Editor's note: Amateur investors are mismanaging their money – and it won't end well...

Last year's "meme stock" mania drew a wave of newcomers to the market... with plenty of trading strategies and little experience between them. Many of these traders are sitting on gains today. But for every "get rich quick" tale, there's a story about somebody who got wiped out fast...

In short, Stansberry Research's Director of Research Matt Weinschenk says investor greed is pushing people to risk it all in the markets – taking on too much leverage and making uneducated bets on the hottest stock or cryptocurrency. And this pattern won't stop anytime soon...

In today's Masters Series, originally from the December 13, 2021 Digest, Matt shares what went wrong in the world of finance... how investing became a popular "game" for everyday people... and how you can avoid making the same mistakes as rookie day traders...

How FinTok Broke Finance... Again

By Matt Weinschenk, director of research, Stansberry Research

We had a shot to fix finance... But we missed it.

Instead, we got this... a 45-second video titled "An Average Monday of Any Stock Trader 💹 🏅."

Here's how the day goes...

You begin the morning doing a little work... staring at four trading screens with your feet up. Then, you choose whether to drive your Ferrari or your Bentley to the beach club, followed by a cruise on a yacht with friends.

Later in the day, you do some watch shopping, make a couple TikTok videos, then have dinner – served by your personal butler – by the pool.

This is one of thousands of similar videos you can find on "FinTok" – a community that has sprung up on the social media site TikTok, offering tips and tricks to get rich quick...

Most of FinTok is hype. It shows clips of kids who look 17 years old standing in front of digital backgrounds of six trading screens, acting as if it's their real work environment. Then they go "supercar" shopping.

Others share photos of themselves on private jets... which are likely taken on studio sets that you can rent for Instagram photoshoots.

When the FinTok videos do discuss finance, the facts are dead wrong...

One famous FinToker revealed his system in a video. Standing next to his wife or girlfriend, he explained...

Here's my strategy in a nutshell. I see a stock going up, and I buy. And I just watch it until it stops going up, and then I sell it. And I do that over and over, and it pays for our whole lifestyle.

Thanks for the tip.

Another has built a following claiming that maxing out a 401(k) is the dumbest thing you can do with your money.

I'm a professional equity analyst. My day involves a lot more spreadsheets than these FinTok jockeys seem to deal with. And as I said, we almost fixed finance in America... However, this is where we ended up.

Before FinTok, Wall Street was the villain...

Wall Street has long been criticized as a scheme for turning ordinary people's money into investment bankers' wealth. You may have heard the anecdote that starts Fred Schwed's 1940 book subtitled A Good Hard Look at Wall Street...

An out-of-town visitor was being shown the wonders of the New York financial district. When the party arrived at the Battery, one of his guides indicated some handsome ships riding at anchor.

He said, "Look, those are the bankers' and brokers' yachts."

"Where are the customers' yachts?" asked the naive visitor.

And Wall Street partly deserved this image. For decades, we saw individual investors paying 2% and 3% annually on the amount of their money their brokers held under management... plus front-end loads (or payments) for mutual funds that lagged the markets.

We saw brokerage commissions of more than $50 per trade and demands to trade round lots of 100 shares... We saw complex financial instruments designed to hide fees from confused customers.

But starting in the mid-1990s, we saw a democratization of investing. That's when 401(k)s became mainstream, allowing savers to control their own retirement accounts... Online discount brokers cut commissions to $10 or less... Internet sites began to provide instant and trustworthy financial data.

That wave inspired an army of day traders who drove the dot-com boom. But like today's FinTokers, they got intoxicated by easy money. The bubble burst... And the traders, for the most part, went away.

Following that bubble, index funds led to the next wave that empowered everyday investors. These funds roughly tracked the market's returns for drastically lower fees. From 2000 to 2010, the assets in index funds more than quadrupled... and then quadrupled again from 2010 to 2020.

That meant no more fees for underperformance or high front-end loads on mutual funds... And with a simple exchange-traded fund ("ETF") portfolio, investors didn't need to pay expensive advisers.

But it turns out, folks aren't satisfied with just "average" returns. While index funds are still popular, people are increasingly getting into active investing.

That coincides with efforts from financial technology ("fintech") companies to democratize finance even more... Led by Robinhood and other brokerages, trading commissions have been cut to zero, and margin lending is widely available.

It seemed an admirable goal. But it turned investing into a game. And this "gamification" of trading led people to overtrade.

Then, the pandemic kept people locked at home with plenty of time – and money, courtesy of COVID-19 stimulus checks – to play the market... And play they did.

Worse, cryptos and non-fungible tokens ("NFTs") exploded... Today, more and more people feel that financial speculation is the way to get rich, because "everybody's doing it."

All this together has led to an entire class of people who are under-researching, overtrading, and winning and losing vast sums of money.

Alongside the FinTok "stars" showing off rented wealth, you can watch videos of blowups... screenshots of accounts that lost six figures in a day.

We followed one FinToker who posted a catastrophic tale over several months. He quit his job and put all his money ‒ all his savings and IRAs ‒ into bitcoin... (I'd argue that he could have kept his job and still bought bitcoin, but let's not go there.)

Bitcoin fell, and he took a big loss. He started using trading coaches he discovered on social media. They suggested using leverage to earn back his losses. But leverage can work against you, even if an asset rises. Although bitcoin is up over the last year, he got wiped out.

He moved back in with his father at age 45 and got a job as a waiter. And you can find many sad tales out there like this one.

America broke free of Wall Street's fees... But it left behind the level-headed guidance those fees brought with them.

So who should manage your money in the 2020s?

The answer is somewhere between Wall Street's exorbitant fees and the hubris of a 20-year-old whose advice is to sell when the stock stops going up.

But there is a better way...

If you combine the tools of modern finance – low commissions, abundant information, and low-cost ETFs – and pair them with solid, independent research... you have found the secret sauce of smart, self-directed investing.

And I don't think I need to explain why you shouldn't trust FinTok...

Good investing,

Matt Weinschenk

Editor's note: Recently, Matt and Stansberry Research senior partners Steve Sjuggerud and Dr. David "Doc" Eifrig sat down to reveal the top money move they recommend in 2022 – using an approach that has crushed the S&P 500 for five years – and discuss the market's next move...

If you're wondering about inflation... the "Melt Up"... bitcoin... or the possibility of a market crash... be sure to watch their broadcast while it's still available. Plus, you'll learn the names and ticker symbols of their No. 1 stock picks for the year. Watch the free replay here.