Last year, amateur investors took financial markets by storm. This year, Wall Street professionals are watching them closely.
Fund managers who might have once derided small-time day traders as “dumb money” are scouring social-media posts for clues about where the herd might veer next. Some 85% of hedge funds and 42% of asset managers are now tracking retail-trading message boards, according to a survey by Bloomberg Intelligence.
JPMorgan Chase & Co. in September introduced a new data product that includes information on which securities individual investors are likely buying and selling, as well as which sectors and stocks are being talked about on social media. About 50 clients, including some of the largest asset and quant managers, are testing the product, the bank says. JPMorgan equity traders are also using it to help manage their own risk.
“The flow from retail is not something you can ignore if you are a professional investor,” says
Chris Berthe,
JPMorgan’s global co-head of cash equities trading. “It’s a whole new investor class that has emerged, and it’s an investor class that’s actually getting themes right.”
Rookies rush in
The shift illustrates just how much the rookies have changed the investing landscape. A year ago, market observers were questioning if the retail revolution would continue. Now many are asking what it will look like this year.
After shying away from active investing for much of the past decade, millions of Americans, hunkered down at home because of Covid-19, became day traders in 2020. Enticed by volatile markets and phone apps that made it free to trade stocks, they flocked to social media for investing ideas. That year, they piled into stocks like
(and ultimately were rewarded when the car-rental company exited bankruptcy). It is estimated that more than 10 million individual investors opened new brokerage accounts in 2020, according to
Devin Ryan,
director of financial-technology research at JMP Securities.
Avoiding Crowds
The total number of stocks with at least $10 million in short interest rose last year, but the number of the most heavily shorted stocks declined.
Total number of
shorted stocks,
by the percentage
of each stock’s shares
that were sold short
Most
heavily
shorted
stocks
Among stocks with
short interest of
at least $10 million
Stocks with
20% or more
of shares that
were shorted
Stocks with
less than 1%
of shares that
were…
Read More: Day Traders as ‘Dumb Money?’ The Pros Are Now Paying Attention
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