Stock Fads of Small Investors

The Economist June 20th 2020 pp65 Buttonwood “The detail on retail” “Look to China-and to history-to understand the new wave of small investors”.

A note not in the Buttonwood article

According to a figure referenced to Bloomberg (See Below), institutional investors in April 2017 owned about 80% of each American stock index leaving about 20% of owner ship to small/retail investors. Based on this 80/20 hard to imagine that the 20 can significantly move any stock having a large volume outstanding. Others, from the 80%, must be reacting to small incremental fluctuations.


Summary of Buttonwood article

The more things change the more they stay the same, in 1923 “the protagonist of ‘Reminiscences of a Stock Operator’ commented ‘There is nothing new on Wall Street. Speculation is as old as the hills”. Recently, given plenty of free time, $0 trades and “A noisy gaggle of social-media and chat-room pundits…” have been “blamed for a lot of strange moves in stock prices” with examples being “grounded airlines, of beached cruise liners and strangest of all, of Hertz, a car-rental firm that has filed for bankruptcy”.

Similarities to the current environment are remembered of the “dotcom mania in the late 1990s…[and]…more recently in China”. In 2015 China, “real returns on bank deposits were negative” and small investors had cash and or credit lines to invest.

2020 differs from the past by-instant access to stock rumors on platforms like Davey Day Trader and Reddit’s r/wallstreetbets and -the ability to rapidly buy and sell stocks and derivatives online. Some of what is observed, with small investors “is a rapid succession of fads: first tech darlings: then bombed-out stocks; then something else”.

Good news. “Academics have puzzled over why more people do not participate in the stock market”. Bad news “even experienced retail investors have a habit of overtrading-to the detriment of returns”. Men subject to “overconfidence and thrill-seeking” churn their portfolios more than women.

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