Fool Me Once: A New Respect is Being Given to Retail Investors
The perspective of retail investors has changed in the minds of professional fund managers since the commencement of the so-called meme stocks such as GameStop and AMC. Where before fund managers viewed day traders as “dumb money”, many now closely monitor the growing army for potential market leads. In a survey done by Bloomberg Intelligence, “Some 85% of hedge funds and 42% of asset managers are now tracking retail-trading message boards” (McCabe). A big reason for what I’ll call “an increase in respect” is due to the herd mentality that is developing where individuals are meeting on numerous platforms, blogs, and other outlets such as Reddit to develop market strategies.
Between 2020 and 2021, it is estimated that more than 25 million American investors opened brokerage accounts. This rush of retail day traders has prompted the introduction of new technologies to help monitor potential herd security movements, such as the short squeeze of GameStop positions. For example, “JPMorgan Chase & Co. in September introduced a new data product that includes information on which securities individual investors are likely buying and selling, as well as which sectors and stocks are being talked about on social media” (McCabe). Further, the number of securities with short interest has declined significantly since the onset of the pandemic. According to Ihor Dusaniwsky, the head of predictive analytics at S3 Partners, “Just seven stocks in the U.S. market had short interest of 40% or more at the end of 2021... That was down from 40 stocks at the beginning of January 2020 and 19 stocks in January 2021” (McCabe).
We are stepping into a new world of investing, one in which technology has accelerated the spread of market updates and a new investor class has been born. Technologies such as JPMorgan Chase & Co.’s will likely be implemented by other institutional and investment banks moving forward to help predict retail market behavior. Professional fund managers can no longer look past the “dumb money” being put into the market. A newfound respect has been given by the “suits” to amateur investors. Time will tell if the increased trading volume will continue as the world returns to a new normal and whether a bubble is potentially being formed by an over flooded market.