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My first job on Wall Street wasn't actually on Wall Street, it was on the floor of the Chicago Board Options Exchange (CBOE) – this was back in the early 1980s, just before the start of that historic bull market.
So, yes, I’ve been at this for a while… and yet I’ve never been more excited about the market; I’m excited about the growing number of opportunities I see each and every day. And I’m thrilled about the shot regular investors have at life-changing wealth.
Much of this is due to commission-free mobile app–based investing and trading and moreover, I believe, the ability to buy fractional shares. I actually call it the “Fractional Shares Revolution” because that’s what it is: revolutionary.
This is fueling massive change right now, and for the folks who know what’s what, there’s outrageous profit potential…
Market Barriers Have Fallen Left and Right
Not all that long ago, it wasn’t so easy for people to even be in the market, let alone make a killing. There were huge obstacles, like being forced to buy “round lots” of 100, 500, even 1,000 shares.
Investors who didn’t or couldn’t deal in round lots got slapped with an “odd lot” fee – and transaction fees were high to begin with.
Those barriers began to fall in the 1970s, with the creation of individual retirement accounts (IRAs), so retirement money could be invested in stock funds on a tax-free basis. From essentially zero in 1974, IRAs zoomed to $1.1 trillion in 1994, increasing roughly 10% a year ever since, so that by March 2020, IRA assets reached $9.5 trillion, or about a third of the $28.7 trillion held in retirement plans of all types.
That was a breakthrough for market access, but ultimately, it’s just a drop in the bucket compared to what commission-free, app-based trading and investing has done over the past year or so. Platforms like Robinhood, which itself sparked a “race to zero fees” among other discount brokerages which quickly followed, have opened up the capital markets to vast numbers of people who might have otherwise been frozen out.
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As of mid-2020, Robinhood had more than 13 million accounts; some estimates put the figure nowadays at closer to 20 million. The New York Times reports the average age of Robinhood's user base is just 31. By any stretch, the growth there has been impressive.
One measurement of how robust its business is, Robinhood's payment-for-order-flow business model – which I’ve talked about before – brought in $682 million in 2020, up 514% from 2019.
Those new retail traders and investors have been making their presence known, to put it mildly.
The Tail Is Wagging the Dog
2020 was the “pandemic year,” but in a lot of ways, it was also the “year of the retail investor.” All those millions of people, many of whom had extra cash from stimulus payments, and some of whom had no sports to gamble on, dove into the markets headfirst.
All of that volume and yes, liquidity, which, from a mechanical perspective, came into the market at just the right time, helped push markets from the “COVID-19 Crash” lows of March to what, by the end of 2020, was one of the strongest, fastest bull runs in history.
Retail folks were buying up everything that wasn’t nailed down – and I mean aggressively.
They bought tech stocks, enabling the NASDAQ to completely erase its March crash losses on the way to serial all-time highs. They bought gold, pushing it past $2,040 an ounce – an all-time high. They bought “pandemic stocks,” companies that, amid lockdowns, became essential at keeping people fed, exercised, employed, and in some cases, sane. Enthusiastic retail investors pushed lots of these companies, like Zoom Communications Inc. (NASDAQ: ZM) and Tesla, up 200%, 300%, even 500% and more.
And of course there were some questionable, highly speculative moves; at times it was like this cohort was throwing darts at a list of stocks, bidding them sky high.
Back in May, we saw Hertz Global Holdings Inc. (OTC: HTZGQ) go from less than a buck to more than $5.50 in a few days, on corporate life support all the while. In April 2020, as crude oil futures turned negative, enthusiastic investors grabbed up shares of the United States Oil Fund LP (NYSEArca: USO) not because of any inside play on crude, or any hope of economic recovery, but simply because “it was cheap.” They were wrong about Hertz, but right-on oil.
