Guys, please don't get into day trading.

Reason number one, loss aversion. Did

you know that if you lose $100, you feel

way more in happiness than the happiness

you would feel if you make $100? Yeah,

it's counterintuitive. You would think

that they would be equal and opposite

and symmetric, but they're not. And when

you think about it more, it actually

makes sense because our stone age

ancestors evolved to be riskaverse. If

you weren't risk averse, you would die.

The point is that if you feel losses way

more than you feel the wins, then even

if you break even all year, you were net

unhappy the whole year. You suffered the

whole year. And that's no way to live

life. You can talk to a professional

gambler, like a professional poker

player, and they'll tell you the same

thing. They'll tell you that, "Oh yeah,

I can remember all of my bad beats in

like vivid detail." And they won't

really remember their biggest winning

hands that well. will say, "Oh yeah,

that was that was a good night. I made

money that night." The same advice holds

for professional gamblers. It's

[panting] it's a life of suffering.

>> What have I done?

>> Suffering.

>> Oh, guys, real quick. I created a merch

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Please support the channel. Link in bio.

>> Now, reason two why you shouldn't day

trade. Most people don't think about the

tax considerations because taxes are

boring. the tax difference in day

trading, it means you have to do about

30% better. So, I'll get into all the

math, right? The S&P 500 returns about

10% annually. And so, if you're going to

day trade, you need to at least return

14% annually just to match someone else

who is just passively leaving their

money in the S&P 500. In fact, I would

go further and say that the average day

trader is often trading on leverage or

trading these like sexier tech stocks

like Tesla or Google. So, when you talk

about riskadjusted returns, you should

actually compare their performance

against something more like the NASDAQ,

which averages around 14% returns

annually. So, the average day trader

then needs to make at least 20% annually

just to match having left their money in

the NASDAQ, which averages about 14%

annually. And that difference in 6% is

because of tax reasons. I'll deep dive

into all that right now, but if you find

it boring, um, I'll split this up in the

chapter, so you can just skip this

chapter if you just take my word for it.

The gist of it is that if you talk about

an IBA, if you leave your money invested

there for over a year, it's a long-term

capital gain. And so the tax bracket for

long-term capital gains is way more

generous than for short-term capital

gains, which are basically taxed at your

ordinary income for a single person.

Right? The first 0% tax bracket for

long-term capital gains is up to around

$50,000 annually. And further, there's

something called a standard deduction

which let you pat on about an extra

$15,000

to the 50,000. So if you're just a

single person, the first $65,000

that you make is taxed at 0%. And

without losing you in too many of the

details, those are just the gains.

That's not really like the principal

amount of capital. You could very easily

pull out about a 100 grand a year and

pay 0% taxes on it. Consider that,

right? You choose to retire, your income

goes to zero, and then you subsidize

your life in your first year of

retirement, all by selling equity

holdings, for example, that you've held

for over a year. You can withdraw about

$100,000 and pay 0% taxes on it,

especially if you live in a state with

no state tax. You double this number if

you're married and you're filing

jointly. So, that's that's sort of what

you're comparing yourself against,

right? That's the buy and hold strategy.

Now, if you're actively day trading,

your trades are going to be categorized

as short-term capital gains, those are

taxed at the rate of your income that

year. The average person with a white

collar office job is getting taxed at

around 30% annually. All these buys and

sells you're doing throughout the year

are getting taxed at 30%. And so this is

how we arrive at the comparison that I

mentioned before where if I were just

buying and holding the NASDAQ for a year

and it averages 14% annually, you need

to be making at least a 20% return on

your day trading that year just to match

my passive investing strategy. So you

need to be making at least 20% annually.

And keep in mind that you're actively

doing work while I'm just hanging around

playing golf and hiking mountains or

whatever. You know, you're sitting there

watching Bloomberg News and and don't

forget the loss aversion aspect, right?

So, you're you're also suffering through

the whole year, you know, kicking

yourself when you miss trades that you

think you would have made. 20% is just

to break even with me. And obviously,

you don't want to do all that work just

to match someone who isn't doing any

work. So that means you probably have to

return at least 25%. So the question

becomes, do you think that you can

average 25% returns annually in your day

trading?

>> Because if you can't, then you really

shouldn't be doing this. I think

strongly the answer is no. No, you can't

average 25% annually. And the reason for

that is because only 10% of active fund

managers can outperform the S&P 500 over

a 10-year period. And over a 30-year

period, less than 1% of active managers

outperform the S&P 500. So when I say

active manager, keep in mind that these

are Harvard MBAs with a team of Harvard

MBAs working underneath them, all making

phone calls to the CEOs of companies

trying to glean any kind of alpha that

they can. These are guys working

full-time, and these guys can't

outperform the S&P 500. You can look

this up. So, what makes you think that

you're going to outperform these guys?

And not just outperform the S&P 500 that

averages 10% annually, that you're going

to average at least 25% annually. The

odds are just very low statistically.

Anyways, I hope I've given you

sufficient reason not to get into day

trading. If you still want to day trade,

just at least keep these things in mind.

Let me know if you have any questions in

the comments. Take care.