Retail Investors changing he market?8 Dec 2020 12:27
Are retail investors changing the nature of the market?
What do increasing service disruptions on trading platforms like Robinhood and the pandemic market rally have in common? It's a sign of the DIY investing atmosphere. In many ways, the retail investor has become a more powerful collective force than the professional investor, and they simply don't care about the same things as the experts. In fact, individual investors now account for roughly 20% of stock-market activity on average and nearly one-quarter of trades on peak days, according to Joe Mecane, the head of execution services at Citadel Securities (the firm is the leading retail market maker in the U.S.).
Quote from Jim Cramer: The returns of the individual investor have changed the "entire character of the market," and the professionals are no longer the only cohort that matters.
Ever since the dot-com bubble in 2001, every big market move has been framed as "what could go wrong." Conventional wisdom also said stocks could not be trusted as an asset class, and should be traded together as a unit, as they tend to lose their value quickly if things go awry. That theory only grew in popularity after the financial crisis, leading many institutional investors into ETFs or index funds (and the rest into the safety of bonds) instead of picking individual stocks. A new generation of investors, which entered the market after the rise of commission-free trading, is turning that mentality on its head. They're much more upbeat than the older generation and they're doing their own research on platforms like Seeking Alpha, instead of paying attention to the upgrades and downgrades of Wall Street analysts. The retail bros also don't care about traditional parameters of valuation (P/E and P/S ratios) and could always trade out of a stock for free because of commission-free trading.
Mentality of the retail investor: 1) Distrust of index funds (they like stock picking), 2) Rigorously independent (trades based on their own research), 3) Risk taking (buying during the height of the pandemic), 4) ESG investing (believe in environmental sustainability as a business model, not just an ethos - i.e. Tesla).
https://seekingalpha.com/news/3642356-are-retail-investors-changing-nature-of-market
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