Stocking Picking Santa

No Virginia, There Is No Stock Picking Santa Claus

Stocking Picking Santa

There is no denying it; we Americans love an underdog, and what better underdog than a 17-year-old high school kid who beats Wall Street at its own game? Or so it seemed according to this fluff piece carried in New York magazine which claimed that the student (whom we will spare naming since he is a juvenile) made a whopping $72 million by trading stocks during his lunch hour. The reporter accepted the claim as fact because she was shown a “bank statement” that established the student’s net worth as “in the high eight figures,” and she also may have been swayed by the $400 caviar lunch that was paid for by one of the student’s friends with a credit card.

Just one problem—the whole thing was a fake, or as Matthew McConaughey famously said in The Wolf of Wall Street, a “fugazi”. Anyone who has seriously studied the financial markets would know that the situation described in this story is not in the realm of possibility. Unfortunately, there is no such requirement for reporters who write about them.

After some pressing, the student owned up to having made the up the whole story and he posted this apology video on YouTube. One particularly funny comment was an assurance that he would have a great future in politics. There is no doubt that he is going to have a rough time when he returns to his school now that all his fellow students know that the rumors of his riches are false.

To us, this story was reminiscent of the Beardstown Ladies who claimed to have achieved investment returns of 23.4% per year from their inception in 1983 through 1994. They used their fame to sell books and newsletters. The only problem was they had no documentation or audit to back up their claim. When they actually had their brokerage statements properly analyzed, their rate of return turned out to have been 9.1%, substantially lower than the 14.9% return of the S&P 500 Index during the same period. The ladies proved themselves worthy of their name when they publicly apologized for their error, which we accept was unintended. Curiously, even after admitting that they had no extraordinary stock picking ability, they still managed to stay on the financial best-seller lists. To us, this reinforces the idea that investors want so badly to believe that they can beat Wall Street that they experience cognitive dissonance when confronted with evidence as to its unlikelihood.

If you are on the stock picking treadmill which truly can be addicting, now would be a good time to make a new year’s resolution to step off it once and for all. If you would like to learn more about IFA’s 12-Step Recovery Program for Active Investors, please call us at 888-643-3133.