The rise of the retail investor has been one of the biggest financial stories to come out of the COVID-19 pandemic. And that's saying something when looking at the impact that the virus has had on global markets.
Retail investors poured $28 billion into the stock market in June alone, according to VandaTrack research, as first reported by the Wall Street Journal. And according to Robinhood's S-1 registration filing, more than half of its clients are first-time investors. (Yes, we're aware that many retailers have jumped ship from Robinhood to other sites such as WeBull or Public.com, but still, that's a telling rate.)
But there's much more to this story now.
Many in this new crowd of retail investors feel as though they can't trust Wall Street or the "suits," as they've dubbed professional investors. That means that they don't trust the Jamie Dimons or Jim Cramers of the financial world -- despite Cramer actively trying to give the retailers a leg up through his work both here on Real Money and Mad Money.
Instead, the trust is in CEOs such as AMC Entertainment's (AMC) Adam Aron or newly famous retail investors like Roaring Kitty's Keith Gill. Aron has even spoken to high-profile retail investors such as Trey's Trades and has actively made an effort to make the retail investors feel heard.
I know this, because I've been focusing on the retail investor for months now, having on- and off-the-record conversations with the Reddit crowd on Twitter, Discord, Signal, Instagram and on Reddit itself.
I've begun concentrating on the stories that matter to both the Reddit investors as well as the trending tickers that people are interested in for my daily article on TheStreet. The retail investor has also been a frequent topic for Coffee With Katherine focusing not only on the trends that are being followed by these new investors, but also on investing and financial literacy.
Back to the "trust" issue. The reason I bring this up is because there's a huge gap between Wall Street and this part of Main Street and I believe it's going to take some time to build a bridge. I want to lay down the first stones here.
To do that, let's start by breaking down some of the biggest misconceptions out there when it comes to this new class of retail investor.
When I speak to the so-called Suits, one of the biggest concerns they have is how these new retail investors are approaching certain stocks or trades. Tradition says you shouldn't go all in on a stock. But what's missing here, I believe, is the understanding that the "Apes" -- the investors who will HODL (yes, I mean hold) through thick and thin -- know that a stock like GameStop (GME) or AMC won't always go up. They are not dumb. They will likely continue to hodl those positions so that they can take them "to the moon."
But with that, let's talk about one of the biggest concerns I hear about: Losses.
Professional investors that I speak to share their concerns about the newer investor, and one of their top worries is they think there are large losses taking place in the retail community that no one is talking about. One of the most common things I hear when I discuss the Reddit crowd is: "But no one talks about the losses! You only hear about the successful Roaring Kittys!"
And perhaps they're right, to an extent. But that brings me to exactly why a lot of these retail investors took to Reddit in the first place, long before diamond hands existed and we were using rocket ship emojis next to GameStop's ticker.
r/WallStreetBets, the most popular subreddit to find Apes or other Reddit investors, was started not to just share investing ideas but to actually discuss "loss porn," or when a trade or investment just didn't work out.
Indeed, losses are discussed a lot. Pain is a gateway to community. In fact, some of the most engagement that I see on a post is when someone breaks down their losses in a trade.
Obviously, none of this is to say that this is the "right way" to invest, but I'd argue that there's no one "right way" to invest either.
There's also the fact that stocks such as GameStop, AMC and others get thrown into one big bucket and are referred to from then on out as "meme stocks."
First, let's stop calling them meme stocks. This label doesn't always fit, though for stocks such as GameStop and AMC it can fit better than others, and I've been told that referring to them as meme stocks is considered slightly derogatory. MeetKevin's Kevin Paffrath suggested referring to them as momentum stocks because of the momentum that can be thrown behind these names, and I agree with that sentiment.
Second, GameStop, AMC and other stocks all have different theses at work behind them. Yes, some of the belief can come from the potential for a short-squeeze, but that's certainly not the only reason these names have become popular with newer investors.
Reddit user u/ShortChecker broke down the differences between GameStop, AMC and another popular name, Clover Health (CLOV) , in a post on r/WallStreetBets. On AMC, the user said, "The only reason this stock got picked up was because of nostalgia and because of people missing out on GME. The SI% on AMC back when GME rallied up was well below 20%. This company as well was on the verge of bankruptcy. It got picked up by the supporters like us apes and more shorts loaded in. AMC, due to the retail investors 'Picking' this stock to rally up, actually has started to work on their business model and accrued $1B in investments and has started to really concentrate on building the business into a success (hopefully). When the CEO said the talks of bankruptcy are no longer on the table, is because even they knew at the time that filing for bankruptcy was a real possibility for the company."
Essentially, per ShortChecker's post, GameStop came first because of the substantial short interest, and AMC followed due to the effect of fear of missing out and also because it had a high short interest, but was at least a decent company prior to the pandemic. And, finally, there's Clover, which -- this user points out -- didn't necessarily have a chance against the shorts when it debuted as a SPAC on the markets.
I don't want to dive too far into specifics here and since GameStop's turnaround plan hasn't been revealed, but Ryan Cohen is now the chairman of the board. AMC's Adam Aron seems to be very focused on the retail investor. And Clover Health has had some positive news with the company offering a grocery benefit to its members, though it still has a Hindenburg report lingering over it.
And let's not group everyone into a single kind of investor. Every Ape, Reddit investor and retail trader has their own thoughts behind the moves they make and where they put their money.
One thing is for sure, though: These investors are here to stay post-pandemic.
And they deserve a voice just as the Suits deserve a voice, too. In some areas, they've gotten that voice. Trey's Trades sat down with AMC's Aron to talk about the company. Roaring Kitty has faced both praise and backlash following his belief in GameStop.
However, demystifying this group is one way to open the doors and start a conversation. But I also want to discuss the stocks that have caught the attention of the retail crowd, as well as that of Real Money experts such as James "Rev Shark" DePorre and Tim Collins.
So, I plan use this space to compare and contrast Clover, GameStop and AMC, while also talking about loss porn and the various subreddits to watch. Sentiment, as you well know, is key when looking at the market.
Now let's go and get some tendies!