I have a 79 year old family member who in the past couple years has started putting significant significant sums of money in individual stocks he is picking.

He is not senile or dumb - he had a 30 year career as a lawyer and later a judge, and can still listen to and appreciate nuanced arguments - but his mind has noticeably faded.

When I pressed him to explain to me how he picks stocks, he (more or less) says he takes stocks from a sector he's interested in, reads CNBC, Barron's, and 1 or 2 other publications I forget, and takes the aggregate advice of their opinions on what to buy or sell (as in literally, if Barron's/MSNBC/RandomMarketPublication call something a buy and RandomMarketPublication#2 calls it a hold or sell, he buys it). He's started watching CNBC the same way unemployed stoners watch late-night infomercials.

I don't know much about the market, I just index like everyone else. But what argument can I make, or data can I show him, to most thoroughly demonstrate that what he's doing is almost certainly not wise?

Hes bored out of his mind, so maybe picking up a hobby would be more productive, what else is he interested in?

Advise him that most trades are done by AI & Bots. That he shouldn't expect to beat the market.

If he enjoys playing around with stocks, and doesn't mind a negative ROI of -3%, than that is ok.

Most important thing is that he should be aware beating the market is extremely difficult

Say nothing at all -- its really not your business and you admonishing him with advice like this is just going to piss him off.

Also, the market can be beat, nay, crushed, and if hes a smart guy and does some research he should be able to beat the market easily.

Do you have a source about the market being beatable on a risk adjusted basis over a significant sample size by people who don't work at top quant firms and have PhDs in relevant fields? Last I checked dead people outperform the vast majority of active investors

OP: Unless your family member is going broke with this hobby I don't think there's much you can do. The best you can do is some quick googling to find the plethora of articles explaining why passive indexing is the best bet for most people and try to present him with a well-reasoned, evidence backed argument. There's also some informative books on the topic like "A Random Walk Down Wall Street" that you could recommend.

Your family member's strategy is likely worse than just buying SPY or VTI but if he enjoys it and isn't spewing too hard on transaction fees and short term cap gains it probably isn't the worst thing in the world. There's much worse financial hobbies he could have, like blasting off at options, gambling, or taking out credit cards to buy stuff he doesn't need.

Simple: companys valuations change all the time, and because so much of the world indexes they never react. That leaves the nonindexing people to come in and move the price to where the fundamentals lie. And it requires you to be smart, but fancy degrees are optional in my opinion

Also, top quant firms are at a major disadvantage compared to people like me. They manage so much money they can only move slowly, due to liquidity issues. I can move in and out instantly, so I always get there first.

I believe if youre trading 9+ figures it gets a lot harder to beat the market, although still very doable.

Presumably he is reasonably well off, and if he's just picking stock his risk and ev aren't that bad. Don't see why you should care based on the information in OP.

He has Parkinson's so he can't really get out much unless his wife or someone else is there to take him somewhere (only affects his lower body though, upper body is reasonably strong for someone his age). Earlier in his retirement he liked going on cruises a couple times a year, and looking forward to and planning for them the rest of the year. Kind of a bummer that's not really possible now.

He knows about trading bots, he thinks they are "usually wrong because they only know what they're programmed to know". So it's safe to say he doesn't understand the scope of what they are capable of.

I think putting a finer point on what "extremely difficult to beat" means would help, but I'm not sure about the best way to do that.

I get what you mean, but it's not like that. Whatever comes of this, it's not going to create any bad blood or hurt any feelings.

Thanks, I'll check out the book and see if he wants to read it. If nothing else maybe I will get around to reading it myself. Do you recommend any articles in particular? I'm not sure what he pays on transaction fees, I just know his financial adviser works for Edward Jones.

He didn't save much, his wife worked part time as a nurse and saved like 10x what he did. That said he gets $50k/year pension from the state so probably not going to starve. If you combine their assets including their house, they might have like $1m net worth.

What is CoL in his area? How much risk is he taking on?

