The maturity of a new category of wild investors



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Through James giancotti, CEO and Co-Founder of Oddup, a leading international provider of data-driven information for startup and cryptocurrency ecosystems.

Even as the darkest days of the pandemic raged in January 2021, everyone could talk about what an army of keyboard traders on Reddit was doing to fund major short sellers and Gamestop’s share price. , which had risen from $ 17 just after the New Year to almost $ 350 on Jan.27 (a 2000% increase).

Dubbed the “short squeeze,” an army of day traders on Reddit’s WallStreetBets (WSB) subreddit carried out a coordinated attack on short selling hedge funds that was akin to a hostile takeover, or version of the financial industry of a coup. Since the short period of compression, nearly a year, WSB darlings from GameStop to AMC to Nokia have fallen and (mostly) increased, but the movement’s most enduring legacy was to demonstrate the new way financial information was gathered, shared and harnessed in a post-social media, post-Bitcoin, soon post-pandemic world.

If you can’t beat them, join them: WSB, social intelligence and “influencers”

While the impact of something like WSB and what this group has been able to accomplish with the short squeeze should not be underestimated, the fundamentals of financial due diligence, research and investment have not. exchange. Markers like a company’s quarterly reports, P / E debt, and available cash always say as much about that company’s long-term prospects and viability, but social media cannot be ignored in its current role. driving the markets, changing the fortunes of entire companies or industries, sometimes in seconds.

Nonetheless, when it comes to the growing influence of social media not only in society but in the markets, with my apologies to Arthur Miller, you have to be careful. Social media has its own energy that has massive ramifications for gauging not only the perceived value of an investment at any given time, but now its overall value, period.

If 2021 was when the motley group of rebels offered “new hope” to the emerging class of predominantly millennial investors interested in crypto, memes and “stonks,” then maybe 2022 will be something like “the empire strikes back ”, but in a way the institutional finance class finds a way to reach these“ always on ”investors instead of beating them. After all, no one wants to be known as the next Melvin Capital, who lost billions of dollars and had to be rescued by other hedge funds. The online “mad fringe” of investing and trading must be respected, and institutional finance must avoid putting a target on its own back.

One way for mainstream finance to become a bigger and more inclusive part of this online conversation is to take advantage of its access to outsized resources to start analyzing what and where financial information is shared publicly on social media. He can then better orient these conversations towards their own goals and interests without appearing manipulative.

It appears to be happening already. The role of the social media financial influencer is now a thing that exists. Social media is just another portal to financial intelligence, neither less nor more important than financial due diligence tools like the Bloomberg Terminal. As with everything that is happening in this new wild west of online financial discussion, businesses need to be careful not to engage with figures who might have them. clash with regulatory bodies in their jurisdiction although.

New investors and new asset classes

One more reason for institutional finance to stay on top of the social media conversation is how less risk averse and more “volatile” the millennial class of investors has become, a large number of investment dollars could vary significantly in a very short time. It’s not just a subreddit switching its participatory support from Gamestop to AMC week to week. The young millennial investor is shifting his disposable income from one asset class to another week to week and month to month in an effort to maximize profits and return.

This could be best illustrated by the millennial interest and mastery of crypto as an investment. According to data from The Motley Fool, 40% of 18-40-year-old equity investors own a cryptocurrency. This number grows even more when measuring young Gen Z investors, so as those Gen Z investors start to form the majority throughout the decade, crypto will only seem much more like an acceptable option. and even somewhat stable. Crypto is increasingly becoming an increasingly diverse industry, with all kinds of levels of risk, allowing young investors to park their money in a vehicle without having to deal with the overhead costs associated with traditional finance and brokerage. .

The gap between stock and cryptocurrency ownership is narrowing among millennial investors, and the weak performance of traditional savings accounts will continue to be unattractive, especially if inflation continues, as this is expected until the first half of 2022. There might even be a time when traditional stocks and bonds are seen as more problematic than they are worth, especially in times of inflation like the current one, where the return almost matches the rate of inflation, totally canceling out its value even as a stable option. As the investor class ages, many will trade the stability of these essentially net zero returns for something with a slightly higher risk profile, but with much higher potential for return.

Like any other business, institutional finance cannot lock itself into a model that was true ten or five years ago, or even yesterday, but which simply isn’t true today. Those who take the lessons of 2021 to heart will be best prepared for 2022 and the rest of the decade to come.

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