The mirage of winning on the stock market: Almost 90% of speculators in Romania lost money

The mirage of easy profit in the stock market is an extremely tempting vice, which comes against the background of a precarious level of financial education.

Romania is in 123rd place out of 143 countries globally, respectively in the last position in the European Union (EU) in terms of the degree of financial education, according to an analysis carried out by a consulting company, writes Agerpres.

According to Selective Capital data, the period 2020-2021 represented a favorable context for investments on the capital market, and most of the speculators in Romania were caught on the wrong foot, almost 90% of them recording losses due to the lack of financial education and insufficient knowledge of the field.

“The mirage of easy profit on the stock market is an extremely tempting vice and it comes against the background of a predilection caused by the precarious level of financial education. When the market is on the rise, the attention moves from the characteristics of the financial product and their analysis to a single indicator: the price. An investment strategy in 2020-2021 was to buy the dip. This strategy no longer works in 2022. Many turned their attention to the capital market, but skipped important steps in financial education, and amateur speculators lose in a proportion of 60%, 70% and even 90%, because they make the fundamental mistake of trading without having a well-defined plan”, said Şerban Florea, founder of Selective Capital, according to a statement.

The data of the Romanian Banks Association (ARB), cited in the press release, reveal the fact that Romania is in 123rd place out of 143 countries, globally, and in the last place in the EU in terms of the degree of financial education. Thus, only 22% of the population has solid information in this regard, while the degree of financial intermediation reaches 26.6%, the lowest in Europe, more than three times below the European average.

“One of the difficulties of financial literacy in Romania is related to the absence of pedagogical staff who have the necessary training. The first stage of financial education consists in establishing a budget and organizing finances into assets and liabilities. Once these notions are mastered and a spending discipline in a stable framework, we can talk about the second stage: saving. After the emergency fund and the safety fund of 6-12 months (according to preference) are established, only then can we move on to the third stage , that of investments. The favorable conditions on the stock exchanges, the excess liquidity in the market and the constant increases in asset prices at the global level have created an “irrational exuberance”, an exuberance that led investors not to take risks into account during 2020 -2021. However, inflation, difficulties in global supply chains and the collapse of asset and stock prices have already begun to creates panic, especially in the perspective of a recession whose extent cannot yet be anticipated”, explained the consultant.

He mentioned that the excess liquidity of 2020-2021, generated in the pandemic, produced the “explosion” of alternative instruments such as SPACs (blank checks for “innovative” ideas), cryptocurrencies and many other high-risk assets. “After only one year, the stock market value of these risky assets dropped by 80%-90%,” added Florea.

“Investors interested in trading on the capital markets prefer foreign stock exchanges due to access to information and low transaction costs, while the domestic stock exchange has high costs for investors. However, the listing of several companies would revive investors’ interest in the Romanian capital market, in despite the high commissions applied to transactions. At the end of 2021, the number of investors on the Bucharest Stock Exchange was almost 82,000, up 24% compared to the end of 2020, according to data from the Investor Compensation Fund. This year, the number of investors increased steep and approached the level of 120,000 at the end of the first semester”, according to the quoted source.