Amateur investors jumping into the stock market have been warned by the Australian Securities and Investments Commission (ASIC) and now billionaire investor Leon Cooperman, who said the hobby will “end in tears”.
The chairman and chief executive of US firm Omega Advisors told CNBC that amateur investors who jumped into the market during the crash are doing “stupid things”.
Markets sunk to multi-decade lows in March before posting huge rallies in recent weeks. Many first-time investors took March as a great time to jump in and buy stock when it was cheaper.
Online trading platform Robinhood has seen a leap in account openings with more than 3 million accounts opened in 2020 alone, bringing it to 13 million users. And fellow platforms TD Ameritrade, ETrade and Charles Schwab added 1.5 million accounts in the first quarter of the year - twice as many as the last quarter of 2019.
In Australia, CommSec has seen 25 of its largest trading days ever this year, while Stake has also witnessed record sign ups.
But Cooperman said in his opinion, amateurs jumping in “will end in tears”.
“The gambling casinos are closed and the [Federal Reserve] is promising you free money for the next two years, so let them speculate,” he added.
“Let them buy and trade. From my experience, this kind of stuff will end in tears.”
ASIC issued a similar warning in early May, urging inexperienced investors against attempting to time the market.
“We found that some retail investors are engaging in short term trading strategies unsuccessfully attempting to time price trends,” ASIC said in an analysis of February to May trends.
“Even market professionals find it hard to time the market in a turbulent environment, and the risk of significant losses is a regular challenge,” ASIC said.
“For retail investors to attempt the same is particularly dangerous, and likely to lead to heavy losses – losses that could not happen at a worse time for many families.
“Retail investors chasing quick profits by playing the market over the short term have traditionally performed poorly – in good times and bad – even in relatively stable, less volatile market conditions.”