Stocks and The Cityand the rise of retail investing. I can almost hear the shoulders, they are shrugging so hard. Then the answer comes, multipronged. It is a fad that will end badly. It is amateur hour. It is the 2000 dotcom bubble again.
I am a sucker for mansplaining but I have to wonder: when it comes to valuing equities, is it time for a new paradigm? Retail investing is not a passing phase. The brokerage platform Robinhood serves ten million traders and is worth close to $12 billion. Competitor eToro, with more than 15 million registered users, is licensed to enter the US market next year. The social platform WallStreetBets gathers 2.1 million people and StockTwits owns 1.5 million active users. Barstool Sports’ Dave Portnoy tweets about stocks to 1.9 million followers.
It is a mistake to decry the “little guys” as angry nihilists and their trading as senseless. If you did, you would surely be befuddled by the existence and profitability of casinos, lotteries or horse races. Their value is not, or not only, to offer a potentially lucrative bet. Gambling has an intrinsic utility, which is to entertain the participant, and therefore includes a premium above and beyond the expected payoff of the game.
But that’s not all, and here is the revolution: this community has the power to collude. You may use a less controversial term – collaborate, exchange, Tweet or any other made-up verb – it possesses a tool unavailable to, and illegal for, hedge funds and institutional investors: acting as a group. The WallStreetBets traders are not grammatically handicapped emoji abusers with a juvenile sense of humor. Well, individually they might be. But collectively, they are a nuclear weapon. And it shows.
The mob found out they have power and they are angry.
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