Retail Investors Outperforming the Professionals Since the Pandemic Bottom

Bloomberg Businessweek November 23, 2020 pp24|Finance|”This Market Is for Noobs” “Professional money managers aren’t beating the market.” “The novice trader next door might be”BOTTOMLINE Retail investors are having a remarkable run in 2020, but the stars have all aligned their way.” It takes years-or even decades-to distinguish skill from luck.”



image wsj.com


Read the article for detail.


Data presented


At 12/31/2019 stocks popular with retail traders were pretty much even on return but since after the market hit bottom the popular stocks have pulled way with a 62% increase versus only 12% for the S&P500


Summary of the Article

Why have retail investors beat the professionals and the S&P500 since the market hit bottom late in March? Some ideas. Pros are constrained by past experience, company policy and even “worry about their careers” while for amateurs this is their life, they had lots of time, access to no-cost trades, online investing blogs, gamified investing APPs like Robinhood and “they correctly surmised that a recovery would rescue the companies that bore the brunt of the plunge. They ‘bought low’ and reaped rewords equal to their daring.” Also suggested is they had “a stroke of tremendous fortune.” The noobs took selected stock drops-in-value as opportunity rather than a dark harbinger. The Federal reserve rescues helped all investors as well. And many inspired by news or Robinhood etc. got busy with it as eight million trading accounts were added this year including at perrenial leaders like Charles Schwab-E*Trade-TD Ameritrade and the new sensation Robinhood. These investors previously on the sidelines starting experiencing lots of momentum as “60% of sessions have been positive.” To their credit the new investors poured in money at record rates “17 times the monthly average” in Q4 2019. Some stocks fueling this historic rise were Tesla (240% YTD), Zoom (100% YTD) and Apple (26% YTD) and as a class “420 stocks in the Russell 3000…[were] below $5…[and] have surged an average of 124%” versus those above $5 that returned still a remarkable 74% on average.


Some professionals essentially go along with the old adage “don’t confuse a bull market for intelligence” and wonder if the new investors can sustain their sudden acumen in all markets. Some retail traders, new to investing in this way, disagree with such shading. For example, “Zilla Saldana, 33, who works in public relations, has been trading for only a few months, but she says she hasn’t made a single trade without doing her research.” She comments further, “I wouldn’t say I got lucky…I did research and chose stocks based off of my findings.” Pros rightly follow “knowing to back down isn’t easy”yet in a way the retail investor isn’t constrained by what their peers or managers might think. The pros might hold when the retail buyer might sell. Time will tell.

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