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But perhaps no case makes the "retail" point like the GameStop Corp. (NYSE: GME) saga of January 2021, when a huge group of retail investors and day traders, many of whom were passionate about the company and its then-new board member Richard Cohen, got frenzied-up by the WallStreetBets Reddit group and actively targeted several big, Wall Street hedge funds, which were short-selling GME stock to the tune of billions of dollars' worth. The retail marauders sparked a classic “short squeeze” – one Wall Street should have seen coming – that took the stock up 1,900% and wiped out a couple of hedge funds; Melvin Capital even needed a $2.7 billion cash infusion after the beating it took.
So the markets have become more open and accessible thanks to mobile apps. I think it’s fantastic, though some on Wall Street probably wouldn’t agree with me.
Here’s the thing though. Yes, these folks have been (rightly) merciless to hedge funds, and yes, they’ve made more than a few questionable moves, generating lots of volatility along the way. But if you’ve been around the block a few times like me, or you’re just starting out yourself, the fact is you don’t have anything to fear from the massive impact of this new crowd of enthusiastic, and admittedly inexperienced, investors.
In fact, you can turn what they do to your advantage – much more easily than you think. One thing you can do, right off the bat, today, is to buy the kinds of stocks we talk about here and in the Money Map Report – you can learn how to get my latest watch list here.
The way to profit from Robinhood isn’t Robinhood itself, or any other discount brokerage… it’s in surfing the massive waves of capital its users – yes, I mean retail traders and investors – are generating day in, day out.
Besides retail run-ups, the mega-cap tech stocks like Tesla Inc. (NASDAQ: TSLA), Microsoft Corp. (NASDAQ: MSFT), and Alphabet Inc. (NASDAQ: GOOG) have never been easier to buy, thanks in large part to the ability to buy fractional shares. A great stock like Amazon.com Inc. (NASDAQ: AMZN) would cost you $3,325 for one share! Now it is a lot easier to own when you can buy a fraction of it for $100 or $500 or even 50 bucks.
Buy what you can when you can (and buy more when I get in touch with an update). I’ve always said, whether you’ve got $1 million or $1,000 in the markets, whether your brokerage is Robinhood, Charles Schwab, or Goldman Sachs, you’ve got to be in it to win it.
And keep your eyes peeled for the huge opportunities these new market conditions themselves provide. I’m here to tell you, they can be extreme. My friend and colleague, Tom Gentile, shared some eye-popping numbers with me. He estimates that these new retail investors can put as much as $11 million up for grabs every second of every trading day, and some backtesting he did revealed chances for 300% in three days… 471% in 19 days… 650% in eight days.
Based on what Tom’s telling me, it seems like folks with the right tools and the right strategy could potentially cash in big on the speculative, shall we say, “dart throwing” that happens every day. You should hear what Tom’s got to say about this… and you’ll get the chance later today. At 1 p.m. Eastern, Tom’s going live with his research into this “millennial market mania” he’s been seeing. You can click right here to RSVP to this online event; it’s totally free, but space is limited.
About the Author
Shah Gilani boasts a financial pedigree unlike any other. He ran his first hedge fund in 1982 from his seat on the floor of the Chicago Board of Options Exchange. When options on the Standard & Poor's 100 began trading on March 11, 1983, Shah worked in "the pit" as a market maker.
The work he did laid the foundation for what would later become the VIX - to this day one of the most widely used indicators worldwide. After leaving Chicago to run the futures and options division of the British banking giant Lloyd's TSB, Shah moved up to Roosevelt & Cross Inc., an old-line New York boutique firm. There he originated and ran a packaged fixed-income trading desk, and established that company's "listed" and OTC trading desks.
Shah founded a second hedge fund in 1999, which he ran until 2003.
Shah's vast network of contacts includes the biggest players on Wall Street and in international finance. These contacts give him the real story - when others only get what the investment banks want them to see.
Today, as editor of Hyperdrive Portfolio, Shah presents his legion of subscribers with massive profit opportunities that result from paradigm shifts in the way we work, play, and live.
Shah is a frequent guest on CNBC, Forbes, and MarketWatch, and you can catch him every week on Fox Business's Varney & Co.