Day trading for fun is a ‘losing proposition,’ Wealthfront’s investment chief Burton Malkiel warns

• Many day traders are betting on stocks like they’re sports teams and will likely end up poorer, Wealthfront’s investment chief Burton Malkiel said in a recent MarketWatch interview.
• “To go and day trade and think that you are investing, that’s what I think is absolutely wrong and is likely to be simply disastrous for people,” the Princeton economist and author of a “A Random Walk Down Wall Street” said.
• Speculating for fun is the “diametric opposite to investing” and will be a “losing proposition” in the long term, he added.
• Malkiel also said that index funds aren’t leading to smaller companies being neglected, and central-bank stimulus has boosted stock prices.
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Many of the people who have taken up day trading during the pandemic are substituting stock picking for sports betting and will almost certainly lose money, Wealthfront’s investment chief Burton Malkiel said in a recent MarketWatch interview.

The Princeton economist and author of a “A Random Walk Down Wall Street” acknowledged that many investors and market commentators have a “gambling instinct.” However, he drew a distinction between shrewd investing and rampant speculation.

“I am the first to admit that I have gone to the horse races, I have sat at the tables at Las Vegas and Atlantic City, so I do not think there is anything wrong with gambling for entertainment,” Malkiel told MarketWatch.

“The problem that I see is that this is the diametric opposite to investing,” he continued. “To go and day trade and think that you are investing, that’s what I think is absolutely wrong and is likely to be simply disastrous for people.”

“It’s not that they can’t make money in gambling,” he added. “But over the long run, this is a losing proposition.”

Malkiel made similar comments in a Wealthfront blog post last week.

“I don’t confuse day traders with serious investors,” he said. “Don’t be misled with false claims of easy profits from day trading.”

‘Stocks don’t exist in a vacuum’

Malkiel, a longtime proponent of index funds over active investing, defended them in the MarketWatch interview.

The idea that smaller companies are being overlooked because index funds invest more money in companies with larger market capitalizations is “dead wrong,” he said.

“If there’s too much money going into Apple and Microsoft and some of the neglected stocks are really too cheap, believe me, money is going to go into those,” he continued.

“There will always be people who think they can beat the market,” he added, highlighting active managers, hedge funds, and private-equity firms.

Malkiel also argued that the Federal Reserve and other central banks have boosted valuations, although he added that their interventions were “absolutely necessary” to contain the fallout from the pandemic.

“Stocks don’t exist in a vacuum and that means that the stock market is going to be higher than it otherwise would be,” he said.