Thanks to various factors that make trading much more accessible, retail investors say they are here for the long run; experts tell us why.
There has been an upswing in stock buying over the past few years, but COVID-19 led to a rally when it comes to retail investment.
Over the past year, retail investors bought over $400 billion of stocks. While this activity has been gaining ground for some time now, it appeared to get serious traction over the past year.
Industry experts believe that the opening of non-traditional channels has encouraged more people to consider trading and investment. To illustrate, fee-free trading through investment apps like Robinhood has drawn in people who would not normally get into the practice of stock buying and trading.
Moreover, aggressive promotion of these apps and other investment venues on social media has also played in pushing stock activity upward. Open access to relevant market data also helped.
It would be easy to say that this is a temporary thing, a fad that will eventually fizzle out once retail investors realize the risks involved. But industry experts feel that this isn’t just another trend that will ultimately go away.
“We’ve been seeing thousands of people who want to know how the markets work, how they can participate, and how the systems can be improved,” opines stock market expert David Lauer. Throughout 2020, Lauer says that his interactions with retail investors have increased and cites the ongoing pandemic as one reason why the number of participating day traders has shot up exponentially.
Better Information and Stronger Connections
But this isn’t the first time that retail investors have joined the fray in record numbers. When the dot-com boom was in full sway in the ‘90s, everyone seemed to want in on the action.
ASYMmetric ETFs founder Darren Schuringa recalls that many of those avidly talking about which company’s stocks were a good buy weren’t even Silicon Valley insiders or Wall Street execs. They were cab drivers and blue-collar workers who saw it as an opportunity to cash in on a potential growth sector.
For his part, Tuttle Capital Management CEO Matt Tuttle sees a similar situation happening today. However, this time, retail investors are better informed and equipped – so much so that they practically have the same buying clout as many institutional investors. Tuttle credits this to better and more open access to relevant information and provisions for fast and free trading. He also expresses that such investors are not bound to give up regardless of potential economic downturns.
“They’re connected, [and now] they have some power,” he says of many retail investors who jumped onto the bandwagon in January of this year when hundreds of people on Reddit caused shares of consumer electronics retailer GameStop to soar to record highs.
This was an event that kickstarted a trend for meme shares and subsequently pushed share prices for companies like AMC Entertainment higher. “People who have power don’t give it up, at least not willingly,” Tuttle adds.