Will This Investing Renaissance Last?

Will This Investing Renaissance Last?
Andrew Rummer

about 2 years ago6 mins

  • The pandemic turned the world of investing on its head, and drew millions of new investors into the market.

  • 2020 and the early weeks of 2021 saw an orgy of speculative excess that got bears like Jeremy Grantham warning of an imminent crash.

  • In the end, the froth blew off the most speculative parts of markets while stocks overall kept driving higher.

The pandemic turned the world of investing on its head, and drew millions of new investors into the market.

2020 and the early weeks of 2021 saw an orgy of speculative excess that got bears like Jeremy Grantham warning of an imminent crash.

In the end, the froth blew off the most speculative parts of markets while stocks overall kept driving higher.

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The world of investing has become almost unrecognizable over the past four years, and that’s mostly been down to retail investors like you. So in my final Insight for Finimize before leaving for pastures new, I wanted to look back at everything I’ve witnessed at close hand, and speculate on what the future of finance may have in store for Finimizers far and wide. 

How has investing evolved?

The investing world has changed immeasurably since I joined Finimize in the summer of 2018. Back then:

  • Reddit’s WallStreetBets forum for retail traders had about 275,000 subscribers. It’s now up to more than 11 million.
  • Cathie Wood’s Ark Innovation fund managed just $1.2 billion. It peaked at more than $28 billion last year, propelling Wood from obscurity to household name.
  • One bitcoin cost about $7,000, having lost two-thirds of its value over the previous six months. It’s now worth over $44,000.
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At the time, the biggest problem facing Finimize was getting people enthused about investing in the first place. We saw our primary market as smart professionals who kept their savings in cash because the world of finance either ignored or intimidated them, potentially leaving them far worse off over the long term than if they found the courage to dip a toe into investments like stocks.

A flock of robo advisors, like Betterment and Nutmeg, were going after the same market, luring users with the promise of hassle-free passive investing in a balanced portfolio of low-cost exchange-traded funds (ETFs). It was all rather sedate. Then the coronavirus pandemic hit.

What did the pandemic change?

Everything. Almost overnight we went from cheerleaders encouraging Finimizers to beat inflation by taking on a little more risk to aghast bystanders slack-jawed at the amount of risk some were suddenly willing to bear.

Market panic initially sent stocks from a record high in February 2020 into the fastest bear market in history. But as it became clearer that Covid – while horrible – was unlikely to kill us all, a strange thing happened: smaller investors embraced the selloff with abandon.

After the great bull run that began in 2009, stocks felt “on sale” for the first time in many people’s adult lives. As stocks bottomed in March 2020, regained their former highs just five months later, and then kept on climbing, a new crop of retail investors was entering the market – and winning. In a matter of weeks, investing went from scary to fun, at a time when so many other forms of entertainment were banned.

Over the course of 2020 and into the early months of 2021, this new cohort of investors found it easy to make money – particularly if they ignored the received wisdom about buying solid companies with healthy cash flows. As I wrote in February 2021 when speculative excess was running riot, the stock market’s biggest winners over the prior year were those with the worst profit margins and with the most volatile share prices.

It’s frankly exhausting to attempt to offer a sensible investing framework when the biggest gains are going to those ignoring all sober advice. And it leaves you open to the charge of being an out-of-touch boomer who doesn’t understand the new paradigm of meme-based investing. (For the record, I’m an aging millennial and proud of it.)

But just as risk-taking behavior peaked in the early weeks of 2021 (prompting octogenarian investing legend Jeremy Grantham to warn us in an interview that “there's never been this level of craziness without a 50% bust”), the bubble did start deflating – just in an unexpected way. 

What happened next?

The predictions of bears like Grantham have – so far, at least – failed to come to pass. Instead of a repeat of 2008 or 2001, only the most speculative investments fell while markets overall powered higher. 

Just look at Goldman Sachs’s index of unprofitable tech stocks, which has plunged around 50% from its peak a year ago. So has a closely followed ETF that tracks the performance of newly listed special-purpose acquisition companies (SPACs). Global stocks overall, though, have kept grinding higher. 

Markets over the past year

Beneath the surface of stock markets, the last 12 months have been a reversal of the pandemic’s first 12 months. Those who stuck with the “tortoise” of long-term investing in solid companies were finally rewarded, as the “hare” of hyped-up firms in unproven industries took a long breather. That’s probably the best situation investors could’ve asked for considering how elevated valuations became in many parts of the stock market. 

As the hardest adrenaline junkies left the stock market, they found a welcoming new home in crypto. With speculative stocks tumbling in the spring of 2021, crypto entered a renewed boom. Bitcoin soared from about $30,000 in January 2021 to more than $60,000 three months later, and non-fungible tokens (NFTs) went from laughing stock to dinner table conversation. 

And where do we go from here?

When I look to the future, I think the cultural aspects of the lockdown investing boom will linger longest. Like the Summer of Love in 1967, the Winter of GameStop represented a specific time when many drivers came together to cause millions of people to change their view of the world.

These new investors are mixing several key themes of contemporary culture – mistrust of authority, entrepreneurial hustle, and self-education through the internet – into a heady cocktail and realizing that this investing thing isn’t as hard as the finance industry likes to make out. This creates a huge opportunity for companies like Finimize that can provide resources and build communities around them. And while some of the drivers will wane post-pandemic, I have confidence this cultural shift will prove durable.

The lockdown investing boom is also feeding into the rapid internationalization of white collar labor. As the pandemic slammed shut national borders, it also – ironically – made many office workers realize they can do their jobs from almost anywhere. I believe the desire from young, educated professionals to tour the globe while earning a solid salary from their laptop will be hard to repress. 

The next stage of this investor revolution will attempt to break the shackles of national boundaries – around tax, citizenship, and investing regulations. Companies that can attract these highly skilled, highly mobile people as workers or customers will flourish – as will governments that can attract them to their shores. 

And, thinking about markets, this growing class of digital nomads feeds the bull case for the adoption of borderless digital payment methods and stores of value. That might be crypto. Or it might be some other more centralized, government-sanctioned, but international form of money. I just can’t see the world’s educated elites putting up with restrictions on where they can live and pay tax forever. 

After all, as the pandemic has taught us, you have to grab new opportunities while you can. 

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Disclaimer: These articles are provided for information purposes only. Occasionally, an opinion about whether to buy or sell a specific investment may be provided. The content is not intended to be a personal recommendation to buy or sell any financial instrument or product, or to adopt any investment strategy as it is not provided based on an assessment of your investing knowledge and experience, your financial situation or your investment objectives. The value of your investments, and the income derived from them, may go down as well as up. You may not get back all the money that you invest. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment advisor.

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