The Rise and Fall of the Retail Trading Revolution: Can a New, Smarter Approach Emerge?
I recently saw this headline on Bloomberg.com:
The Cult of the Retail Trader Has Fizzled
"The GameStop and AMC manias are long gone, with individual investor returns falling 40% this year and digital currency prices tumbling."
The article is behind a pay wall, but I think you can get the gist from the headline. I have been in financial services for a while. It is an industry that can be very unkind to those who are not educated in finances, so I have long been an advocate for people educating themselves as much as possible, whether they decide to delegate to a professional or not. I have also long believed that the standard asset allocation advice is fatally flawed, and that if you have the time and the expertise you can do much, much better investing on your own.
I was a broker during the late 90s and had a front row seat to the internet bubble. I cheered on the retail investors who were making fortunes on the dot.com stocks, but that retail revolution was fatally flawed. Back then, because Wall Street controlled the information, and the trading and investors weren’t really connected, it was doomed to fail. Fast forward to what happened post-Covid and the situation was completely different. Retail traders now had access to just as much information as Wall Street, they could trade lightning fast and for free, and they were connected over social media. I held out a lot of hope for this new retail revolution to take hold. Unfortunately it got derailed.
In my view, greed and ignorance each played a role. Greed, from the standpoint of people piling into meme stocks and crypto in an effort to get rich quick. Ignorance, from the standpoint of people believing that they could just keep buying the dips, not realizing that it’s one thing to buy dips when the Fed has your back, but it’s an entirely different thing when the Fed doesn’t. There are still people on Twitter thinking the key to getting rich is to buy what’s going up. Sometimes that works, but most often it doesn’t, especially in these markets.
However, I will say this: once the dust settles, and people get beyond the “eye candy” of the meme stocks, penny stocks, and crypto stuff, something interesting is happening on Twitter. There are a number of people out there who are really smart, giving great advice. Sure, some of it is behind a pay wall (though even this is a fraction of what one would pay an advisor), but some advice is completely free.
I will admit that it can be tough for the average investor to sort through what’s good and bad, but it can be done. How do you use it? I am reminded of the old saying, “Give a man fish and he eats for a day, teach a man to fish and he eats for a lifetime.” You could blindly follow someone on Twitter, but I don’t think that makes a lot of sense. A better approach is to pick out the best of the best and learn why and how they do what they do.
So has the cult of the retail trader fizzled? If that cult is buying meme stocks and crypto and HODL, then probably yes. Could a new cult arise of retail traders who are actually following smarter strategies and blowing away traditional asset allocation? Yes it could.
Matthew Tuttle is the Chief Executive Officer and Chief Investment Officer of Tuttle Capital Management, LLC. While many managers work within their respective silo when it comes to investment strategy, we look at all methodologies and market dynamics, using forward-looking due diligence to combine methodologies and timeframes to achieve the best results.
The views and opinions expressed herein are those of the Chief Executive Officer and Portfolio Manager for Tuttle Capital Management (TCM) and are subject to change without notice. The data and information provided is derived from sources deemed to be reliable but we cannot guarantee its accuracy. Investing in securities is subject to risk including the possible loss of principal.
© 2022 Tuttle Capital Management LLC (TCM). TCM is a SEC-Registered Investment Adviser. All rights reserved.
