakes or lights, and you shouldn’t.
Driving is still high risk, but it is a lot safer when the driver has some training and has a safe, fully functioning car. By extension, it is also safer for all of the other drivers. We can all get around more efficiently with less accidents. And for people who can’t afford a car, there is still transport available with a professional driver, like a bus, to take them where they need to go.
So let’s flip that around. What if there were no drivers’ licenses again? And what if we didn’t explain the road rules? What if we took a cardboard box, stuck a high powered engine in it and bolted on some mag wheels, gave it a flashy paint job, a pop-culture reference for a name and gave it away for free (with really cheap fuel).
Let’s say we give the ‘demo’ model a forward-facing view, but make it optional, only for those who liked the idea of needing to see forward. But the marketing campaign makes a forward-facing view seem unnecessary.
“If we needed it, wouldn’t ‘they’ make it standard? Maybe it’s like that scammy rust-proofing?”
So yes, the absolute barest of safety features, like knowing what is happening right now, could seem unnecessary if you didn’t know better. And what if all the money was spent to make it cool for novice young adults, instead of functional or safe? The perfect starter pack; now everyone can drive!
No? You draw a line?
What about the stockmarket? It’s risky, right?
Are you happy that there are rules of engagement, like not being allowed to use insider information to trade? Or that stockbrokers have a minimum education standard, and that no one can promise future returns on investment, unless it actually is a guaranteed return?
Australia always seems to get things just about right. No one is happy all of the time about all of the laws and regulations that are put into place to protect us, but I generally feel pretty safe and I quite like it.
I like not having guns in the streets, and I like that you can’t speed through school zones and I like that you can’t shoot up heroin at the mall. Or sell cigarettes to kids.
I also like trading the stockmarket and I adhere to the rules, and I expect that everyone else should as well (though I am not naïve enough to believe that they all do). We provide as much information in Marketech Focus as we believe an online trader should have as a barest minimum. And we recognize and try to highlight that online trading is inherently risky, especially in a market such as the one that we are experiencing right now.
We have watched the effects of the Robinhood share trading platform in the States and on their markets. The good ol’ US of A has a very different view of capitalism to ours, and the GFC is proof they haven’t got it right. Lending money to people that shouldn’t have been borrowing money (but who didn’t know any better) made their bankers very wealthy, obscenely wealthy, but we all paid for it eventually. And a lot of people in the US were homeless thereafter, as the overinflated market crashed and led to real, severe loss amongst those that should have been protected.
Earlier in the year our investment oversight body, the ASIC, even went as far as to say that they were worried about amateur investors entering the market. It’s fairly uncommon for them to do such things.
According to the SMH, “ASIC’s release of the report is intended to sound a red alert to unsophisticated retail investors that they have about as much chance of making money on the market as casino punters have beating the house.”
The Robinhood trading platform has again epitomised America and its uncontrolled capitalism, and some want to bring it here.
We all chuckled at first as the inexperienced US traders put it all on geared-up versions of red, and won big, then lost big. They created their own lingo on Reddit threads such as r/WallStreetBets, and it was making trading cool again.
Heaps of new traders emerged, all following their heroes Elon Musk and The Don, whose tweets could make or lose them a fortune. Egging each other on to take bigger risks and treat the market like a casino.
Just quietly, Robinhood was also selling their clients’ trading data to high-frequency traders who could front-run them for a better price. Not to mention some of the other consequential social issues that can dramatize such events.
Not really what I want for the ASX.
So, now let’s get it out in the open. Put the spotlight on it, and hope that the Regulators realise it might be time to mount up.
The other day a new ASX ‘trading’ platform was declared open for business. I read about it in the AFR, and I was being sent the link by every Tom, Dick and Francis to wind me up. Good friends do that.
Now, we here at Marketech don’t claim to be a cool Robinhood-esque platform and we aren’t aimed at the young’ns, even though I can banter with the best of them. We aim to compete with Commsec, but not even just Commsec, but Commsec combined with Iress, or Commsec combined with the live version of TradingView.
This next bit isn’t a plug, it’s just a comparison, so go with it or skip over a few sentences. The good bit’s coming up soon.