Do you know what his actual goals here are? If he is able to think in expectation terms, and found out that he was actually breaking even on every trade, would he stop trading?

If he's quantitatively inclined you can use this as an opportunity to spend some quality time and keep his brain stimulated. Calculate his risk if all his positions go down 25%. Calculate his risk on a SPY 25% down (use betas).

He might think you are being as closed minded as you think he is. Come at it from an angle of respecting that he might have some opinions you haven't considered and he might take what you say more seriously.

this guy has Parkinson's and he's gambling on stocks? let's be real here. based on what he's said about bots and his strategy of literally just looking at buy hold or sell recs he has absolutely no idea what he's doing

a little more info is needed bc this could just be harmless insignificant money gambling or it could be dude is losing his mind and is also a potential gambling addict risking the farm. wide range of possibilities still

he's obviously not stupid. perhaps he has the intellectual capacity to figure out and become good at what he's doing. that isn't really the concern. the concern is, as it stands, he has serious fundamental misconceptions about investing/trading and has grossly overestimated his ability to trade/invest. he's making huge mistakes without even realizing it, because no one has taught or enlightened him. sometimes you can tell a person directly and they'll never learn or may tell u to **** off. sometimes they'll listen, realize, and understand, and you'll have helped them profoundly with a simple effort and interest in his well being. who knows how he'd react? everyone's different...

on the flip side, it's pretty much none of your business and dude is 79 w Parkinson's. let him do whatever he wants...if nothing else, learn about this stuff on your own, and support/help/do the activity together to keep his mind sharp and yours too you could also just sort of introduce helpful and useful info/knowledge to him in convo without being intrusive, and buy him books like Random Walk, etc for his benefit

+1 to ibavly.

Sounds like you are coming at this in what would be equivalent to calling out a person watching fox news all day as 'wrong' because you read a Chomsky article, probably not going to go very well.

+1 Leave him alone, he's 79 and could be blowing it on lottery tickets and hookers. He's totally fine.

How's that working out for him? If he's up it might be kind of tough to convince him not to burn money.

keep you mouth zipped id say.

he could use any strategy including throwing darts at a wall full of names and it probably isnt much different expectation or risk than your etfs despite what your tell yourself about how sensible your approach is.


yes its hard to significantly beat the market. guess what, its just as hard to significantly get beaten by the market.

You should only say something to him if he has a substantial amount of money at play and you are in his will.

It’s his money not yours... what do you think gives you the right to determine what he does with his money. Even if he is planning to leave the money to you it does not entitle you to dictate what he does with his money.

You’re looking at this the wrong way anyways... it gives a person with very limited options something to be excited about and live for. You think you’re protecting him by trying to limit his risk but in actuality you’re trying to take away one of the few joys he probably has in life.

Fyp

Let him do his thing, he’s probably outperforming most hedge fund managers.

The most important data point seems to be omitted here: what is his actual performance record?

It really isn't very hard to beat the indexes. I'm an amateur who has done so for years.

I went with the kind of half measure on this when I was in this spot, I told my family member that they should index a large portion since they will be -EV picking individual stocks, and use the rest to pick stocks and have fun (where that discretionary amount is enough for them to have fun/care). That worked, dunno if it would work with your family member but if you can convince them to index some and gamb00l some it's better than all gamb00l.

Of course mind your business unless asked is pretty reasonable.

Negative ROI -3% buying random stocks? what?


benefit to diversification i get it but outside of that it's gonna be same EV as indexing just higher variance let the old man have his fun... in terms of talking people out of things this should be at the bottom of the list alongside don't add too much salt to your foods

risk adjusted basis
significant sample size

These are huge moving goalposts here if you are not aware. For one risk cannot be measured by volatility. And some would argue that 10 years is not significant sample size.
Also if you are too timid to bet full value when the opportunities present itself, can you argue that betting $10k and betting $100k is the same, although they may have the same "risk adjusted return"?

At the end of the day you can only eat $ return, rather than "risk adjusted" $ return.

also indexers must be the smuggest mfers on earth