Ray in Metarie, Louisiana, was compelled to write me after reading my column about Warren Buffett early in June.

   I had written about Buffett’s timeless advice to buy “on the assumption that they could close the market the next day and not reopen it for five years,” and to be willing to take that even further, as Buffett did when he suggested only buying something “that you’d be perfectly happy to hold if the market shut down for 10 years.” 

   Ray felt compelled to tell me that when it comes to the stock market, he had outdone Buffet. While Buffett’s recent performance has been lackluster – his Berkshire Hathaway Corp. suffered a $50 billion first-quarter loss – Ray had profited by trading in the same airline stocks that the Oracle of Omaha dropped during the first quarter.

   Ray is a 25-year-old restaurant worker who “has always been interested in stocks” but who only began investing in them after moving back into his parents’ home to reduce his living expenses, as he has been unemployed for most of the coronavirus crisis. He has been investing small amounts, but claims to be seeing big profits, supposedly doubling his money in American Airlines in early June, and making big bucks on other airline and cruise line stocks as he played out their bumpy June rides.

   There has been a lot of talk in recent weeks about hordes of day-trading millennials – bored with the pandemic and the lack of sports to be the basis for fantasy betting – now playing the stock market.

   Their successes – and more likely all of the failures that we don’t hear about – make for an interesting cautionary tale for long-term investors who are sometimes intrigued with the idea of the occasional fast buck and quick-trade profit.


   Predictably, the new traders’ results are mixed; heck, that’s how it is with the pros so the amateurs have no reason to expect better.

   There have been sad cases, like Alex Kearns, a 20-year-old student who committed suicide after confusion over a massive negative balance in his trading account, but also successes.

   Ray claims to be the latter, and is feeling invincible.

   In calling out Buffett, however, he’s calling down the thunder, talking smack to the ultimate long-term investor by claiming to be the new breed.

   In fact, he’s an old breed, the confused, overconfident trading newbie.

   The only one who truly thinks that Ray is investing by moving quickly in and out of stocks is Ray himself. He uses the term as if it means he is not gambling with his money.


   The market tends to make fools of anyone with the hubris to think they are gifted stock pickers, particularly market novices.

    “Markets are largely unpredictable over the near term, but far more predictable when we expand our lens to a multi-year horizon,” said Jonathan Treussard, head of product management at Research Affiliates in a recent interview on “Money Life with Chuck Jaffe.”

   The issue for many investors – even guys like Ray – is that they believe they are using long-term thinking, no matter how long they intend to invest,

   Ray, for example, noted how cheap the airlines and cruise ship companies had become. Treussard confirmed the idea that “when assets are cheap now, their long-term prospects are inarguably better.”

   The problem – where the long-term and short-term mindsets truly diverge – is with what happens next.

   Ray wants to buy cheap, let the market reward his audacity quickly and cash out, and repeat that ride until and unless he can find something he considers a better opportunity. He’s not concerned with where airlines might be priced five years from now if he can chalk up a profit in five days.


   The lower buy-in prices – and the upward pressure and volatility – amount to what can be considered a “short-term positive.” He’s “buying the dips,” even though his holding period is much shorter than most people who claim to do that.

   Most stock stories right now have short- and long-term good news; the other side of those trades would be perceived bad news.

   Ray’s quick-profit thinking is countered by the “short-term negative” narrative, which sounds something like “Sure, those stocks are cheap, but until the travel industry recovers, those stocks won’t look good again.” That’s enough reason to dump them now, even if you believe that there could be long-term upside.

   “Long-term positive” on those travel-related stocks would be how they provide an essential service [airlines] or how they were built for a pandemic to go 18 months to two years with no revenues {cruise lines], which positions them for a full recovery over time.

   The “long-term negative” thinking holds that even when the pandemic ends, travel won’t return to pre-Covid levels for years, if ever, meaning that the companies could survive the short-term disaster but bleed long after a “return to normal.”

   The problem for investors is that they have the right motives, but apply the wrong thinking.


   Ray claims to be an investor and uses long-term reasoning to buy airlines, but then sells them in short order because of current events.

   By comparison, Buffett didn’t get out of airlines based on the short-term negative; instead he was out based on the long-term downside, the fact that businesses that he once admired appear to be fundamentally changed for the foreseeable future. While the move may seem short-term – getting out in the middle of the trouble – the thinking wasn’t.

   Ray’s mistake in sizing up Buffett was in believing that being a long-term investor means ignoring the here and now. Instead, it means ignoring impulsive, short-term thinking.

   The other significant mistake would be thinking that a few good trades make you some kind of market genius. Long-term, that’s going to prove to be wrong, as Ray and a lot of his peers are likely to find out the hard way.


   Chuck Jaffe is a nationally syndicated financial columnist and the host of “Money Life with Chuck Jaffe.” You can reach him at itschuckjaffe@gmail.com and tune in at moneylifeshow.com.

Copyright, 2020, J Features