The phenomenon of retail investors acting as a collective, led by social media and celebrity investors, is here to stay, says one expert.
The first quarter of 2021 signalled a crazy ride for the stock markets, driven largely by online investment communities gathered on social media platforms and online forums like Reddit.
But while day-trading frenzies appear to be fizzling out, with platforms that facilitated this activist investing reporting a flatlining of the ‘movement’, one expert opined that the concept of collective investing is here to stay.
According to deVere Group’s CEO, Nigel Green, retail investors are set to become a whole lot more important.
“I believe while the mass hype and hysteria might be fading, this phenomenon of retail investors acting as a collective, and led by social media and celebrity investors, is here to stay,” Mr Green said.
“Moving forward, they are likely to be as influential as major hedge funds in moving markets,” he noted.
RMIT senior lecturer Dr Angel Zhong agrees. She opined that investor herding and the word-of-mouth effect will continue to maintain their presence beyond stock market crazes such as the GameStop saga.
“Stock market participation is affected by social learning. The prevalence of social media in investment is a catalyst,” Dr Zhong explained.
Mr Green, on the other hand, sees Elon Musk as a key catalyst in the democratising of the stock market.
But despite applauding Mr Musk’s popularity among small-scale day traders, he warned the billionaire’s admirers to be wary of the downsides.
“As we’re now seeing, many of these small-scale investors – typically inexperienced, younger people who might not necessarily have the financial resources to be resilient against usually highly speculative and volatile investments – are playing a potentially hugely costly game.
“I would urge them to adopt the cool of Elon Musk and the savvy of Warren Buffett,” Mr Green said.
He opined that the instincts and skillsets of both these mega investors combined will be a powerful strategy for any investor.
“Elon can spot future trends like very few others, focuses on sustainability, has utter conviction, takes risks, and is a master at harnessing the power of social media for business.
“Meanwhile, Warren’s focus is on time-honoured fundamentals, including diversification, cash flow and profitability,” he said.
Overall, Mr Green explained that the future of investment is this fine line between forward-thinking drive and old-fashioned principles, urging both the leaders of the new era to exercise responsibility and investors to exercise caution.
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Article by Maja Garaca Djurdjevic on 09 April 2021 – nestegg.com.au