The rise of the retail investor has been an ongoing headline since last summer when retail money started pouring into the market. According to a note from Morgan Stanley earlier this summer, retail investors now comprise 10% of daily trading on the Russell 3000.
However, we all know that this is the rise of a new retail investor. One that checks Reddit and Twitter (TWTR) when starting to do their due diligence (DD) on a company.
But are these investors truly new to the market? How long have they been investing? Do they care about things like technical analysis? How do they approach investing or trading? And, how has COVID-19 changed the way they put their money to work in the stock market?
As I mentioned in my first column, I want to demystify the retail investor. Let's start simply by taking a look at a couple of retail investors, two of whom aren't even that new to the market.
"Age 64 now, started investing at 22, right after college and employment at Aetna Life & Casualty. However, dad (an Italian immigrant) was always glued to Louis Rukeyser and Changing Times magazine. First investment was in Aetna stock and gained benefits of splits. Why stocks? Easy, Time Value of Money," said VM Pace.
"Two years ago, Tesla's (TSLA) meteoric rise gave me mad fomo, and I was tired of sitting on the sidelines," said Twitter user @AleisterBoawli, who goes by Al. He also noted that he uses both Reddit and Twitter as a way to conduct his DD.
Neither Al nor Pace dig deep into technical analysis. Pace admits that he's a financial news junkie who listens "religiously to Jim Cramer" and other financial names such as Josh Brown, Stephanie Link and Shannon Saccocia.
Then there's Gregory Cooke who started investing 20 years ago but lost money on an investment and exited the market until seven years ago. Said he: "I have taken a very different approach. Technical analysis is something I pay a good deal of attention to. I'm humble about my understanding of it. I read and have read countless books on theory, TA, charts, numerous indicators, and subscribe to several services to help me interpret their meaning through the varied minds of professionals. I subscribe to Fibonacci and stock wave theories to help guide my trades. I never day trade. I do swing trade, but have separate portfolios for long term investments and swing trades."
But there's another concern, one which could not only impact how retail investors are approaching the market, but also could impact the market itself, and that's the COVID-19 Delta variant.
When I took to Twitter earlier this week to get an idea of what retail investors were watching, the answer was pretty clear. Many are waiting for a sell-off to occur in the broader markets. Multiple people direct messaged me to say that they were preparing for a five to 10% correction due to Delta. But not necessarily due to concerns purely around Delta, but rather because of the anxiety caused by the spike in cases across the U.S. Any pullback in spending, reduced employment or postponing a return to the office could cause investor's anxiety levels to rise.
@TimzTweet44, who goes by Dr. Doom, noted that, specifically, a pullback in spending is concerning to them, here.
"[Of course]. Guarantee of reduced employment, more stimulus, and further confirmation of rates staying at zero indefinitely. Inflation is out of the bottle and not going back in," said Sybil, who goes by @DigitalCetiEel on Twitter.
Others, however, said that they're not concerned about the markets reacting to COVID, and that they definitely don't want to see the U.S. shut down again.
Overall, though, the COVID headlines alone aren't concerning retail investors. However, any impact that the new vaccine mandates in New York City have on other cities or economic data - such as Friday's jobs report - which miss expectations would be a cause for concern.
But that's not to say that investors aren't changing their strategies. Some who responded, but wished to stay anonymous, said that they're not looking to buy as much or initiate new positions at this time. Overall, that could add to weakness in the markets if the headlines start to spook not only the algorithms but also the investors behind the screens.
Is the delta variant switching up your approach to investing? Reach out to me at email@example.com