"20-Year-Old Robinhood Customer Commits Suicide After Seeing -$730,000 Balance"

[Cigarbutt]

I agree with educating children on finances. But would even go further. Just like you have a driving test before you drive, have a test with basic information about stocks, biases, etc. and only if they pass they should be able to open a trading account for stocks and options. Else they would only be limited to broad index or active funds.

Vinod

This is an excellent idea. While maybe annoying, is there any reason at all it doesnt make sense to mandate an individual with limited investing experience take a brief online tutorial/course prior to being permitted to open a trading account? Doesnt even have to be pass/fail, just a basic intro of "hey this is what you're getting in to".

I think the best argument against it is empirical rather than philosophical -- it wouldn't actually do anything to change people's behavior, but it would allow those who wish to do so to say that appropriate steps were taken and "You were warned.  It's on you."  In short, it seems to be a symbolic act, rather than a real effort to solve a problem.

That being said, my objection could be tested by some type of randomized trial to see if the proposal has any effects.  If it actually does change outcomes in a good way, then I see no reason not to do it.

You might be right.

My thought process is to view it as similar to driving. You can just say people drive the way they want to drive and that self interest should ensure that they would try to minimize accidents. So there is no need for a driving test.

I think that making people aware of basic signs, yield, right of way, double yellow line, etc. they become more likely to follow rules than if they have never even been made to go through that written and a driving test.

I would think that something similar is likely. Just like we do not eliminate drunk driving or reckless driving completely, we could reduce it.

In 1999 I bought two stocks about $1000 each. I think after reading an article on each. :) They went to $6800 before going to nearly zero. I had no idea if I lost money because stock market is a giant gambling machine and I just got the wrong cards, or if there is some approach that I am supposed to follow and did not know about it or something else.

That curiosity led me down the path of my interest in investing. Went through all the books of the investing section of the local library twice over the next couple of years.

Assuming I am not a complete idiot (may not be a safe assumption), many people new to investing might be similar to me and do not really know much about the stock market. By making them aware of very simple investing knowledge they would be less inclined to do what I did.

We are not going to avoid it completely but I would think it would diminish some of errors people make. Just by putting this kind of gate, we can reduce the number of people who get into trouble with single stocks and options.

Imagine you set this kind of test at some threshold that requires some basic numerical literacy and understanding of financial concepts, I think that might say not allow some x% who do not meet that standard from being able to even get into trouble as they would be unable to open an account for individual stocks or options.

Of course, the remaining 100% - x%, might feel like geniuses for passing the test and trade even more recklessly :) so you might end up being right.

Vinod

Investing in policies to protect people from themselves is a difficult and low return undertaking. Example of a natural experiment:

https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3509807

i would also submit that driving has the obvious potential consequence of harming others. Although occasional (and unrestrained) meanderings of the investing crowd may, in the end, cause a lot of harm.

This is a difficult problem and this author, who, because of origin, race and other attributes, was imputed with a qualified objective stance, published a small treaty that shows that not much has really changed in financial markets: It's the perfect place for human flaws and emotions to play out and, perhaps, even worse than prevention is the actual act to reinforce through extend and pretend.

https://www.gwern.net/docs/economics/1688-delavega-confusionofconfusions.pdf

Herd behavior and greed have always been difficult to regulate and the book is unlikely to be popular with the crowd at this point but who cares?