Martynas Stankevicius: Why Was I Disappointed in Stock Trading?
Stock trading may be unattractive to some people for a variety of reasons – market unpredictability, emotional swings, unfixed and potentially negative returns, or a constant sense of anxiety. In stock trading, I primarily missed the element of value creation.
Stock trading is one of the most popular forms of investing. In the U.S., about 60% of the population owns stocks, while in the EU and Lithuania, the figures are about 7% and 5%, respectively. The popularity of stocks is driven by complex reasons, but one of the main drivers historically has been the simple lack of convenient alternatives. Moreover, unlike deposits, in the long run, the average return from stocks outpaces inflation.
I started exploring stocks back in my school and university days when I played with virtual portfolios – real exchanges but with fake money. Without any understanding of finance or company balance sheets, I managed to achieve triple-digit returns. But even then, a doubt arose – was it just a matter of luck?
I began investing in real stocks and exchange-traded funds (ETFs) six years ago, mostly out of curiosity, the desire to gain experience, and portfolio diversification. The results over this period were not good: ETF positions generally fell, the value of conservative stock positions remained stable, but I received dividends. Considering inflation, my experience with stocks was unprofitable, but the positive result of the entire investment portfolio was driven by fixed-return business loans. I believe that I might have just been unlucky. It's possible that in the long term, I would return to the "plus" side. However, I ultimately decided that I would feel less anxiety by focusing only on objectively measurable and value-creating investments.
Most people perceive stocks as a constantly appreciating or depreciating part of company ownership. In stock exchanges, company shares appear when a business wants to raise money for expansion. The company announces an IPO (initial public offering) and, in exchange for capital, sells part of its shares to investors, i.e., rights to management, dividends, and assets. The IPO can be seen as value creation – this money is used for business expansion, product or service development, and is important to the economy and likely to increase the company's value. Of course, this depends on the company's success; any investment is associated with risk.
Unfortunately, once shares hit the stock market after an IPO, they immediately become speculative. Theoretically, rational and professional market participants should conduct company valuations to determine the "correct market price". In such calculations, rational markets would consider the economy, the company's competitive environment, progress made, etc. Theoretically, the price determined by rational analysts should be what they would be willing to pay to buy the entire company, and the share price should reflect the company's value. This could be called sustainable value investing.
However, in practice, stock markets are increasingly unable to balance themselves effectively and rationally. They operate more like speculative markets based on expectations, emotions, and manipulations, similar to a flea market or a trading card exchange. Here, the price is determined not by the real and objectively measurable value of the asset but by someone's willingness to pay a certain amount, which may not be rational.
It's remarkable that stock trading has become accessible to everyone with just a few taps on their phone. But the more non-professional traders who cannot determine the "real" value enter the market, the more speculative the market becomes. Factors like "like/dislike", "heard", "looks like", "guess", and so on increasingly determine stock price movements.
In itself, speculative stock movement is not bad – some manage to profit from it, while others learn expensive lessons. I just realized that after trying stock trading, in many cases, we would be passengers on a turbulent sea without a logical and clear route.
You don't even need to trade stocks to see this. Just a few examples: a company announces excellent results, and within a day, its stock value fluctuates by +10% and -10%. Additionally, at the start of "Covid-19", companies offering "remote work tools" (e.g., Zoom), which had yet to show any results, appreciated by tens and hundreds of percent, only to drop once lockdowns were lifted.
Meanwhile, during the height of the pandemic, there was a sell-off of companies "likely to suffer", but later all their values returned to previous levels or even rose higher. Moreover, isn't it strange that last fall, all stocks rose because "the Fed raised interest rates as expected by the market", while this year, a rate hike that met market expectations was already a reason for stocks to drop? It seems that stock analysts always find an explanation after the fact. There are even cases where a mere nominal change in stock becomes a reason for it to appreciate significantly, even though the stock's value should only change with the amount of value created by the company. Not to mention the existing and imagined stock "influencers" on social networks...
When there are no longer fundamental factors determining the price in the market, it becomes a market driven solely by buyer and seller expectations. The problem is that businesses are built not on expectations but on creating real value. So trading without value creation can easily be considered speculation.
I may not be a standard investor, but I want my invested money to not only yield returns but also create value – help businesses expand, increase efficiency, create jobs, or develop new products. Ideally, in regions or fields that are close to my heart or important to me. Only value-creating, non-speculative investments can generate sustainable and predictable returns. If a business creates value – and can pay interest and repay loans from that value – this, to me, is sustainable investing.
Partially non-speculative stocks can include the securities of companies that consistently and regularly pay dividends. In this case, it is possible to calculate a preliminary return from dividends and hold this position specifically for them. However, even trading in "dividend" stocks does not create value for the business itself. I believe that even deposits create more value for businesses than stock trading because banks lend depositors' money to companies that create jobs or to individuals who purchase the companies' products.
For some, stocks are simply convenient. For others, it's a reason to be interested in companies and finance. Others just enjoy the constant changes. And some want to invest somewhere – the entire market and the state are constantly talking about financial literacy and encouraging interest in investing.
Nevertheless, for me, investing is primarily a way to save by receiving a stable and predictable return for the value created. This process needs to be controlled and dependent either on me or on people with the necessary competencies, but under no circumstances on someone's moods or social media posts.
