The Commodification Of Wall Street - Victor Nguyen

Is the rise of retail investors the dawn of a new era on Wall Street? One where not only the rich and affluent can take advantage of what the markets have to offer? The rise of brokerages available to anyone and everyone, commission-free, is an extremely attractive proposition. A proposition more and more people are becoming knowledgeable about because of the rise of social media. The median age of Robinhood (a commission-free trading platform) is 31. Clearly, a new generation of investors have entered Wall Street.

The rise of retail investing has been steady over the past few years (see the graph on the left). However, the catalyst in the past year has been the COVID-19 lockdown. Those fortunate enough to keep their jobs have more disposable income because they are going out less, buying less petrol, not going on holiday et cetera. In the USA, stimulus checks also gave a substantial sum to those who were incredibly bored because of lockdown. The rise of various forums on the internet such as r/wallstreetbets meant that millions of individuals who were bored and who had disposable income could converse about investing.

This does not mean, as many experienced people on Wall Street would say, that retail investors only made stupid investments. Often referred to as ‘dumb money’ retail investors have been made to look easily manipulable, spending their stimulus on moronic investments. Although there is certainly a case that new investors are more likely to get caught up and make rash decisions, that is no reason to limit them. What is undeniable is that retail investors are here and here to stay. Cathie Wood’s ETF Ark Innovation surpassed JPMorgan’s main ETF to become the largest active ETF. Cathie Wood uses the nearly $18 Billion in assets on “riskier” investments, something that new retail investors can easily buy into. Cathie Wood not only sells her customers huge returns, she sells them a story. She is incredibly bullish on controversial stocks such as Tesla or Palantir - stocks and companies the average investor knows about.

The elites on Wall Street’s attempt to deny and devalue retail investors has seemingly come to haunt them. It has created a narrative of a David and Goliath-esque story and it is likely to get worse for them before it gets better. Such is the internet, most movements are exponential. There is no greater example than the recent GameStop debacle where retail investors with the backing of various celebrities/businessmen such as Elon Musk, CEO of Tesla and Alexandria Ocasio-Cortez, congresswomen, managed to push the stock to astronomical heights. The stock went from a low of $2.70 a share mid-way through 2020 to $458 a share in February 2021. The situation was on the premise of large hedge funds on Wall Street betting against GameStop, this being just one example of the growing influence and power of retail investors. Of course there are uncertainties about the consequences of retail investors, but what is clear is that we have entered a new era, one where all may benefit from where Wall Street has to offer, not only the affluent.