In the current economic and social climate, we are starting to see the emergence of a new phenomenon within the stock markets – The rise of betting on stocks as purely entertainment.
As we have seen with the Covid-19 response throughout the world, almost all social activities are shut down – this includes all major sport leagues and casinos. Therefore, people have taken to another sport online – Betting on the stock market.
Based on recent information, we have seen a rise of certain stocks within this market that have not shown economic reasons for increase, but rather are being used as a manner of betting or wagering that the value of these stocks will either rise quickly or fall quickly (based on the corresponding wager).
Some attribute this gain in popularity to the rise of discount or even free trading platforms like Robinhood. It appears that these type of traders or “investors” have taken a keen interest in the lower cost, beaten down stocks and some have even taken a liking to those on the verge of bankruptcy and tried to make a few dollars on them – Some popular company names include Ford Motor (F), General Electric (GE) and Hertz Rental (HTZ) among many others.
It even appears that the investors within the Robinhood platform are giving the traditional hedge fund investors a run for their money and outperforming them handily; at least within the short term – Robinhood investors’ top picks are blowing away hedge funds, market – “According to Kostin, a basket of stocks including airline, cruise line, Big Tech, U.S. banks and gaming companies is up 61 per cent as of June 11. A portfolio made up entirely of these stocks blows away the 45 per cent returns for similar lists the bank has comprised of favourite hedge fund and mutual fund holdings. The S&P 500, meanwhile, is up 36 per cent as of Monday.”
Moreover, the entire stock market itself appears to have gained popularity as a result of many new customers opening up stock market trading accounts for the first time – “Retail trading has taken off in 2020 amid the coronavirus downturn that many young traders saw as an entry point into the world of investing. Major brokerage firms saw record new accounts in the first quarter. Fidelity, for example, saw a record 1.2 million accounts open in the first few months of the year.” – CNBC
On the opposite side of the equation, there have been some significant criticisms of the newly minted “day traders” and “investors” within the Robinhood community by the hedge fund investment firms themselves – ‘They are just doing stupid things’: Billionaire investor Leon Cooperman says the rise of Robinhood traders will ‘end in tears’ It’s not clear why the hedge fund managers have taken a negative view of these traders other than they are directly competing for results within the market – Perhaps a better course of action would be to persuade these investors to join these funds instead?
Additionally, the Robinhood platform itself has not had an easy go of late, especially when the market volatility has taken over; with the recent downturn of 1600+ points last week, the pain of the market was especially felt on the Robinhood platform – https://www.cnbc.com/2020/06/11/top-stocks-on-robinhood-brokerage-get-crushed-as-market-violently-reverses.html.
Finally, it also appears that there is an extremely negative side to this gambling within the stock market – You can do significant damage to yourself by using a leveraged (borrowed money) position to buy certain stocks or options; this magnifies the gains but also the losses – A very unfortunate posting follows here – 20-Year-Old Robinhood Customer Commits Suicide After Seeing A $730,000 Negative Balance
Our thoughts 💭
As with everything, there is an initial point of euphoria as the masses converge into a new idea or topic – In this case, as sports betting and casinos are still currently closed, the stock market has become another avenue for those who wish to gamble and take a risk.
However, it appears that this may be a short term or short lived phenomenon as most of the sports and casino venues are working within a framework to reopen soon. Only time will tell if this causes a decreased interest in stock market trading or very short term investing.
Either way, we our caution our readers is as follows – Do not place more money to trade or invest in the stock market than you can afford to lose; stock trading is not the same as investing.
This advice is key if you are looking to trade (not invest) in the short term to make some quick returns; more money can be lost within the stock market due to short term volatility. Trading typically refers to a very short window of time (day, week, month) vs investing which is typically longer term (quarterly, yearly, multiple years).
Additionally, for those that are long the market (able to wait for a longer time period), this can be a great time to invest as the overall levels are still lower than the heights we saw at the end of 2019.
Either way, stay safe out there until we chat again.
The Lab Manager
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