In the Before Times, those seeking thrills, excitement and drama pursued the arts, or perhaps joined the armed forces. Anything, really, except the decidedly uncool prospect of spending one’s days tied to a desk and looking at a bunch of numbers.
Not anymore. Now, getting a Robinhood trading account, checking the price of GameStop Corp. or Tesla Inc., analyzing market data on Excel sheets and buying shares for no reason other than “we like the stock” is considered not only hip, but also a mark of rebellion against the establishment.
Meanwhile, traditional investors—who praise Warren Buffett, prize diligent research and value steady returns—are being taken aback by the new generation’s rampant stock picking, breakneck trading and pursuit of instant gratification. The two schools often collide, piling scorn on each other with derisive memes and posts on social media.
The future is now, old man pic.twitter.com/1GJ13KW2hr
—WallStreetBets | Wall St Memes (@wallstmemes) February 15, 2021
“You have young people educating themselves and learning how the market works, which is a good thing,” said Douglas Boneparth, president of the wealth-management firm Bone Fide Wealth. “But some come off as wanting to be respected for making money in an easy market and they feel attacked if you point out how risky some of their decisions are.”
Scores of studies have shown that the strategy of picking stocks struggles to beat the broader market over the long run, even when done by pros. Actively managed U.S. large-cap funds underperformed the S&P 500 for the 11th consecutive year in 2020, according to data from S&P Dow Jones Indices. They lagged behind even during the period of pandemic-driven volatility in the early part of last year.
One paper found that on average when traders on Robinhood buy a stock, it doesn’t perform better over the next three to 20 days, but actually does a little worse. And another showed smartphones generally make people more likely to buy risky assets and chase past returns.
But all that has done little to discourage the generation driving the rise of so-called meme stocks or even bigger names like Tesla. These new investors follow unconventional strategies, scour social media for tips, discuss their picks on Reddit trading forums such as WallStreetBets, and are sometimes comfortable facing the risk of big losses if that means they learned new skills along the way.
And there’s evidence for their success too. In a paper last year, Ivo Welch, a professor at the University of California, Los Angeles, showed a portfolio of common holdings on Robinhood beat market benchmarks and a quant factor model in the two years through mid-2020.
“‘The suit’ has now become a straw man for the establishment or professionals, but most of us just want to make sure people don’t get hurt,” Boneparth said. “Conflating these two approaches has created this dichotomy of ‘new school investors’ versus ‘old school’.”
This generational debate about the best way to go about investing is not only playing out online, but is also making its way into the family sphere.
Joseph Aldrian, 55, is an airline pilot who has had a trading account for 35 years. His investment style is inspired by pros like Buffett, Peter Lynch and William O'Neil. Throughout the years, his strategy has remained consistent, relying mainly on identifying companies with strong fundamentals like cash flow and earnings. He usually holds his picks for a relatively long time—four or five years.
“I like to get in something way beforehand and slowly build a position in it,” he said. “I don’t like to follow momentum because by the time I’m in, it forces you into being a day trader, and goes up so fast and then crashes down.”
His son Kevin Aldrian, 20—who has been actively trading for about three years—goes about things a bit differently.
“My strategy is a lot more my day and age,” he said, adding that he often gets in and out of positions in a single day. “My dad is mainly focused on fundamentals but for me, it’s about 90% technicals and only about 10% fundamentals. When I’m trading, I’m getting all my data based off of charts and I just trade off of what the chart is telling me.”