The only constant in life is change. That goes double for markets: Investing, just like everything else, evolves.
The latest evolution has, for some folks, turned investing into something like a video game...
Armed with a smart phone and their trading app, tons of new investors are taking the markets by storm. No kidding - it's not a bit unusual these days for friends of mine to whip out their phones and buy shares of stocks that they've never heard from outside of a mention on Twitter, or some other 24/7 social media feed.
I hate to say, "When I was your age," but when I was growing up, investors would thoroughly research the fundamentals and technicals of a stock before moving hard-earned money into it. More recently, they'd at least plug the ticker into a search engine to get some insight to what they're buying.
Nowadays, though, it seems that if "RealK1ttyL0ver77" posts on their Twitter account to buy shares of "Kitten Mittens Holdings Ltd." because they're "real dope," people buy big, and before you know it, Kitten Mittens jumps 700%.
It's all about what the crowd is doing, and that has major downside.
A real-life example would be Hertz Global. Investors, who looked at a sub-$1 stock and saw a bargain, piled in by the busload. The stock rallied 700% even as its (inept) management team was dotting the i's and crossing the t's on the bankruptcy filing!
Sometimes there are real bargains... and sometimes cheap is cheap for a good reason - but that's a truism that seems to have been forgotten for the moment.
Now, don't get me wrong: I'm not knocking new trading apps or their new legions of users. I think it's fantastic that a new generation of investors - who, you could argue, have been clobbered by both the 2008 financial and the 2020 coronavirus crashes - are accessing the massive opportunities the markets provide.
More investors in the market means that there is the opportunity for more robust, fairer pricing.
More dynamic markets also means that more ideas are going to flow through the daily narrative. Simply put, crowdsharing of investment ideas means that you're more, not less, likely to find an investment that fits your risk and objective profile.
I'm a hardcore optimist. I've found ways to harness this huge momentum shift for everyone reading today, whether you're a new investor or an old hand.
You're going to be able to make better decisions on platforms like Robinhood...
And after today, you'll also know how to leverage the crowd's activity for maximum profits...