The last few weeks, the stock market has seemed like a casino, indeed: You pays your money, you takes your pick. And like a casino, more people go home unhappy than there are winners laughing on their way to the proverbial bank.
Technology plays no small role here, where the availability of trading platforms like Robinhood open up investing to a broader audience. But the downside of opening the gates wide — without context — is that we’re seeing less in the way of financial education, where communities form online to thoughtfully communicate about, value and debate the merits of various holdings, strategies and potential assets and equities worthy of consideration.
The vagaries and volatility of GameStop, Dogecoin and other holdings are well-documented. The trend is toward the “gamification” of financial services – in this case, investing – that devolved into an “us vs. them” mentality that eschews financial education and real-world experience for the thrill of battling hedge funds. Reddit has proved to be an ample megaphone for such activity, where users cheer or pan the targets of the day. The massive swings — and, as of late, huge declines — are catching newer traders by surprise, and have the potential to generate significant financial losses (GameStop shares, for example, crashed by 60 percent on Tuesday).
Regulators Getting Ready?
It’s gotten to the point where the market volatility sparked by the retail investing community has moved U.S. Treasury Secretary Janet Yellen to, as Reuters reported, call a meeting of financial industry regulators. The focus will be on the wild trading in GameStop, a slew of other stocks and assets like silver, driven in part by social media interactions. Those tapped to attend the meeting: regulators who head the Securities and Exchange Commission, the Federal Reserve and the Commodity Futures Trading Commission. The meeting may come this week – and, as Reuters said, will speed up regulatory reviews of non-bank firms and their roles in the financial markets.
Making investing more intuitive – an app-like experience, where users easily log on and get going – is an admirable endeavor. And many firms are looking to make saving, investing and taking the “long view” a less daunting experience. As noted in this space at the end of last year, in one example, Neel Ganu, CEO of FinTech Finch, said that combining banking and investing activities into a single account can help millennials make the leap into online investing. The company invests users’ checking balances into a tailored portfolio mix that matches accountholders’ risk profiles.
Investing, we contend, is not the same as speculation – it’s a marathon, not a sprint. It’s a fine line to tread. What we are seeing in the markets today is short-sighted frenzy, where (generally) younger retail investors jump in with hopes of cashing in, but may not be equipped to handle the consequences should things head south. Artificial demand in the markets can lead to a real impact on one’s financial health.
It may be the case that the speculation on Wall Street, redolent of the speculation in cryptos these past few years, leads to curbs and warnings that have not been seen before. Perhaps there may even be education required of would-be traders, particularly when it comes to short selling (where the upside is limited and the downside is infinite).
After all, in a paraphrase of that old parental warning: It’s all fun and games, until someone loses their shirt.
We’re always on the lookout for opportunities to partner with innovators and disruptors.
Learn More