The www, the internets, the dark web, the Google, the email thing or whatever you choose to call it. The thing on your laptop, tablet or phone that connects you to the rest of the world has been the most boundary flattening way to access information since the encyclopaedia salesman knocked on doors.
The good thing about an uninterrupted flow of information is we all become more intelligent. Or at least we think we do. A little bit of information can be a dangerous thing if you’re not prepared to actually understand the intricacies of what you’re attempting. Be that changing a washer in your tap, servicing your car, cutting down a tree in your backyard or investing.
Now there are plenty of people who’ve fully informed themselves on all of these topics and successfully change their washers, service their cars, cut down their own trees and do their own investing. However, there’s another group who aren’t as thorough in their learning. They don’t want to turn their job over to a professional, but they also don’t really want to put the effort in to do it properly themselves.
We’ll start with the example of ballerJ44 (not his real username) who was keen to start investing and asked the following on an internet forum recently:
I earn more than my wife, and pay more personal income tax.
We’re soon hoping to take the plunge and purchase our first ETF’s – in regards to tax, if you choose to have all dividends automatically re-invested (so you never personally receive a cash payment), are those taxable?
Thankfully ballerJ44 received the answer he needed from his internet friends – yes you pay tax in dividends if they are automatically re-invested. Yet if he didn’t understand the basic concept that income is generally taxed, whether received or reinvested, he may want to keep researching before beginning his investment journey or seek some professional advice.
MoneyMaster (not his real username) was keen to become a day trader and asked an internet forum if they could see any issues with his big idea. Essentially, he was a 26-year-old engineer who hated his job, was going to move back in with a parent and day trade spec stocks with his $50,000 in savings.
He understood 90% (more like 95%) of day traders fail, but he was confident he wouldn’t be one of them. He was ‘passionate’ and had ‘some experience’. For the most part, the responses to his question were negative, but he was still planning to go ahead with his dream.
Between the volatility (and emotion that comes with the volatility) brokerage, taxes, research and time spent, we suspect he would suffer less stress and make more money by just working at his local McDonalds for a year.
But that’s not as cool as being able to call yourself a day trader.
Finally, someone who didn’t consult anyone before embarking on his grand investing plan, Chinese research scientist, Fei Yan. According to the Security Exchange Commission (SEC) in the US, Yan’s lawyer wife alerted him to confidential information relating to two impending takeovers of listed companies.
Armed with this information, Yan thought it would be a good idea to buy call options (an option to buy a stock at a later date) on the companies concerned. Setting up a brokerage account in his mother’s name, who lived in China, Yan executed a quite non-descript trade on one of the companies, Mattress Firm, walking away with a $9,700 profit.
After getting away with it the first time, Yan became ridiculously brazen the second time around. Buying call options on the second company, Stillwater Mining, for 16 days straight, right up until the takeover was announced. Something that set off the SEC’s data surveillance. It was also found Yan had Googled “how sec detect unusual trade” before going on his buying spree.
Clearly Mr Yan didn’t find the right information from his Google search, but you can be sure the next person who Googles “how sec detect unusual trade” will see exactly how the SEC detects insider trading and the risks of doing it.
This represents general information only. Before making any financial or investment decisions, we recommend you consult a financial planner to take into account your personal investment objectives, financial situation and individual needs.