Online Trading Academy alum Gordon Peldo no doubt sums up exactly what every individual investor and trader is looking for when they decide to go it alone in the market. "There isn't a trader alive who isn't looking for the Holy Grail," he says, meaning a can't-miss approach to being consistently profitable. But whether such a Holy Grail exists or whether it's worthwhile to even consider trading at all -- let alone to fork over the thousands of dollars to get trained at the Online Trading Academy or anywhere else -- is questionable given the amount of research and study that shows active trading to be a losing proposition. Indeed, Larry Swedroe, the author of numerous books on investing, including the upcoming "Investment Mistakes Even Smart People Make," puts it bluntly. "Only a fool would do it," says Swedroe, who is also a principal and director of research for the Buckingham Family of Financial Services.
In particular, Swedroe points to wide-ranging research conducted by University of California professors Brad Barber and Terrance Odean, including their recently published study, "The Behavior of Individual Investors." In a nutshell, Barber and Odean found that individual investors do just about everything wrong: They underperform standard benchmarks, like low-cost stock index funds even before the costs of trading, such as commissions, and taxes are factored in; they sell profitable investments while holding onto losers; and they are overly influenced by past performances and tend to hold undiversified portfolios that have more risk [source: Barber and Odean]. "[Barber and Odean] found that people who traded the most -- day traders going online -- underperform the market by 10 percent per annum on a risk-adjusted basis," Swedroe says. "They're earning the equivalent of a non-interest checking account with all of the risks of stocks."
Nor do investment and trading success correlate with intelligence, says Swedroe. In fact, in his book "The Quest for Alpha," Swedroe talks about the woeful performance of an investment club made up of the high-IQ members of MENSA. Over a 15-year period, the club underperformed the S&P 500 stock index by 13 percent. "They should have had a book club," he says.
Swedroe cautions those who are interested in active trading to consider who else is in the market. Swedroe says that 90 percent of trading is done by institutional investors such as pension and hedge funds and just 10 percent by individuals, which means that most of the times individuals are buying or selling a security, there isn't one person on the other side of the trade but rather an institution. "They only sold that stock to you because they think it's going to underperform and you think it's going to over-perform," he says. "Looking at yourself in the mirror, who do you think is likely to be right?"
By no means is Swedroe the only person cautioning against active trading. The U.S. SEC has a publication titled "Day Trading: Your Dollars at Risk," which enumerates all of the reasons this sort of active investment is a bad idea. "Most individual investors do not have the wealth, the time, or the temperament to make money and to sustain the devastating losses day trading can bring," writes the SEC. Among the points the SEC makes are to doubt any claims of easy profits from trading, and to be leery about the objectivity of any so-called "educational" classes, seminars and books about trading because the people behind them stand to profit from you [source: SEC].
All of this is to say that despite the fact that Online Trading Academy has plenty of satisfied students -- although some prospective students have complained online about high-pressure sales tactics -- it is always wise to carefully consider whether trading is the right investment approach for your bank account [source: Ripoff Report].
- Anderson, Thomas. "Our Man Goes Undercover and Tells All." Kiplinger's Personal Finance magazine. March, 2010. (Oct. 5, 2011) http://www.kiplinger.com/magazine/archives/our-man-goes-undercover-and-tells-all.html#ixzz1ZNSQYUoI
- Harkey, Tony. Vice president of marketing for Online Trading Academy. Personal correspondence. (Sept. 29, 2011)
- Koomey, Chris. Owner of Baltimore and Washington DC Online Trading Academy campuses. Personal correspondence. (Sept. 29, 2011)
- Odean, Terrance and Barber, Brad. Professors in University of California system and authors of numerous papers on individual investing, including "The Behavior of Individual Investors." Social Science Research Network. Sept. 7, 2011. (Oct. 9, 2011) http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1872211
- Online Trading Academy. http://www.tradingacademy.com/about-us/ (Sept. 27 - Oct. 9, 2011)
- Peldo, Gordon. Online Trading Academy student. Personal correspondence. (Oct. 5, 2011)
- Ripoff Report. Complaints about Online Trading Academy. http://www.ripoffreport.com/directory/Online-Trading-Academy.aspx (Oct. 6, 2011)
- Securities and Exchange Commission. "Day Trading: Your Dollars at Risk." (Oct. 7, 2011) http://www.sec.gov/investor/pubs/daytips.htm
- Swedroe, Larry. Author of "Investment Mistakes Even Smart People Make" and numerous other investment books. Personal correspondence. (Oct. 7, 2011)