Sophia Coffey, a 19-year-old student at Arizona State University, acquired 185 shares of AMC Entertainment during the Covid-19 pandemic. For about $ 2 to $ 7 a share, she was betting that the cinema chain would recover financially after the pandemic. To his surprise, the investment paid off before Covid-19’s restrictions were lifted: the GameStop stock frenzy catapulted $ AMC to $ 20 a share in late January, when amateur investors organized to artificially increase the market performance of some declining companies, including AMC. Coffey decided to sell a few days later, before sinking, which produced gains of about 400%, but she still holds about 85 shares in case AMC’s value goes up when cinemas reopen.
The GameStop saga, which was started by a contingent of traders from Reddit’s r / WallStreetBets forum, has attracted overwhelming attention – and scrutiny – to the world of day trading and the motivations of young investors like Coffey. Of particular interest are the online communities that feed these cohorts of risk-hungry traders. On platforms like TikTok, Reddit and Discord, people distribute a little investment knowledge, questionable advice and memes. These spaces, like most subcultures on the internet, communicate using niche language and, from an outside perspective – that is, Wall Streeters and the financial press – it is easy to combine these memetic trends with the lack of knowledge about the stock market.
Generation Z members may be the youngest investors to enter the market, but most follow the financial principles endorsed by baby boomers, Generation X and millennials who came before them. They read Warren Buffett, open retirement accounts and intend to diversify their portfolios. But unlike older people, younger people seem to be aware of the direct impact that social media can have on the stock market and how the market is not an accurate reflection of Americans’ financial reality.
GameStop’s little pressure has taught curious young people a few things about the markets: everyone – hedge funds, asset managers, banks and brokers – is trading for profit, and those least likely to succeed are small private traders. They also widely realize that low or free rate trading apps are unlikely to allow such a rally to happen. But when you’re a teenager, these events are exciting and “fuck the system” can sound like a good rallying cry for support. .
“I think teenagers are aware that there is some kind of market manipulation going on on Wall Street,” said Kiran Boggs, a 17-year-old student who runs the @generationzillionaire page on Instagram and posts news, tips and information related to finance memes for the public of Generation Z. “After seeing what r / WallStreetBets can do, I think more people are interested in investing, whether it’s a passive or a really risky investment.”
The teenagers I spoke with were mainly risk-averse investors. While they liked to occasionally give in to a “meme stock” or two, just to join the trend, most wanted to be careful about their investments, protecting their portfolios in decades of growth. “I wish there was more promotion of long-term investments,” said Coffey. “I know some kids who are making bad investment decisions thinking they can make money quickly. I’m definitely not like that. “
His mindset does not reflect all young traders, especially newcomers to digital trading through free apps like Robinhood and Acorns. These platforms have made investment affordable and easy for ordinary people; increasing participation in the stock market is a positive factor, say these applications. By simplifying the trading process with friendly emojis and virtual confetti, it is easier for users to buy and sell shares, sometimes doing this several times a day.
Day trading also increased dramatically during the pandemic, CNBC reported, as more people are at home and out of work. That’s when it can become problematic. For personal finance consultants, experienced and curious investors, the concern is that young people may be attracted to an obsessive trading pattern. As a harsh warning, some cite the tragedy of a 20-year-old Robinhood day broker, who killed himself after mistakenly thinking he owed the app $ 730,000.
