SIMON LAMBERT: Stock buying is back in fashion but will turn the new wave of traders into investors once the lockdown and tech boom fade
If you wait long enough, most things will come back into fashion.
The mustache, British garage, and tight pants are testament to that (though be warned if they’ve been mentioned here, they’re already on the way).
But another thing that’s popular in lockdown and more relevant to a clean-shaven, drum and bass purist, baggy-trousered This is Money reader, is buying and selling stock.
This year has seen a leap in equity investing directly, as we highlight in our emergence from the article on lockdown stock traders.
This phenomenon is attributed to powering some of the resurgent US stock market – with personal investors making up nearly 20 percent of trading volumes, according to a Bloomberg Intelligence report – and I’ve heard anecdotally about it here too.
No company epitomizes the lockdown trading boom more than Tesla – its stocks have been chased up (and down) and are consistently among the most popular across platforms
More people are investing directly in stocks and it is a younger generation that is driving much of the interest.
Traditionally, stock buying in the UK has skewed towards older investors reaching financial age at a time of personal stock brokers and financial advisors helping them build a portfolio.
Many of these investors own at least some of the shares directly, while the younger generation of investors rising through the ranks has preferred funds.
The US has long been a more stock market-oriented nation than the UK – we prefer the real estate soap opera – but while direct equity investment remains popular there, the mutual fund industry is huge and in recent years Exchange Traded Funds looked like the party to attend.
However, a combination of the Robinhood effect – named after the popular commission-free trading app – and some very high-profile and high-flying tech star stocks has sparked a strong interest in buying stock directly.
That has increased by an order of magnitude in lockdown, as people felt at home or not working, and traded in a fast-rising market.
Some of it has even been attributed to people switching from sports betting when there was a lack of live action
It also happens in the UK. Figures we gathered from established DIY investment platforms and the free UK stock trading apps showed a jump in stock buying and an increase in younger investors.
Between March and September, app Freetrade saw an 80% increase in the number of UK customers, with the largest portions being the 18 to 25 years old (27 percent) and 26 to 35 years old (42 percent).
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Interactive Investor saw new accounts opening by 25- to 34-year-olds in April and May, at a whopping 238 percent.
Other platforms told a similar story, saying that overall stock trading across all ages rose a lot
What’s interesting is the difference between the shares being bought in the starting free trading apps and the established players, who still charge around £ 10 to buy and sell shares.
For the established do-it-yourself investment platforms such as II, Hargreaves Lansdown, AJ Bell and Fidelity, major UK companies ranging from Lloyds to Shell and BA owner IAG dominated.
In contrast, between April and July, Tesla, Apple, Microsoft, Amazon and Boohoo were the most popular with Freetrade.
The question is whether we are really seeing an increase in investments or speculative trading with returns.
There is a difference between an investor and a speculator and you have to ask yourself how many of these new breeds of investors plan to hold those Tesla shares in five years.
I have friends who bought stock in lockdown and some of them made nice profits, but the stories I hear are about getting in and out and making a profit.
As long as you know and accept the risks of stock trading, that’s fair enough.
It will be interesting to see if this sparks their investment appetite and if the new wave remains long-term shareholders.
One thing that will help with that is whether the trading costs can be reduced by the free trading apps and whether we can get a better form of digital shareholding, suited to the 21st century.
Hopefully that will be the case as it is a good thing to get more people to have a stake in businesses, make a profit from them and show an owner’s interest in how they are managed, be it fashionable or not.