Trend Of The Week: Young Money

As the internet suddenly became dominated with headlines about GameStop and Reddit last week, many of us found ourselves scrambling to understand what exactly was happening. Yet it was Wall Street’s so-called pros who were especially blindsided. Taylor Lorenz, a reporter who covers internet culture for The New York Times, describes the Reddit investment subculture of r/Wallstreetbets as a young cohort of day traders, some of them even still in their teens, who swap tips, brag about their earnings, and go all-out for viral moments. Their discussion threads often strike an irreverent tone and are laden with plenty of hype, rocket ship emojis, and ‘non-stop memes.’ Over the past few weeks, members of this virtual group latched onto GameStop, a somewhat nostalgic video game retailer. When the Redditors began to catch wind that several hedge funds were attempting to ‘short’ the GameStop stock, galvanized by the prospect of making the hedge funds bleed, they rallied together to see just how high they could raise its share price. What followed was one of the most drastic stock price swings in history. Some participants made upwards of 5,000% return on their investment, while many in the community are still urging people not to sell their shares and ‘hold the line’. People have begun to call the whole affair a financial ‘rebellion.’ Many of those involved appear to be motivated, not only by individual financial gain, but by sending a powerful message to the establishment.

At the center of all this is Robinhood, an investment app with a mission to democratize investing. Robinhood looks more like a videogame than a bunch of clunky spreadsheets. It makes it convenient for users to invest small sums of money and purchase fractions of stocks. Despite their controversial role in the GameStop frenzy last week—or perhaps because of it—new signups to their service are on the rise. On Friday alone, the app received more than 300,000 downloads, over 3 million throughout the month of January. Compare that to Charles Schwab, which received around 75,000. Robinhood is symbolic of the new style of investing Gen-Z and millennials are embracing. However, they have company in this space. Digital banks, like Revolut, have been expanding investment features, gaining a reputation with cryptocurrencies in particular. Cash App, a US based platform, has a similar offering and an alternative, youthful image.

For many young people, who have harbored distrust for traditional financial institutions since the Great Recession, these brands look and talk more like them, conveying a healthy distance from ‘the man.’ They are lowering the guardrails and inviting in the next generation in, encouraging them to start small and learn the ropes as they go. This is appealing for people stuck at home over the pandemic, who are looking to divert leisure spending that would usually go elsewhere—treating investing as a new hobby. As we discussed in a previous Trend of the Week article, Financial Wellness, young people are also big on cultivating peer-to-peer financial literacy. Today, you can find a host of investment influencers on TikTok (#stocktok), who break down personal strategies and demystify the insider lingo. Young investors are also increasingly motivated by making socially responsible investments. According to 2017 research from Morgan Stanley, 86% of millennials are interested in sustainable investing. They are twice as likely as the average investing population to invest in companies with environmental or social impact missions. Then, there are platforms like Ellevest, which is specifically aimed at helping women break into the male-dominated world of investing.

The ongoing situation with Gamestop is meaningful for several reasons. The world is watching to see if and how financial regulators might step in—to see if the Redditors can stand their ground. In the meantime, it is another reminder for all of us not to underestimate the organizing power of social media. This is a defining moment that is expected to get more young people interested in playing the stock market. They are changing the playing field of investing and they aren’t looking back.

 

Sources:
https://www.nytimes.com/2021/02/01/podcasts/the-daily/gamestop-stock-robinhood-reddit.html
https://www.cnbc.com/2021/02/01/robinhood-appears-to-be-benefitting-from-the-trading-controversy-seeing-record-app-downloads.html
https://www.morganstanley.com/access/why-millennial-investors-are-different