GameStop Mania: How Reddit Traders Took On Wall Street
Retail traders have handled the 2020 stock market rally better than the professionals, with their most popular stock market strategies outperforming market indices and well-endowed investors like hedge funds.
E-commerce platforms report retail hype following the COVID-19 pandemic hitting markets in March, with near-zero interest rates and a sharp rebound luring a new generation of home-stuck traders looking to hone their skills in stocks..
And while the fight against fast-growing, high-value stocks echoes the 2000 dot-com bubble, the abundance of cheap cash means retail traders don’t look ready to go cash just yet..
Record sums for stimulus measures from the central bank led to injections into the markets in 2020, which led to asset prices soaring, often to record levels, especially in the US tech industry.
Retail investors target the largest beneficiaries including Amazon, electric vehicle makers Tesla and Nio, and pharmacists looking to market COVID-19 vaccines.
A basket of 58 US-listed stocks, popular with retail traders, is up more than 80% this year, outpacing the growth of S&P 500 at 14.5% and a basket of hedge funds at 40%, as shown by two indices compiled by Goldman Sachs.
Amateur traders have also invested in electric truck maker Nikola, which has yet to sell the truck, and exercise bike maker Peloton and Zoom, which won lockdowns..
Market veterans recall the insane rise of obscure internet stocks before the 2000 dot-com crash.
«Of course it’s a bubble. But money is free, liquidity is high, retail players have never found it so easy to trade, there is no savings rate or bond yield, and everyone wants the bubble to burst.», – said Mark Taylor, sales trader at Mirabaud Securities.
Many of the stocks that retail traders buy look expensive based on commonly used price-earnings ratios..
Goldman Stock P / E Ratio «Retail Favorites» deeply negative as companies lose money.
For index «VIP Fund Hedge Fund» coefficient is 32.
Many institutional investors have invested in the same pumped stocks, but they usually diversify.
Thus, retail portfolios have much weaker balance sheets, as evidenced by the ratio of net debt to operating income for the Goldman Sach hedge fund basket of 1.8, compared to 4.8 for retail..
There are now overvalued estimates and retail investor concentration in some stocks. Refinitiv data shows they own 20% of Tesla versus 0.17% of 117-year Ford, which could exacerbate the sell-off if confidence in steadily rising prices diminishes.
In Europe, where the share of retail traders is generally lower than in the US, small investors are far less fortunate..
As Reuters was told on trading floors, stocks hit hard by the economic downturn are one of the most popular purchases.
Repurchased shares include Airbus and Rolls Royce, British bank Lloyds, Lufthansa and International Consolidated Airlines, Saxo Bank, IG Group, AJ Bell, Interactive Investor and eToro.
Despite the vaccine-fueled rebound, these stocks remain in the red since November, trailing a 4% year-to-date decline in the broader European market..