Amateur traders who jumped into the stock market during the start of the COVID-19 pandemic have been met with disappointment after losing a significant portion of their wealth due to a combination of bad luck, poor choices, and over-extending investments.
One such trader, Omar Ghias, had a $1.5 million portfolio, but lost it all due to overspending and making bad investment decisions. Now, he works as a deli worker in Las Vegas and no longer invests in the stock market.
During the pandemic lockdowns, many Americans became interested in trading stocks, options, and cryptocurrencies. This surge in activity caused the prices of many previously struggling companies to skyrocket. However, as the market suffered its worst year since 2009 under the Biden administration’s inflationary economy, some amateur traders are withdrawing their investments and moving towards more conservative options like cash, bonds, and precious metals.
The withdrawal of amateur traders is also having a noticeable impact on the stock market. According to Vanda Research, January 2023 saw the lowest level of trading activity among this group since January 2020. Goldman Sachs estimates that households will pull roughly $100 billion from the market in 2023, marking the first net outflows since 2018.
The actions of amateur traders will play a crucial role in determining the future of the stock market, as they make up the largest holder of U.S. equities. The Federal Reserve is continuing with rate hikes as they attempt to curb inflation, and there are fears of a potential recession. The recent surge in certain stocks, such as Carvana and Bed Bath & Beyond, has led some professionals to speculate that individual investors are behind the moves. The overall market has seen an increase this past week after the Federal Reserve raised interest rates by a quarter percentage point, with the S&P 500 up 7.7% and the Nasdaq up 15% so far in 2023.
Ghias now has no investments in the stock market and is starting from scratch with $15,000 in credit card debt, a $36,000 auto loan, and $6.99 in his checking account. He recognizes his previous behavior as irrational and acknowledges that he felt invincible during his days as a trader.