In olden days a glimpse of naked calls was looked upon as something shocking, but now, God knows anything goes.
Cole Porter may have been on to something when he penned that song in 1934, because right now it seems like younger investors believe anything goes. They can buy stocks without any knowledge of risk, they can buy calls or puts without much understanding of how they work. Most important, for some of the gatekeepers, the brokerages, anything goes.
And that's wrong.
Not everything goes without some education and some knowledge of what can go wrong with stocks and options.
I have found that the younger investor is much better than my generation when it comes to researching what they own. This isn't like the days of when I went into a toy store in Brooklyn in the 90s and the proprietor told me he owned Seagate (STX) but thought it was a housing developer instead of a disk drive maker. The young investor is well aware of what a company does and why it might do well. Many can describe a company to you and some know a lot more than anyone on Wall Street except those who cover the stock. They may even know more because they use, say, Snowflake (SNOW) , or Atlassian (TEAM) and they've had their data protected by Cloudflare (NET) or Zscaler (ZS) , and their identity protected by Okta (OKTA) .
But here's what they don't know: how to buy and how to sell a stock and whether the stock is suitable for their personality because there is no governor anymore. They may not know, for instance, the rights and wrongs of owning stocks. So, in the interest of laying it all out without, I hope, a bit of condescension not anything goes:
- Stocks do stop at zero but that should not be your saving grace. Understand right now that in 1999 almost all of the stocks that came public went bankrupt within two years. The companies coming public now are certainly of higher quality but I suspect that won't be the case six months from now.
- Can you explain to a stranger why you are buying a stock? Can you give three reasons why it might go higher beyond the moment it might be enjoying?
- Cheerleading a stock does not make it go higher. If you are trying to root for a stock save that for the stadium. These are just pieces of paper.
- If you use options understand that most out of the money calls go to zero. If you sell calls make sure that you own the stock underneath it. If you sell the stock understand that can be an unlimited loss. Some brokerages do not let you short calls or puts. That's not wrong. Too many people lose too much money doing so. You should have to study before you do it.
- If you are trading a stock, do you know why it might make a move? Are you catalyst trading? Momentum trading? Why should it go up or down?
I think those five rules can help you from losing a lot of money. I don't care about making money. If that happens great job. I care about the rules, not of the road, but of going off the road. Once you know them, I don't care where you buy or sell them. I am totally agnostic to the platform. I just wish that people knew more about themselves and took the education necessary to understand what can wrong. If you do, you are ready to drive with the knowledge that until you are informed, anything doesn't go.