Only last night I was catching up with a friend, asking him if he’d had any more recent income from his Premium Bonds – After last summer he said he was getting more regular “wins” of £100 a month from his full investment in Premium Bonds. He said he never used to have so many wins and thought that maybe they’d “tweaked the algorithm”. I had a look online and it was true, NS&I had indeed increased the chances of winning.
When I spoke with him again last night, he said no, he hadn’t had any more wins because he’d withdrawn all his Premium Bonds to pay for an extension he was having built.
That led us on to the subject of trading. He works for HMRC, so he’s always good to chat to about finances (His wife too, she’s at Barclays Corporate banking). He was asking about my trading and, in the midst of discussing Trading 212 (T212) in particular, I said that it was interesting how they’d introduced a lot of gamification, and in eToro too.
Freetrade, eToro and Trading 212
Now I’m a big Freetrade fan but I’ve been watching eToro for a while. The eToro app has an interesting form of gamification where it allows you to copy other investors’ trading patterns. Being able to view other people’s trading accounts, you can see their returns, on an annual and a monthly basis. If you want some of that action too, you simply copy their investments.
Trading 212 is similar but they have instruments called Pies – Each pie is a pie chart of multiple holdings where you can either use a pre-built pie, copying other investors’ pies, or create your own pie. The benefit of these pies is that you can invest in multiple fractional shares all at once – so where Nvidia is currently trading at over $826.57 per share, you can own a tiny percentage of that. Owning fractional shares brings in low level investors, like me, into the world of investing.
The flip side of these pies is that if you only hold $1 in an $800 stock, then you won’t make any significant gains from a 1% stock price rise, nor will your dividends be meaningful.
However, back to the positives of Trading 212’s pies, there was one named (Almost) Daily Dividends and, looking at the details, every stock in the pie paid out such regular divs that you could benefit from earning 265 days’ worth of dividends in a 365 day year. That is quite literally almost daily dividends – it’s about five pay outs a week, so that’s almost like earning divs every working day and taking a break at the weekend. In terms of potential passive income and “earning whilst you sleep” that’s an attractive proposition.
Buffett and Gamification of Trading
And thus we get onto the idea of the gamification of trading – is it a good or bad idea?
Now I’ve just discussed eToro and particularly Trading 212 in positive terms, not being averse to the notion of the gamification of trading stocks, shares, and other investments.
And yet, in complete synchronicity, this morning I read Warren Buffett’s 2023 annual letter to investors. Amongst the tributes to his long term trading partner of 75 years, the late Charlie Munger, Buffett comments that:
“…markets now exhibit far more casino-like behavior than they did when I was young. The casino now resides in many homes and daily tempts the occupants.”
And he’s absolutely correct. The gamification of trading has put the stock market into the hands of people just like me. Where, every day, I walk past a school-run mum sitting in her car on a gambling app, I could be just the same. At any time I can lift up my phone, check Freetrade, eToro, or Trading 212, and see how my accounts are performing. I’m sure it can be just as addictive as the gambling apps.
Gamification 2021
But this isn’t new – gamification of trading was discussed in a US SEC speech back in 2021, itself referring to the rise in retail trading gamification since 2019. So this is not a new phenomenon.
The proliferation of trading apps has given greater access to people, something for which I am personally very grateful for, but it’s not for everybody. The wider the opening of participation, the greater the increase in risk. As the SEC’s Rick Fleming said in the above speech:
“…my primary concern with gamification is its potential to induce trading that is more frequent or higher-risk”
And that is where the parallels with gambling and Buffett’s “casino-like” analogy comes in to play.
Speculator v Investor
Having seen multiple recent opinions on the subject, the biggest issue in modern day app trading is the difference between speculators and investors.
The investors are not the problem. The speculators are. I see stocks where special pay-outs or high-yield divs are announced and there’s a massive “pile on”. Then, once the ex-dividend date comes round, the stock value plummets again. That, to me, is the result of speculator activity, those only in it for a quick buck. I’m new to trading (3 years) so maybe it’s always been like this, or is robo-trading in action here, have the premium apps allowed this behaviour to become more mainstream?
I met a chap last year who I discussed trading with. Asking him if he used Freetrade he “gave me a look” and said he was a day trader with his own broker. Being a day trader means he was only investing in financial instruments that he could buy and sell the same day. He’s a speculator.
Personally, I’m an investor. and digesting the wisdom of Buffett and SEC executives, I’m glad that I am. That’s not to say that I don’t speculate, but there’s a point where you can do both, right?
Two weeks ago I received a notification that a stock was paying out a special dividend of 15% and so I invested. The stock climbed over 10%. I received my dividends, as did everyone else. The stock dropped 15%. The speculators had been in, drove up the price, sold out at +20% and also drew their 15% dividend, and then scarpered. I had my 15% dividend but my stock was 5% down. Holding on as a long-term investor, my investment has recovered and is up a further 3% on top of its peak. I didn’t get in early enough to buy at the best rate but I got my special div and now I’m 6% up. That’s what investing is about.
Verdict on the Gamification of Trading
Like many things, the gamification of retail trading is a double-edged sword.
I can see the potential addiction and understand the temptation. I can also see how easy it could be for people to lose money. I’ve seen one stock drop 30% since my initial investment and, despite reading Robbie Burns’ The Naked Trader a few years ago with his golden rule of not letting any holding slide more than 15%, I’ve held my nerve and seen an upturn in my FTSE 100 10.94% div stock.
But I’ve also experienced the benefits.
For me, I am far better educated on the mechanisms of trading than I was three years ago. I studied economics at school and college, religiously played a stock exchange game back in 1983, visited the LSE in 1987, and brought my first share in the early 2000s. But having actually traded on a regular basis for the past few years, I am now more informed and confident.
Today I have a tiny portfolio of diverse holdings, in many different sectors and of varying degrees of investment, with mostly high cap, and regular, healthy dividend-paying shares that I’m holding for the long-term. I read the investor reports, the filings, the news, and see the websites constantly speculating about the same old stocks, again and again.
But I chose something else…
I trade in what I believe is good for my portfolio and my future. There’s some speculative shares in there, of course, but it’s all for learning purposes. And “beating the stock market” isn’t my game. Staying ahead of inflation and savings rates is.
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