The moment is etched in my memory. In the summer of 2020, a much younger, tech-savvy colleague ran into my office and without breathing shouted, ‘Alex, you need to write about Reddit and how young people are making a lot of money on social media and sharing tips.’ . ‘
My 75 years of age and five decades of caution in writing about financial markets changed immediately.
The rush of money into the nearly defunct video game retailer Gamestop and a host of other desperate American companies like AMC and Bed, Bath & Beyond, which were trading at a rapid clip and have since become known as meme stocks, left me cold.
Meme stocks, for the uninitiated, are actions popularized on social media with the title derived from the Greek meaning “imitated.”
Ill-informed advice on social media combined with the option to trade commission-free, using sites like Robinhood, seemed like a fad to me. It was at odds with the more sober investment approach, backed by expert analysis and commentary, that I would expose our readers to.
As much as I value speculative advice, I didn’t imagine readers searching the Internet for the next stock price eruption. Nor could I have thought that in Britain, where share transactions are subject to commissions and a much-despised stamp duty, this would ever catch on.
Plus, younger readers already have enough trouble paying rent and trying to save for a mortgage. If you wanted to bet, the local William Hill and the 3.30pm jumps race at Cheltenham would be a smarter bet.
Reddit has become a £24bn behemoth, worth enough to crack the top 30 of the FTSE 100 if it were a UK stock.
Some five years later, this old gentleman, or should I say old fool, has not changed his mind for the first time. The United States has always had a strong following in the retail stock market. As a reporter in the United States during the Reagan free-market years (1980-88), one of the lasting images as I traveled the vast country was how many small Midwestern towns had a Merrill Lynch office or a sign for Charles Schwab on Main Street. . Stock ownership and trading were as American as apple pie and pickup trucks. But it was for the post-war baby boomers, who had only known prosperity, not the young people on their Nintendo machines and Sony Play Stations.
Now I know the opposite. Since 2020, when the meme stock phenomenon took flight, the S&P 500, Nasdaq and Dow have become the playground of millennials, Generation X and Generation Z.
Reddit, the platform where many of this new generation of investors search for snippets of corporate information and data, is no longer a samizdat site. It has become a £24bn behemoth, worth enough to crack the top 30 of the FTSE 100 if it were a UK stock.
As for Robinhood Markets, it has become the preferred stockbroker for American retail investors. It came from nowhere and is now valued at around £30bn, making it many times more valuable than any of the UK investor platforms such as Hargreaves Lansdown and AJ Bell.
Its market capitalization is not far below that of some of the UK’s poorly regarded high street banks. Since launching just over a decade ago, Robinhood’s revenue has grown six-fold to £1.6bn and assets under management have reached £75bn. The number of users, most of them younger retail investors, has soared to 11.8 million.
Established American broker Charles Schwab
There is a huge contrast to the UK platforms. The average account size at Robinhood is just $4,000, compared to $234,000 at established US broker Charles Schwab. (Barclays bought Schwab’s UK subsidiary two decades ago and is the only UK retail bank to retain a strong stockbroking presence.)
The meme section of the Reddit site has about 29.7 million subscribers, and its extensive discussion of stocks to buy is a big driver of trading for Robinhood. The posts, generated by younger investors, draw from a much wider range of sources than the mainstream investing community. They include the consumer experience of the companies they invest in, the contributions of employees, often at the lowest levels of companies, as well as social media influencers.
What’s really impressive is Reddit’s attraction, in all of its favorite subsets, to 18- to 29-year-olds, who make up 44% of its users, and an additional 31% to 30- to 49-year-olds. Additionally, the rank represents only 3 percent of Reddit users.
Collecting population information for habitues is very different from traditional research and draws on a broader range of stakeholder resources.
It offers brilliant insights from the ground up that are often missing in limited technical analysis. A narrow focus on quarterly earnings per share often overlooks the bigger picture. Ideas have recently been uncovered about how data can work from the ground up in the UK. Reports of Guinness shortages in British pubs in the run-up to and over the festive season came not from a regulatory announcement to the stock exchange by the brewery’s owner, Diageo, but from social media posts by dark beer lovers. Tim Martin of Wetherspoons, the UK’s largest owner, quickly got on the case and promised strong words to Diageo.
When a shortage of Guinness in British pubs was reported on social media, Tim Martin, boss of Wetherspoons and the UK’s largest owner, was quick to get on the case and promised strong words with Guinness maker Diageo.
Millennials and Generations X and Z treasure the ease of use and apparent low cost of the Robinhood platform. There is no commission structure and if the transaction is not carried out through the London Stock Exchange stamp duty is avoided. These charges are particularly intrusive in the case of small portions of shares.
Robinhood effectively pools small orders and trades are routed through market makers, who act like traditional middlemen in town (a pre-Big Bang institution) and the cost is absorbed into the price of the buy or sell transaction. . The cost is there but the buyer or retailer does not see it.
In Britain, the closest platform we have to Robinhood is Interactive Investor, an asset manager owned by Abdrn, which offers a low-rate, fixed fee structure.
Meme culture and information is accessible in the United Kingdom, which represents 7.33 percent of Reddit users. Just under 50% are in the United States. The UK government is currently focused on persuading UK pension fund managers to invest workers’ life savings more adventurously in Britain, in its growing companies, green energy and infrastructure. How much better would it be if, like in the United States, the City of London could make investing interesting and cheap enough to attract a younger generation of retail investors?
Being smart on social media is part of that. But making stock market trading in the UK cheaper by removing stamp duty could make a huge difference.
Meanwhile, British investors can tap into the enthusiasm and experience of a new generation by tuning into Redditt and buying shares in a fast-growing social media site and execution broker Robinhood. Having previously been a skeptical silver surfer, I now recognize how we can all learn from younger, savvy, more technology-aware cohorts.
Should You Buy Reddit and Robinhood Stocks?
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