“It’s very risky, but damn it, it’s almost like getting high,” a 21-year-old broker told the New York Times. Some will pour more and more money to chase dopamine for ever higher returns. The stock market continued to rise after a brief decline last March, but the bullish momentum will not last forever. “Building wealth takes time,” said Ryan Francis, a personal finance TikToker. “If you look at the data from day trading, most people lose money. It is almost impossible to beat index funds in the long run and it is ultra risky. ”
The stock market may seem like a gateway to financial freedom and fortune, especially for those from low-income families, who tend to have less financial education. “It’s great that this is making more people interested in investing,” Francis told me. “But don’t confuse investment with gambling. Putting your savings on GameStop, Dogecoin or AMC expecting you to get rich is a horrible idea. Smart investment takes decades. To be honest, it can be boring. ”
Curious teenagers have long had an affinity for the stock market. In addition to the advantage of having more free time than adults (and, presumably, less money to spend), many teenage traders have also spoken openly about their cynicism towards the powerful on Wall Street. Jonathan Lebed, a 15-year-old who was sued for stock market fraud by the Securities and Exchange Commission after the dot-com bust, told the New York Times in 2000: “Whether a company is making millions or losing millions, it has none. impact on stock prices. Whether they are analysts, brokers, consultants, Internet marketers or companies, everyone is manipulating the market. If it weren’t for everyone manipulating the market, there would be no stock market. “
Like Lebed, the teenagers I spoke to are well aware of the bets and speculations involved in the trade. “I am a liberal who defends certain socialist policies and taxes investment more,” said Coffey, the Arizona state student. “But I know that we have a system that works in a certain way, so I could also use it for my financial benefit to guarantee and increase my savings.”
Matthew, a 17-year-old high school student from Studio City, California, who asked for his surname to be withheld for privacy reasons, told me that he negotiates with the understanding that, compared to Wall Street hedge funds, private investors are at a disadvantage. Hedge funds “are basically calling the United States a free market when it benefits them,” said Matthew. “However, as soon as it hurts your wealth, [Wall Street] you can turn off the whole thing. It’s mind-blowing. ”
Since starting trading in March 2019 under a Robinhood custody account, Matthew has been intrigued to see how a company’s performance in the market was relatively divorced from scandals or negative press. The GameStop episode was an innovative departure from that standard. “It wasn’t until GameStop that Reddit got a wave of investors to buy against the scarcity,” said Matthew. “As an observer, I spent about $ 10 in $ GME just to be a part of it.” His conclusion was that social media could move markets, if enough people joined it.
For Terry Turner, a 17-year-old contributor to the personal finance website Teen Financial Freedom, meme stocks are fun to spend a few dollars as long as he follows the investment fundamentals for his larger portfolio. “The best thing about starting out young is that you have time by your side,” he told me. “If you are under 18 or live with your parents, you can take a little risk, but you should always research and learn about the basics of investment.”
Turner started investing in cryptocurrency in 2018 and, although the value of his portfolio has fluctuated over the years, he has not sold many shares. “As young people, we can buy at a low price and keep it for years, even decades,” he said. “If you believe in the fundamentals of investment, in the long run, your stocks should perform well during short-term declines.”
The problem is that not all young investors trade with Turner’s long-term mindset. The personal finance course is not a requirement for high school graduation in most states, and many teenagers are not financially literate. They are also maturing when the excesses of casino capitalism are especially pernicious: the pandemic has left millions of Americans unemployed and many are forced to accept essential, low-paid jobs to survive. The increase in participation in the stock market should be a good thing, but the markets do not reflect the income inequality and housing instability that plagues low-income communities. And while Robinhood CEO Vlad Tenev exposed the investment as the new American dream, the app has provided few protections to contain irresponsible trade. History shows that the most recent recessions have redistributed wealth primarily to the asset class.
Boggs, the teenager behind Instagram @generationzillionaire, told me he doesn’t doubt the power that a forum like r / WallStreetBets can have. But despite how “exciting” the rally was, Boggs admitted that the current situation seems “extremely risky” for newcomers to pour a lot of money. Amateur day traders are in a precarious position competing with Wall Street hedge funds that emerged unscathed from financial crises.
“I am happy to have given people the opportunity to realize how much power you can have if you have an active interest in investing,” he concluded. “I don’t want them to be risky or manipulate the market by pumping stocks until the SEC takes action, but this is a great reminder that investing wisely is something you should consider.”