How are Millennials & Other Robinhood Traders Changing What’s Happening in Your Portfolio?
For many years, making moves on the stock market had been reserved for the richest of the rich. However, the advent of online trading platforms like Robinhood and TD Ameritrade has brought a much younger, middle-class demographic into the market: millennials. Millennials have not only brought their own money into the stock market but their own values as well.
A Different Way to Evaluate Stocks
It is widely accepted that when you invest in a stock, you do not invest in just the price of the stock, but the projected value of the stock. While there are many metrics that help investors while they are trading, the majority of them agree that the cash flow of a country is a huge indicator of whether a stock will climb or drop. Obviously, when a company loses more cash than it gets, it has less cash to invest in its workers, its operations, and most importantly, its future. But let’s take a step back for a second.
Imagine you are in your bed with your phone and you decide to download Robinhood because all of your friends are on it too. You know absolutely nothing about cash flows and P/E ratios so you decide to throw all of that nonsense out the window because you don’t have time for Wikipedia and Investopedia. But there is one thing you know how to analyze: price. You know better than anyone when something’s on a bargain. Buying oil futures shouldn’t be too different from buying gas, right? You would rather buy gas at a bargain price than you would when it’s super high. Likewise, when you think that an airline stock will do well when the pandemic is over, common sense tells you to buy it now because its value will increase later. However, what a lot of people forget is that airlines are losing millions of dollars right now, and they are laying off thousands of workers. This only makes recovering from this pandemic much more difficult. However, the market is swayed by the investors-not logic.
This is the mindset that has been silently driving the market for quite a while. We are getting a first-hand look at it right now. On March 23, the Dow Jones Industrial Average hit its lowest point for the entire year. From there, the DJI rebounded and climbed its way back to its pre-pandemic levels. However, the United States GDP actually saw some of its worst losses during the second quarter of the year, which took place well after March 23.
Headline Psychology
This is just as evident in stocks like AAL (American Airlines) and UAL (United Airlines) that have been hit the hardest by the pandemic. Let’s return to our situation with the typical millennial. It is quite obvious that today, many airports are empty. But you are pretty sure that when airports start operating normally again along with airlines, many of these airline companies will gain back some of their value. It turns out that millions of other younger investors probably thought the same thing. The data below shows that several airline stocks, along with the DJI, shot up in value but soon dropped just as quickly as it climbed during June 11 because of a projection by the FOMC that the real GDP would contract more than 6.5% over the course of 2020.
Now, this unexpected climb was also in large part caused by a recent May jobs report that showed that “Employment stunningly rose by 2.5 million in May and the jobless rate declined to 13.3%, according to data Friday from the Labor Department.” (Cox 2020) However, this is also one of those rare indicators that all investors can see firsthand. You can’t exactly visualize something as intangible as cash flows or stock projections, but everybody knows that losing a job heavily impacts your daily life which is why many investors of all ages reacted positively to this report. However, all it took was one headline made by the FOMC to immediately pop this market bubble where many investors were too optimistic about the market. As of now, the market has started to once again climb from this bubble because of more positive jobs reports during the month of June and July, but there are many indicators like the latest September jobs report or recent quarter three GDP forecasts that point towards a fading economic recovery. There have been many overly optimistic responses to positive economic headlines that have caused what I call mini-bubbles in the market. These mini-bubbles are very fragile and they can just as easily be popped by a negative headline, as shown by the FOMC GDP incident. As more and more younger investors enter the market, many stocks will see more dramatic swings in value because the majority of investors will eventually be millennials.
Millennials Are Not Bad for the Market!
You may have heard many older investors talk about the fault of the younger generations and Robinhood traders when it comes to investing. Billionaire investor Leon Cooperman did not hesitate to say that, “They are just doing stupid things, and in my opinion, this will end in tears.” (Fox 2020). As much as older investors dislike millennials, I do not believe that millennials are negatively impacting the market at all. Their outlook on investing simply means that companies do not have to worry so much about the problems they deal with within the present and that they can start putting more of an emphasis on the future. It isn’t such a bad thing if the market becomes more dramatic either.
A New Hope for the Environment
But there is another reason for supporting the millennials’ entrance into the market. For many years, economists have viewed the stock market as the environment’s enemy. As the market is being more and more swayed by the values of millennials, it has become friendlier to the environment. Many millennials recognize the plethora of environmental dangers humanity is going to have to deal with and they have subsequently started to invest in more than just monetary value. According to the Sustainability Management School, “A recent study showed that 87% of millennials believe that companies should address urgent social and environmental issues.’” (Sustainability Management School Administration, 2019). Sustainable investing & values have become mainstream among more than just millennials now: for many companies, putting an emphasis on protecting the environment has resulted in very high returns. According to CNBC, “Over $19 billion has flowed into ESG ETFs this year, bringing the total to over $40 billion,” (Gurdus 2020) despite the market’s sharp decline this year. ESG funds have even outpaced the S&P 500 this year!
What millennials are doing for the market right now by investing in companies with a strong environmental presence will have huge ramifications when it comes to preventing a future environmental disaster Because of their investments into the environment and not just fiscal value, more companies will focus on going green, millennials will be the ones to thank when we potentially avert a huge environmental crisis.
A New Era
In conclusion, as a new generation of traders enters the market, I don’t expect that the term ‘Robinhood Trader’ will remain a stereotype. It will be the norm. And as much as it seems like it, it won’t be so much of a bad thing. Sure, we may see some minor changes in the day-to-day dynamics of the stock market, but this is simply a transition into a new era where investors value more than just money.
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