Tom Sosnoff of tastytrade: “Learn how to trade”

I believe strongly in an efficient market theory, which suggests that the markets already trade based on what everyone already knows. And since everyone thinks alike and watches the same movie, I would not touch technology or health/biotech for the next decade. I prefer the beaten-down sectors like finance and energy. As a part of my […]

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I believe strongly in an efficient market theory, which suggests that the markets already trade based on what everyone already knows. And since everyone thinks alike and watches the same movie, I would not touch technology or health/biotech for the next decade. I prefer the beaten-down sectors like finance and energy.

As a part of my series about “Investing During The Pandemic”, I had the pleasure of interviewing Tom Sosnoff.

Tom Sosnoff is a recognized online brokerage innovator and sought-after financial educator. Tom is a true visionary and serial entrepreneur who co-founded thinkorswim in 1999, tastytrade in 2011, tastyworks in 2017, played an instrumental role in the launch of Luckbox Magazine in 2019, and in 2020 he created the first new futures exchange in 20 years, The Small Exchange. Leveraging over 20 years of experience as a CBOE market maker, Tom pursued a vision to edutain self-directed investors in trading and to build superior software platforms and brokerage firms that specialize in complex financial strategies. His efforts ultimately changed the way these these instruments are traded and how digital financial media is produced and consumed. Currently, Tom is the host of tastytrade Live and continues to drive innovation and know-how to the do-it-yourself investor.

Tom has been named to Techweek’s Tech 100 list, Crain’s Chicago’s Tech 50, and has spoken at over 500 events across the globe. Tom received the Ernst & Young Entrepreneur of the Year Award and has been featured by prominent publications such as WSJ, IBD, Chicago Tribune, Crain’s Chicago, Traders Magazine, and Barron’s.

Thank you for doing this with us! Before we dig in, our readers would like to learn a bit more about you. Can you tell us the “backstory” about what brought you to the finance industry?

When I graduated from college it was at the end of an ugly recession. I wanted to work in international politics, but my first (and only) job offer came from Drexel Burnham, so I took it. Now f. Forty years later, I’m still here in the world of finance.

Can you share with our readers the most interesting or amusing story that occurred to you in your career so far? Can you share the lesson or take away you took out of that story?

Some of the most interesting thing(s) that have happened to me over the years is that most of my crazy ideas worked. We built two billion-dollar businesses with tastytrade and thinkorswim, and that is pretty cool. But one time, we wanted to get long physical gold, so we bought a gold mine in Mali which was a b. Big mistake. Buying it was easy. Mining it was impossible, and we lost everything. Lesson learned.

Are you working on any exciting new projects now? How do you think that will help people?

I continue to focus on getting people to engage in finance. It’s a never-ending challenge, but right now, I am working on building the first new futures exchange in America, the small exchange. We are also launching a new digital asset business, and we are growing our financial network, tastytrade, to attract more viewers hopefully than CNBC and Bloomberg hopefully.

None of us are able to achieve success without some help along the way. Is there a particular person who you are grateful towards who helped get you to where you are? Can you share a story about that?

There is no specific person, but there are some superstars I admire. I am a huge Michael Jordan fan because of his competitiveness, and I have followed the career of Howard Stern for over three decades. I love his act and his longevity.

Let’s shift a bit to what is happening today in the broader world. Many people have become anxious from the dramatic jolts of the news cycle. The fears related to the coronavirus pandemic have understandably heightened a sense of uncertainty and loneliness. From your experience, what are a few ideas that we can use to effectively offer support to our families and loved ones who are feeling anxious? Can you explain?

You must turn off the news. Why allow people to influence your thinking and your emotions? Fear and uncertainty are mean-reverting math equations that need to be sold. Every time someone tries to influence your thoughts, shut them down, and do your own thing. Fear is self-inflicted poison.

Ok. Thanks for all that. Let’s now jump to the main core of our interview. As you know the stock market and the economy in general have become extremely volatile and uncertain. Many people “dollar cost average” and put aside a monthly sum into a long-term savings plan for retirement, college, or a home purchase. If a loved one or a client came to you and said, “I have been saving and investing 500 dollars every month in an S&P 500 index fund. Over the next few months until the dust settles, should I be doing something else with my money?”, what would you say to them?

First, I would say to them that dollar-cost averaging is no way to invest. Plus, you learn nothing from passively and blindly putting your money into index funds. I am a strong advocate for everyone to move to self-directed investing. I would encourage them to try actively manageing their own money.

Eventually the economy will recover and rebound. Certain sectors, like travel and hospitality might be hurting for a while. But other sectors, like technology and healthcare, might do very well. If someone wanted to prepare today to take advantage of the future recovery, what would you suggest they do?

I believe strongly in an efficient market theory, which suggests that the markets already trade based on what everyone already knows. And since everyone thinks alike and watches the same movie, I would not touch technology or health/biotech for the next decade. I prefer the beaten-down sectors like finance and energy.

Are there sectors that provide exciting and lucrative investment opportunities today, specifically because of the volatility and uncertainty?

Real estate in the inner cities is getting ridiculously cheap, and the stock market’s oversold sectors are good places to look. I also love betting on higher interest rates (short bonds).

Are there alternative investments that you think more people should look more deeply at?

Sure, digital currency assets offer high volatility and low market correlation. They are a robust diversification tool. Digital assets are crypto currencies, and they include a growing list of alternative investment choices. We are now able to offer our clients a diversified, non-correlated asset class through the same HFT technology and front-end platforms they use to trade stocks, options and futures. Imagine being able to buy Bitcoin or Litecoin and construct a single portfolio that includes listed and digital cash assets.

If a person in their thirties and forties came to you today and said that they have 10,000 dollars that they want to put away today for a long term investment what would you advise them to do with it?

Learn how to trade. Trading is not about investing. It is about math, probabilities, strategy, decision making, and brain processing speed. They should learn how to trade.

Ok, thank you! Here is a more general finance question. You are a “finance insider”. If you had to advise your adult child about 5 non intuitive essentials for smart investing what would you say? Can you please give a story or an example for each?

If I had to pick the most intuitive essentials for smart investing, I would say investors should make a decision and stick to it, not be afraid to take risks, stay small, continue to do it (repetition is key), stand-alone, and trust the math.

If you believe that markets are random like I do, then the more times you do something, the closer you get to an expected outcome. For example, if you throw ten pennies in the air you may find eight heads and two tails, in other words or 80% heads. If you throw ten thousand pennies in the air, the results will be very close to 50/50. Strategic trading using probabilistic outcomes works the same way. The more times you do something, the more predictable and the less volatile your returns become. So, if you sell one naked out of the money put, your probability of success may be 80%. If you sell 100 different puts your probability of success will be closer to 80%. If you sell 1000 different puts in separate trades your probability of success will be 80%.

a) make a decision b) take some risk c) stay small d) do it, again and again, e) stand-alone f) trust the math

Can you please give us your favorite “Life Lesson Quote”? Can you share how that was relevant to you in your life?

Always do your own thing, and remember, there is no wisdom in thinking with the crowd. Stand-alone and learn how to make fast decisions because risk-takers always win.

You are a person of enormous influence. If you could inspire a movement that would bring the most amount of good to the greatest amount of people, what would that be? You never know what your idea can trigger. 🙂

CEO’s need to learn how to respond to customer emails. It seems like such a trivial thing, but it is not. Most CEO’s live in a bubble. Eat, drink, and email with your clients. Money, culture, appearance, and vision do not matter nearly as much as anyone thinks. It is all about the emails.

Thank you for the interview. We wish you only continued success!

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