Story of the high school day trader making $72 million fails the smell test
Note: Yahoo published this story prior to the revelation that Mohammed Islam and his friend Damir Tulemaganbetov had lied to Jessica Pressler and NY Magazine. In an interview with the NY Observer last night the pair admitted that they had actually only practiced in a stimulated trading environment and had made $0 instead of the rumored $72 million. Yahoo reached out to Jessica Pressler regarding her interview, she claims that she saw a bank account in Mohammed Islam's name that held money in the high eight figures and that she made it very clear in her article that the $72 million number was a rumor. Though this article and video were originally published prior to any revelation, our team was able to deduce that this was a hoax from the get go.
Based on his press clippings 17-year-old high school senior Mohammed "Mo" Islam has already achieved a level of market mastery beyond most investor’s wildest dreams. The question is whether or not there's even a grain of truth behind the growing legend.
In a story hitting newsstands today New York Magazine claims the 12th best of its ‘Reasons to Love New York’ is "Because a Stuyvesant Senior Made $72 Million Trading Stocks on His Lunch Break". The senior is Islam. Though light on specifics writer Jessica Pressler says Islam embraced the markets after first blowing up trading penny stocks when he was just 9 years old.
"It was a while before (Islam) was ready to try again" Pressler writes. "In the meantime, he became a scholar of modern finance, studying up on hedge fund managers."
Apparently Islam studied the right managers during his period of reflection. Though Mo won't confirm the $72 million in profit he says he has a net worth "in the high 8-figures" and expects to make a billion in the next year. He and his friends have plans to start a hedge fund after Mo turns 18 in June and is old enough to earn a broker dealer license. Mo says he already has a BMW, an apartment in Manhattan and a hedge fund manager who "basically wants to give us $150 million."
The natural initial response to Mo's story is skepticism and maybe even a little jealousy. Once you run the numbers those feelings morph into incredulity and disgust; not just for this kid and his friends but any publication that would print these kind of claims at face value. Viewed objectively boasts could charitably be assumed to be a bunch of kids letting braggadocio get the better of them. Less generously, Islam and his friends might be thought to be laying the groundwork for some sort of scam. Of all the possible explanations for Mo Islam's brief rise and fall, from click-baiting magazines to lying teenagers the only claim that's literally impossible to believe is that a high school kid made $72 million from scratch by day trading during his lunch hour.
The math simply doesn't work.
Mo's origin story is that he started trading penny stocks when he was nine. Predictably, he blew up, losing "thousands" of money he'd saved up tutoring. There's no mention of angle investors giving him seed money to start trading at lunch. The legend of Mo is that he started from a very low base then scrimped and traded his way into the pantheon of investors.
Assume Mo started investing with $1,000 when he was 10. To accumulate $72 million strictly through his trading acumen he would need to average over 500% annualized returns over the last 7 years. That means he would have had to double his money every one to two months for 7 years straight without ever being forced out of business by a drawdown. It's also a calculation that assumes no capital gains taxes or commissions.
In other words, Mo wouldn't have to be one of the few blessed souls with market skills like Warren Buffett or Paul Tudor Jones. To net 500% per year for 7 straight years Mo would have to be the greatest trader in history. Ever. By far. No such creature has ever existed in financial markets and it's not for lack of trying.
Mohammed Islam and his buddies were essentially claiming Mo had superhuman skills. This isn't SI's famous April Fool's joke about a Mets prospect with a 168 MPH fastball. In terms of relative performance Islam was claiming he could throw a ball twice the speed of sound. You didn't need to be an economist to smell a rat. Common sense was sufficient.
Charles Ponzi and Bernie Madoff only promised returns about 1/20th of what Islam said he was generating. Regardless of any "skeptical tone" buried between the lines, NYMag, the NY Post and all the other sites who ran with the story essentially printed a fable as far fetched as Paul Bunyon forming Minnesota's 10,000 Lakes with his massive footsteps as truth. Islam claimed alchemical abilities and publications that should know better ran the story with barely a disclaimer in sight.
The best guess as to motivation would be click baiting. As of Tuesday morning NYMag.com is still running the "Stuyvesant senior made $72 million trading stocks on his lunch break" headline on its front page.
Their motivations are obvious. The bigger question is why anyone believed this garbage in the first place. What is it about money that makes people so rock stupid and gullible? In the attached clip Mike Santoli says this is the type of story that tends to crop up during aging bull markets.
"This is a late bull market kind of story because we think it’s that easy, or at least potentially can be that easy for some people,” he says. “Even as we talk about how hedge funds as a group can’t beat the market, somehow this kid in his bedroom has some kind of scheme and has turned this kind of money. It just doesn’t work."
We've reached out to Islam for comment but have yet to hear back as of this writing.
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