I recently joined Pynk as Head of Investor relations and am a big believer that a well diversified, expertly picked investment product is the best way for the everyday savers to get a solid return, without putting their money at disproportionate risk or exposure. Below I explain what I see happening in the retail investor market and the causes for concern.
Let me start by referencing Howard Pyle’s popular fictional story ‘Robinhood’ - a noble tale of financial redistribution from the rich and despot to those in most need. Today’s manifestation of capitalism sees us living the inverse of this story. The “poor” (and by poor I mean the average working person like you and I) are giving away their hard earned savings to the super rich, and not only that, they give it with a smile on their face as they take higher and higher risks everyday.
I was inspired to write this piece after my tenth or so invitation to a “stock trading” Facebook/WhatsApp group, one of many from friends, family and even far acquaintances that are subscribing to retail trading platforms and trying their luck at stock picking, sucked in by success stories they hear on such groups.
Maybe I am alone, but I find this deeply disturbing. If economic history has taught us anything - it is that when the majority are buying into markets, darker days will shortly follow.
There is a famous story, some call it a myth, of Mr. Joe Kennedy (a prominent businessman of the day and JFK’s father) whom, after a shoeshine boy started offering him stock picking tips, quickly sold his stocks exiting the market the very next day. Soon after of course, the stock market came tumbling down in what was to become the great depression of 1929.
So what exactly happened in 1929 to cause such an economic disaster? There were many factors at play including high debt levels, unemployment, low economic production (sound familiar?!) amongst others - but arguably the most significant cause was an investor base that was overly excited by the prospect of a rising stock market. They started buying stocks of companies instead of consuming the products or services they provide, raising the stock prices and market caps, but hurting the revenue base and ultimately the profits of said companies. The rush sucked in many thousands of buyers until one fatal day the sellers overwhelmed the buyers. The selling onslaught began and the stock market crashed leaving many people, mostly un-savvy retail traders, literally on the street.
Fast forward to 2020 and we are reading in the news about companies that are nearly bankrupt, like Hertz, whose stock price has rallied nearly 800% in three days (read a great article on this here) despite facing bankruptcy. Retail traders and investors are once again blindly jumping in from fear of missing out (FOMO), following the advice of their investor friends on various “stock picking” Facebook or Whatsapp groups. Arguably, it has become all too easy to invest in individual stocks, and too easy to distribute false information. The promise of easy money is hard to resist for many.
Another recent example was the “negative” oil prices that occurred last month. I received multiple calls from friends and family asking where and how they could buy oil futures, because they had read or heard from other investors the potential of ‘making a killing’.
I was on a call with a senior finance executive when it happened — and when I said “wow, oil futures just went negative!” his response was that that was ‘impossible’.
Shortly afterwards, people that had never heard of the futures market were craving to “invest” in an event not even experts could fully understand at the time. This had me wide awake at night thinking how this would play out — and by the morning the so called experts all understood the reason and became experts again!
For more reading on the negative oil prices, I recommend this article.
I think it was on Bloomberg News the first time I heard ‘TINA’ as a term to describe why the stock markets continue to rally. “There is nothing else” they said, referring to the record low yields of debt and the uncertainty regarding commodities - which has more and more people dumping their savings blindly into individual stocks, various toxic forms of equity, while using highly risky day trading apps that make it too easy to ‘loose your shirt’. In my opinion, most of these ‘investors’ are far too deep into the dangerous waters of stock picking.
My recommendation is to spend the time doing proper research into the many structured products and portfolios that have professional managers behind them, with stop loss policies and many other risk management protocols in place, and that are as easy to subscribe to as the retail stock picking platforms.
Pynksters, as we call the members of our ever growing Crowd (30,000 and counting at time of writing), become financially savvy by making daily price predictions on various assets. This information is filtered and arranged by our in-house Artificial Intelligence ‘Rose’, which then leverages “Wisdom in the Crowd” signals to find Alpha for our portfolios. And so rather than rely on one so called expert, Pynk is using AI to augment the collective wisdom of thousands of experts the world over.
All of this with 0% fees for retail investors — this is a truly unique and disruptive model that looks to solve some of the problems I have talked about above, and it’s why I’m proud to have joined the team.
To conclude, always take a considered and sensible approach when deciding where to put your money and remember it can go a lot easier than it comes. Stop trying to get rich in one day and stop making the rich richer. Stop the incompetent managers at bankrupt companies getting away with dumping their valueless stocks on you and your investor friends. There are many alternatives to make smart investments whilst keeping the economy afloat.
Keep consuming the products you like, order delivery from the restaurant you loved to go to before lockdown, keep supporting the hard-working people at the service and hospitality businesses that have been left behind in this crisis, and if you feel like making a bet, take a flight to Las Vegas and play some roulette. At least you will get a couple of free drinks out of it and returns are 100% if you hit red!
This is my first blog post for Pynk and I hope you find it useful in some way. I’d be grateful if you could leave your thoughts and comments below and I will respond as quickly as possible.