Investing

Democratization or Disruption?

A lot has been made of the Wall Street Bets/Gamestop saga. The whole episode was quite extraordinary and entertaining, at least from my perch. Financial markets are always evolving. Over the past 20 to 25 years, the evolution has favored smaller investors with the move from fractions to decimals in 2000 to the ongoing compression in commissions and management fees to the advent of discount online brokerages eventually culminating in Robinhood and commission free trading. All these events have provided previously unthinkable access to the investment markets and empowered so many of us to participate in the growth of our nation’s economy and the companies driving that growth. Of course, there are costs that come with all of this because there is no such thing as a free lunch. One of the quotes from Netflix’s Social Dilemma documentary that has stuck with me is, “If you’re getting something for free then you’re the product.” In the case of free trading commissions our stock shares and our order flow are lent and sold to others, which makes commission free trading possible.

As I sit here musing and writing about this, a lot of ink has already been spilled on the topic. I’m writing today to get my thoughts organized. I’m hoping I’m not redundant but that I can offer up a somewhat unique perspective. Everyone talks about the democratization of investing, which admittedly has occurred and continues to occur, but the events of the past year or so are much more of a disruption or revolution in my view. A generation of younger adults en masse, with different perspectives and priorities, who haven’t had money or time to invest now have both thanks to COVID and stimulus checks. We’re observing first hand what happens when a younger generation becomes empowered and enabled to participate in the investment markets. On one hand, it’s exciting to witness this group getting involved and learning more about their preferences and priorities. On the other hand, it’s somewhat terrifying as we head further and further into uncharted waters with respect to valuations, margin debt levels, stimulus, national debt, etc… A lot of old timers claim we’re in a bubble and that it’s only a matter of time before it pops. I’m not 100% sure that is the case. Yes, a lot of the symptoms of a bubble are present but I wonder if there’s still quite bit more of inflating that needs to occur before we get the popping event.

Think about it. A whole new generation of investors has begun to make their mark in the world of investing. It’s not just the Wall Street Bets group. A lot of others are actively investing and making money. They support the industries of the future such as clean energy, electric vehicles, genomics and other burgeoning industries. I realize the market can’t just keep going higher and higher without fundamental follow through, and especially as ongoing stimulus checks aren’t a given. At some point in the future there will be a risk off catalyst that will cause a massive correction and eventual bear market. But what if we’re in the midst of a continual transition to the ever evolving new economy? What if the excesses and imbalances that exist now are worked off over time without a massive drawdown in asset prices but through other means? I’m not sure anybody has the answers to these questions, but that doesn’t mean they shouldn’t be given thoughtful consideration. We may be in a full-fledged bubble that’s just waiting for a needle to pop it, but what if it doesn’t happen for several more years?

Regardless, there’s a new generation of investors with different priorities and a willingness to band together to support those things they believe in. They’re the up and coming generation of investors who are/will be a major driver of the new economy. Understanding their priorities and preferences as well as being adaptable is/will be crucial.