In recent months, young retail investors have received a lot of flak from Wall Street professionals and the investment community.
Money managers question amateurs who benefit from commission-free trades with the tap of a finger for their share savvy drive some US stocks to “nightmare” Ratings amid a pandemic that plunged global markets and the world economy into recession.
However, research shows that the new entrants actually played a key role in the rapid rebound, according to Vlad Tenev, co-CEO of the stock trading app Robinhood.
“While people equate being young with day-to-day business, our data doesn’t show it,” said Tenev, co-founder of the app, which is a preferred choice among younger investors. “What was really interesting is … Robinhood investors acted as a stabilizing force during the volatility and crash in March.”
The Dow Jones and S&P 500 The indices completed their worst results in the first quarter in history after stocks collapsed at the start of the coronavirus pandemic. In nearly five weeks between February and March, the S&P 500 fell more than 35% from high to low as the longest bull market ever recorded quickly slipped into a bear market.
The market spent the rest of the year rebounding and retail investors played a key role in the rebound, Tenev said, citing a White paper from the National Bureau of Economic Research. In a report released in September, the nonprofit concluded that investors on Robinhood “didn’t panic or experience margin calls” during the collapse of the market and “acted together as a (small) market stabilizer”.
However, the report did not spare market participants any criticism of their stock selection.
“I think we are in unprecedented times as much as the market has recovered so quickly from the sharp decline in March, very unlike in 2008 or any time I’ve seen this happen” said Tenev.
The National Bureau of Economic Research report said there was reason to poke fun at Robinhood users for amassing stocks like Ford and Facebook, as well as discounted stocks of companies in vulnerable industries like travel and entertainment.
These investors can take higher risk and have a long-term outlook, Tenev explained. Robinhood has more than 13 million people using its services, and half of them are first time investors.
“First-time investors in their twenties or thirties have a very different attitude than people who may be a few years away from retirement,” explained Tenev, explaining that users are “buying large American companies at relatively low multiples.” “”
“When you are younger you know there are decades of returns and decades to go through the ups and downs of the market,” he said.