Our package is a more substance, less gloss and better value all round. We own our own platform, so you aren’t paying for the profits of both Commsec and Iress or TradingView.
We have live pricing so you can see what is happening right now. Every one on the stockmarket must have real live data to make their decisions.
We have live market depth, so you can see where your order is in the queue and how many people are lined up at each price point. Try that with a 20 minute delay!!
We have price, volume and news alerts so that you can keep abreast of the latest movements without having to stare at the screen the whole time.
We have highly technical customisable charting over different timeframes as a lot of people follow the charts, and I know I would feel lost without them. And some fundamental information about the companies therein, albeit only as much as we get from our current data providers.
Whilst this already puts us way ahead of the game, We’ll get more as time goes on, we promise!…
Compare that to, say, a new Australian Robinhood-ish platform with a shiny pop-culture name designed to appeal primarily to a younger, suggestible audience.
What if the free version of the platform (after a free trial period of the premium version) only has 20-minute delayed pricing and you can only place market orders?
Think that through. You place an order based on the price 20 minutes ago, then you can only buy/sell it at the current market price, which you don’t know. What if the price has doubled, or tripled in that time? Or collapsed?
You might think that this was pandering, and hooking the inexperienced with snappy marketing and a cool layout? Because I do.
There is an excellent chance that creating a Robinhood culture on the ASX will dump a load of unskilled gamblers into the high risk direct market, with low entry barriers. A better than excellent chance it will bring further risk into the highest risk shares these kids have read about on Facebook and Reddit.
And the certainty that our fully informed traders will eat them alive.
It’s not fair. At some point we should be protecting our least experienced, most at-risk, most suggestible classes so that people don’t take their money off them.
Isn’t all of the current legislation supposed to ensure that everyone is fully informed? Can’t afford a proper investment adviser, little fella? Don’t worry, here’s a picture of the company logo for you to make the right decision with! In ya go…
If inexperienced traders come into the stockmarket during this, the most risky market many of us have ever seen, and get absolutely torched – which they will – they will never come back. And they will just go back to pump up the good old property market, with less money in their pockets than before.
That’s what I think. And I don’t want Australia to be like ‘Murica.
Our view of fair is one that doesn’t see the untrained and least financially savvy feeding the sharks that swim around in the ASX.
Our idea of marketing or investment isn’t one that could make the ASX as addictive as casinos or Sportsbet or the races. And while it’s common practice to target the kids with things that look cool, these days that kind of marketing typically comes with proper warnings and education that helps them know what they’re playing with could seriously damage them.
This recent market performance belies the economic calamity of the Covid-19 pandemic. A correction seems inevitable but FOMO (told you I could banter with the kids) in sub-investment grade stocks than we’ve seen since the tech-wreck in the late 90s continues to grow unabated and irrespective.
Things that are risky shouldn’t be easy to get into without practice or training, and they should have at least some barriers to entry. As I’ve said before, there is no free money, only luck, and if you can’t afford to pay to get the information and support you need to trade the market, you should not be in the market. Go get managed funds.
There should be an obligation or regulation to provide a minimum amount of current information about the listed investments you are allowing people to enter.
And you shouldn’t sugarcoat the risks like a pack of Fads.
At Marketech our plaform is about technology, providing you the tools and technology to trade. We encourage our high-function trading platform to get you live pricing, live charts, live market depth to ensure you have the tools and trading capability at your fingertips, and on your mobile phone or PC. You trade your own stock on your individual HIN. Its your cash in your own Macquarie account where you keep the competitive interest you earn.
Our subscribers get access to brokerage starting at $5, and then 0.02 per cent for trades over $25k. If you want to trade the market you need immediate access wherever you are and the seamless Marketech mobile app means you are live anywhere anytime.
Go to www.marketech.com.au to set up a free trial – you will be astounded by the simplicity and tools that this technology gives you. No spin, just low cost trading and the tools that give you advantage over hype.
This article was developed in collaboration with Marketech Stockbroking Pty Ltd (AFSL 486148), a Stockhead advertiser at the time of publishing.
This article does not constitute financial product advice. You should consider obtaining independent advice before making any financial decisions.