Martynas Stankevicius: Why Was I Disappointed in Stock Trading?
Stock trading may be unattractive to some people for a variety of reasons – market unpredictability, emotional swings, unfixed and potentially negative returns, or a constant sense of anxiety. In stock trading, I primarily missed the element of value creation.
Stock trading is one of the most popular forms of investing. In the U.S., about 60% of the population owns stocks, while in the EU and Lithuania, the figures are about 7% and 5%, respectively. The popularity of stocks is driven by complex reasons, but one of the main drivers historically has been the simple lack of convenient alternatives. Moreover, unlike deposits, in the long run, the average return from stocks outpaces inflation.
I started exploring stocks back in my school and university days when I played with virtual portfolios – real exchanges but with fake money. Without any understanding of finance or company balance sheets, I managed to achieve triple-digit returns. But even then, a doubt arose – was it just a matter of luck?
I began investing in real stocks and exchange-traded funds (ETFs) six years ago, mostly out of curiosity, the desire to gain experience, and portfolio diversification. The results over this period were not good: ETF positions generally fell, the value of conservative stock positions remained stable, but I received dividends. Considering inflation, my experience with stocks was unprofitable, but the positive result of the entire investment portfolio was driven by fixed-return business loans. I believe that I might have just been unlucky. It's possible that in the long term, I would return to the "plus" side. However, I ultimately decided that I would feel less anxiety by focusing only on objectively measurable and value-creating investments.
Most people perceive stocks as a constantly appreciating or depreciating part of company ownership. In stock exchanges, company shares appear when a business wants to raise money for expansion. The company announces an IPO (initial public offering) and, in exchange for capital, sells part of its shares to investors, i.e., rights to management, dividends, and assets. The IPO can be seen as value creation – this money is used for business expansion, product or service development, and is important to the economy and likely to increase the company's value. Of course, this depends on the company's success; any investment is associated with risk.
Unfortunately, once shares hit the stock market after an IPO, they immediately become speculative. Theoretically, rational and professional market participants should conduct company valuations to determine the "correct market price". In such calculations, rational markets would consider the economy, the company's competitive environment, progress made, etc. Theoretically, the price determined by rational analysts should be what they would be willing to pay to buy the entire company, and the share price should reflect the company's value. This could be called sustainable value investing.
However, in practice, stock markets are increasingly unable to balance themselves effectively and rationally. They operate more like speculative markets based on expectations, emotions, and manipulations, similar to a flea market or a trading card exchange. Here, the price is determined not by the real and objectively measurable value of the asset but by someone's willingness to pay a certain amount, which may not be rational.
It's remarkable that stock trading has become accessible to everyone with just a few taps on their phone. But the more non-professional traders who cannot determine the "real" value enter the market, the more speculative the market becomes. Factors like "like/dislike", "heard", "looks like", "guess", and so on increasingly determine stock price movements.
In itself, speculative stock movement is not bad – some manage to profit from it, while others learn expensive lessons. I just realized that after trying stock trading, in many cases, we would be passengers on a turbulent sea without a logical and clear route.
You don't even need to trade stocks to see this. Just a few examples: a company announces excellent results, and within a day, its stock value fluctuates by +10% and -10%. Additionally, at the start of "Covid-19", companies offering "remote work tools" (e.g., Zoom), which had yet to show any results, appreciated by tens and hundreds of percent, only to drop once lockdowns were lifted.
Meanwhile, during the height of the pandemic, there was a sell-off of companies "likely to suffer", but later all their values returned to previous levels or even rose higher. Moreover, isn't it strange that last fall, all stocks rose because "the Fed raised interest rates as expected by the market", while this year, a rate hike that met market expectations was already a reason for stocks to drop? It seems that stock analysts always find an explanation after the fact. There are even cases where a mere nominal change in stock becomes a reason for it to appreciate significantly, even though the stock's value should only change with the amount of value created by the company. Not to mention the existing and imagined stock "influencers" on social networks...
When there are no longer fundamental factors determining the price in the market, it becomes a market driven solely by buyer and seller expectations. The problem is that businesses are built not on expectations but on creating real value. So trading without value creation can easily be considered speculation.
I may not be a standard investor, but I want my invested money to not only yield returns but also create value – help businesses expand, increase efficiency, create jobs, or develop new products. Ideally, in regions or fields that are close to my heart or important to me. Only value-creating, non-speculative investments can generate sustainable and predictable returns. If a business creates value – and can pay interest and repay loans from that value – this, to me, is sustainable investing.
Partially non-speculative stocks can include the securities of companies that consistently and regularly pay dividends. In this case, it is possible to calculate a preliminary return from dividends and hold this position specifically for them. However, even trading in "dividend" stocks does not create value for the business itself. I believe that even deposits create more value for businesses than stock trading because banks lend depositors' money to companies that create jobs or to individuals who purchase the companies' products.
For some, stocks are simply convenient. For others, it's a reason to be interested in companies and finance. Others just enjoy the constant changes. And some want to invest somewhere – the entire market and the state are constantly talking about financial literacy and encouraging interest in investing.
Nevertheless, for me, investing is primarily a way to save by receiving a stable and predictable return for the value created. This process needs to be controlled and dependent either on me or on people with the necessary competencies, but under no circumstances on someone's moods or social media posts.
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