Passive traders, I hope you are well wherever you are. As I record this, Corona is still with us. Not the beer, the disease, the virus. And the economy is opening up again almost everywhere. It’s open in some form or fashion in the United States, and the stock market is jumping up and down both without any rhyme or reason in many cases. But the Fed is behind us, and with that, I believe with the Fed pumping as much money into the economy, the stocks are only going to rally, and so people are really trying to take advantage.
I had a friend who is a friend of the family. He just graduated from college about a year ago. He was working full time and he got laid off. And so I had helped him and walked him through the whole unemployment process of how to apply for it and whatnot. He started getting his checks and his checks were in the vicinity of about $700 or $800 a week. This was more than he was making from his job because he was working on a commission basis as a salesperson. And so now he’s got more money coming in than he’s ever had before.
And when I checked in with him, his comment was, “Yeah, I can’t wait to put this money in my Robinhood account.” That threw me for a loop. I said, “Wait a minute. You have no income. You have all these expenses. What do you mean you’re going to take all your money from unemployment and put it in your Robinhood account? You’re going to gamble it? I don’t understand.” I was like, “No, man. You just graduated from college. Your mom paid for everything. Your mom is working seven days a week. You need to go take this money and give it to her.” And that kind of, he was like, “Oh, yeah, right. You’re right. You’re right.” I don’t know if he did or not, but that kind of told me what the thought process is of some of these youngsters.
I was talking to another relative. He came over and he said, “Yeah, I’m in the stock market now.” This one is a little bit older. He was about 26-years-old or so. And he’s like, “Yeah, I’m trading. I’m in the stock market.” I was like, “Oh, really.” “Yeah. I bought some airlines and I bought some cruise lines.” And yeah, that’s wonderful. But you got to know when you’re going to get out. You just can’t buy it and hold it forever. These things are probably going to go back down.
Anyway, I’m bringing all this up because these youngsters don’t really understand how the markets work. And for some reason, with all the advent of these cheap, free brokers, like Robinhood and Webull, and they’re really appealing to the younger kids, and they have more of a gambling mentality. My attention was drawn to an article where on June 13th, a fellow named Bill Brewster who works at Sylmar Capital, basically he’s in the financial space, he’s an analyst, he posted that his cousin had just committed suicide. And the reason for him committing suicide was that he started trading in his Robinhood account. Somehow his account showed him that he was owing about $700,000 in losses because he was trading on margin. So Bill is asking, how does a 20-year-old with no income get access to that kind of leverage? And it’s incredible. It’s true.
So if you are a parent and if your child is of this age, in their early twenties, maybe you should talk to them about it because a lot of kids are looking at this as a quick way to get rich. It’s all over the internet. It’s all over the Facebook groups, Instagram, all these places. And this seems to be like the new gold rush. Everything is going up. The cruise lines are going up 8%, 10% a day. You got to get in, you got to get in and you got to get in with options. You got to be buying options on this thing and use margin to do so, so it boosts your return even higher. These people don’t know any clue of what they’re talking about, what they’re doing, and it’s just ending really badly for some already. And it’s going to end badly for many more in the future.
So if you’re a youngster in your twenties, then you need to realize that this is not the way to do it. If you want to do it, go ahead. If you want to gamble, go ahead with money that you have, do not use margin. And even if you’re an adult, yeah, if you’re in your twenties, you’re already an adult, but if you’re in your forties or fifties or sixties, and you’re trying to gamble on these stocks, please don’t do it with margin. Do it only with money that you can afford to lose because every time there is a financial disaster, there are always people who commit their lives and they commit suicide and it’s a horrible story. It’s not worth it. It’s not worth committing suicide.
I had a friend who committed suicide. He was my brother-in-law. He shot my sister, killed himself, shot the kids. And to this day, we don’t know why. We could have helped if he had reached out and asked for help. We think it was financial related issues. They had other emotional issues and all that stuff too, but I think the thing that ticked him off and the thing that set everything in motion was his finances, and he could have reached out. And even in that case, it was leveraged. They had borrowed too much money. And so borrowing money never leads to good things unless you know what you’re doing. And most cases, if you’re looking to borrow a lot of money, then you don’t know what you’re doing, especially within the stock market.
So margin is a good thing as options traders, as option sellers, we need a margin account so that we can sell our spreads, but you don’t want to use that margin to be borrowing stocks and borrowing against options. Things are going ups and down right now. The stock market is very volatile. It’s very crazy. It can go up, it can go down any day now. There’s nobody that knows how to predict a future in the stock market. Nobody can and the people who say they can are lying. And that’s it, that’s plain and simple. So let this podcast issue episode, and let this young child who unfortunately lost his life to this, be a warning that we don’t need to be trading with margin, number one. We don’t need to be taking wild bets, number two. And we don’t need to be taking our own lives. Our life is worth a lot more than even 700,000 that child apparently had run-up in debt to Robinhood.
Now, Robinhood did not, they were asked about it. They know about the situation, but they did not share any details of the trading account or how he got so much debt or margin. But they were where of the situation. They did release a statement that they were saddened to hear the news, and they reached out to the family to share their condolences. Let this be a lesson that you need to act prudently when it comes to your finances and suicide is never the answer.
So if you’re hearing this and you are in some kind of situation, you need help, reach out to somebody who can help you. If you have nobody, reach out to me, I’ll do my best, whatever I can do. But there is always another option. It’s never too late. Everything, there’s a book by this woman, Marie Forleo. It’s an excellent book.
Everything is figureoutable, that’s the name of the book. It’s actually a great book. Pick that up if you have to, you get some help, talk to somebody. And worse comes to worst, you owe them money, big deal. There are other things, there are worse things in his life. So please, please don’t take your life, get some help. All right? And I don’t even know if I should say it on this episode, but trade with the odds in your favor. Be careful out there.