Stop me if you've heard this one before. After working hard to learn about the stock market, a Wall Street-bound whiz kid amasses the kind of fortune to place him firmly among the richest of the rich. It's just like a Horatio Alger story ... that is, if "hard work" means trading the stock market during your lunch breaks, anyway.
The newest version of this story comes courtesy of New York magazine's Jessica Pressler. Coming in at No. 12 in the magazine's "Reasons to love New York, 10th Edition" was Pressler's article about a Stuyvesant High School senior making untold wealth trading on the stock market. The piece mentions $72 million as a rumor; subsequent articles from the New York Post and MarketWatch, among others, focused on that figure. The protagonist is young, "cherubic" Mohammed Islam, who was interviewed alongside his apparent consiglieres at a swanky restaurant.
According to the article, Islam fit Pressler in between meetings with a real-estate agent, a lawyer, and a hedge fund guy. Sipping on freshly squeezed apple juice, the young group tells Pressler of their goals for world domination.
You can probably see where this is heading. Within a few days, Islam canceled a CNBC appearance and ultimately acknowledged to the New York Observer that the entire tale was false. New York Magazine subsequently added a lengthy mea culpa for poor fact-checking to the original article.
While many mistakes were made and can be discussed ad nauseam, this story provides important lessons to the Motley Fool's audience: long-term investors.
Upon reading the story, I (like many others) was skeptical of both the information and fact-checking process. First, there was very little information about Islam's actual trades, and the gains were simply staggering. For perspective, even if Islam started with $100,000, he would have to average an annualized return of nearly 800% over the last three years to come to $72 million.
In the process of researching the high schooler I came across a cached profile on a website for the Leaders Investment Club, where I learned more about his initial strategy. Per his bio: "Initially he started trading in penny stocks following the pump and dump strategy." That's not a strategy, that's a crime!
I reached out to Pressler via email asking if she could confirm the story and provide more specifics regarding his investment strategy, along with perhaps a few trade details. She responded, politely, by stating she had confirmed his "income" (odd term, considering this should have been called capital gains) was in the "high eight figures," then questioned my reason for asking. As far as his trading strategy goes, she politely referred me to Google.
I responded by showing her the Leaders Investment Club profile and questioning many assertions it possessed. Mr Islam boasted of trading esoteric investments such as derivatives, futures, and commodities as a minor, clearly advanced strategies for a custodial account. In addition, I questioned her use of the term "income" rather than capital gains. She never responded, but later on Twitter she noted she "first reported the story as false." Subsequently, she set her Twitter settings to private.
Why this matters to long-term investors
Background aside, for long-term investors this story isn't about Pressler nor Mohammed Islam. I actually feel bad for Islam as I look back on the embellishments of my formative years. The difference between then and now is that a rumor can grow to epic proportions through Twitter or Facebook. And, apparently, now those playground rumors can be picked up by a click-hungry media with inadequate fact-checking: He could afford a $400 meal, so he must be a millionaire, right?
It's no wonder most mom and pop investors underperform the market. Goaded by the financial media with constant reports of overnight millionaires, eye-popping single-day gains, and 1,000+% returns, many investors feel they are "missing out" by using long-term, fundamental investing. As a former stockbroker, one of the main questions I used to field was "what is the biggest secret to the stock market?" My answer wasn't well accepted, but did have the luxury of being true: time.
The fact many Americans think there is a secret to investing is a harsh indictment of the media and financial industry overall. Personally, I think all of us in the media can do a better job reporting on financial matters.