Monday 17 February 2014

Broker run stock competitions

competitions, stocks, brokers, investor

My mother recently contacted me asking if I had joined a stock competition that was run by one of the stock brokers. My response was no, I have not joined in and I also do not consider it good to join in on those things so I would prefer if she did not do it. I unfortunately did not tell her the last part straight out but this competition had already started so she could not join anymore anyway.

That made me start thinking about what is the target for the stock broker to arrange to types of competitions. Usually there is a very nice price for the winner of the competition and I think that should be the starting point of each persons thought.

If the stock broker is prepared to pay the winner/winners sum X in cash then that means they are minimum getting that back and most likely they are looking at a benefit that is the double of what they are paying out.

The question is then... how are they getting their money back?

  • Y amount of new clients due to the competition that will make trades.
  • Z amount of increased trades
  • and this is probably the worst one... changing the stock buying behaviour of their clients to a more speculative nature.
The only chance to win a competition that is running short term is to bet all your money on one card and it will either work or it will fall flat on the ground. If it works you will get excited and consider yourself to be oh so very clever and I am sure that you just knew that that speculative stock would increase in value based on probably nothing at all or to make things worse due to a real reason that you will tell yourself that you knew would happen with that speculative company.

If you lose then you will only shake your shoulders and walk away because it was "only a game".

This will however probably change your behaviour and it will make you take stupid risks with big losses to follow. Maybe it will start with you adding a little "spice" to your stock portfolio which if it does not work out you will claim it did not matter because it was so little money and if it does work out then it will excite you but you will be annoyed that it was so little money gained since you only made a very small investment. This is extremely dangerous because that can then also again lead to you deciding to make a larger speculative investment. With the risk that there is zero reason for why your next "spice" investment will work out like the last one that gave you a lucky, yet small, profit.

Never ever forget! The brokers on Wall Street clap their hands at the end of the day no matter if the stock market went up or down. Why should they care what happened? Either way they are making money!

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