Hamesh Sharma, Portfolio Manager at Pathfinder Asset Management, has written several articles recently about the rise of retail investors and so he's my special guest in today's show.
Hamesh Sharma is a Portfolio Manager at Pathfinder Asset Management
Hoodies, onesies and jumpsuit investors may trump the suit and tie investors in the nice corner office. Hamesh Sharma from Pathfinder, joins me in a discussion around the rise of retail investor mania. Is it inevitable retail mania will end in tears, or is a fundamental shift in mainstream investing at play?
Retail investors — meaning regular people investing on behalf of themselves, not big institutions — are on the rise. According to one online investment platform, these Mum and Dad investors are now accounting for 25% of the share market, a number which looks to be steadily growing.
With wage subsidy money lining many accounts and sports gambling mostly out of order, Hamesh has watched in terror as these new retail investors emptied hard-earned savings into the likes of Air New Zealand, a company burning hundreds of millions of dollars with planes parked up at airports around the world with no border opening in sight. Why? Because the price has decreased and the government will surely bail them out - it must be a bargain!
It’s a pattern than many newer investors exhibit when they’re starting out. We can observe this when looking at companies like Hertz, which saw a stock price resurgence in the fourth quarter of their bankruptcy proceedings; Nikola Corp, a company with no product to sell even had a short spurt where it was valued higher than Ford; and Tesla, whose price jumped considerably upon announcing they’d be splitting their stocks, despite it having no material impact on the company’s value.
If you’ve been investing for a while, these signs and symptoms of mania should worry you. It seems to laugh in the face of reason, seen most absurdly in the popularity of BarStool Sports’ Davey Day Trader.
Markets should respond to logic — a company’s value should be proportionate to its fundamentals; earnings, track record, that kind of stuff. Miseducation among investors appears to be at an all-time high.
Then again, I can’t help but wonder, could these newer investors teach the status quo a thing or two about the world we’re heading into? Perhaps pure, illogical speculation in brand names is what ‘investing’ has been for a long time – maybe there’s not much of a difference between owning Bitcoin and Berkshire Hathaway?
Back to mainstream thinking though: Just because a stock that was once high is now low, doesn’t mean it’s a bargain. The markets aren’t stupid, and to assume they are is a sure-fire way to get your face ripped off. Sure, you’re going to find examples of companies that you see as being chronically undervalued by the market, but make sure you do your homework to understand their fundamentals before giving them your money.
We’re seeing plenty of little bubbles forming, nothing yet on the scale of the infamous dot com bubble of the nineties, but something very much worth keeping a watchful eye on.
Many Kiwi’s, myself included, have benefitted by having quality access to the markets, but education is vital to reduce the downside risks associated with providing access to all. Even if Davey Day Trader is right, and the ‘old fundamentals’ no longer apply, eventually the market will factor this in.
In today’s podcast, myself and Hamesh get real on this rise of retail investments, bubbles, irrational trading, investing vs gambling, and why, ultimately, more investors are really a good thing for the economy.
Davey Day Trader
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