The emergence of Gen-Z investors

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Photo credit: WallStreetBets

The meme that has become the symbol of “WallStreetBets” and other young investing groups, representing a risk worth taking, influencing an investment although it may not be a logical one. “People have greater access to information in real time and depending upon which media outlet they are listening to or reading,” financial advisor Michael Wharton said. “Information disseminated is not always factual.”

By Colin Duffy, Social Media Editor

The stock market is no longer just a game for boomers. The recent drastic involvement of teenagers and young adults in the stock exchange has become a nightmare for hedge fund managers and Wall Street giants such as Steven Cohen.
Financial advisor Michael Wharton credits social media and accessibility to online brokerage accounts for the surge of involvement in the stock market amongst teens and young adults. Online brokerage apps such as Robinhood offer non-commission trading, which enables traders with limited revenue to buy and sell with no commission costs.
Coinciding with non-commission trading, the ability to fractionally buy shares has made investing more affordable for young adults. For example, one share of Tesla (TSLA) is priced at $782.50, but with the fractional trading feature TSLA can be purchased for as little as one dollar.
“The cost of buying and selling stocks has become extremely low and has allowed more people to own equities,” Wharton said.
For those 18-24 year olds who stereotypically did not already blow their stimulus checks on the PS5 or their student loans, they may have elected to take the alternative route: GameStop (GME). While Robinhood has many pros, reaching around a financial advisor is not one. Traditionally, trading with a broker or advisor ensured a way to invest logically to build wealth. Now with the accessibility of the online brokerage apps, making trades before seeking out second opinions is common, which unfortunately has made the apps almost like a sportsbook.
“I would have to say it was almost like a form of legalized gambling,” Wharton said.
GameStop’s 1000 percent share price increase was not thanks to an elaborate marketing campaign to re-attract customers to their brick-and-mortar company, but instead the result of the WallStreetBets Reddit group who altered GME’s share price. The group drastically increased the price of GME by buying in shares bundles to ensure that the hedge fund’s short — a trade which bets against the success of a company —would be unsuccessful. When this occurs, it causes the hedge fund to buy the stock in massive amounts to cover their losses, which ultimately lead to GME’s drastic share price increase.

For Wharton, a major issue lies within the inexperience of many young investors, as he worries that these incidents can inflict damage on the traders financially. In this case, inexperienced and uninformed investors did get hurt. Robinhood restricted its users from buying GME, only allowing the option to hold or sell if the stock was previously attained. Consequently, investors who elected to hold lost a lot of money.
Economics teacher Brian Degnore is hesitant to believe the market truly reflects the economy.
“The market continues to go up, yet you have millions who are unemployed,”
Degnore said. “A small minority of businesses are doing incredibly well while a significant portion of the population is not.”
For young investors worried about the reflection of the market and it’s recent volatility, Wharton reassuring states volatility is natural in the stock market.
“The stock market typically corrects 10-15 percent once a year,” Wharton said. “Investors need to expand their time horizons, and remember to not get caught up in the short-term volatility that exists in the markets.”
Cryptocurrencies act as a digital service which can be used globally to buy goods and services. Bitcoin (BTC), a crypto invented in 2008, has seen a 17,000 percent increase since 2015 and continues to rise. Senior Matthew Mourad dove headfirst into the crypto bandwagon, putting a portion of his summer earnings into BTC.
“I made a good amount of money in the summer and wasn’t satisfied with the amount I made so I wanted to turn it into more,” Mourad said.
Bitcoin was trading at just a little over $7,000 in April 2020, on Feb. 21, 2021, BTC stock approached $57,000. The emergence of the cryptocurrency has led to investors looking to find the next Bitcoin. Dogecoin — another form of crypto, and a fan favorite of WallStreetBets — became an overwhelmingly popular investment while GME was booming. However, Dogecoin did not see the same results as GME, the crypto did see some short-term success as it increased from $0.oo7 to $0.08, but as of recency the crypto has been on a slow decline. Like GME, many people did lose money off investing in the crypto, as they invested for its popularity instead of its potential.

The most successful investors understand that the longer you are invested, the greater the opportunity you have to grow your money. The market is not always rational, meaning buy really good companies and hold for the long term.”

— Michael Wharton

Along with Mourad, other students have taken the opportunity to get their foot in the market. Junior Clare Ramsdell shares a different strategy — she owns shares in Index Funds such as Standard and Poor’s 500 Index (S&P 500) as well as OShares U.S. Small-Cap Quality (OUSM).
“They are fairly safe for investing long term,” Ramsdell said. “I can continue to add money into the funds and watch them progress.”
Index Funds are stocks which band together certain companies. For example, the S&P 500 is the 500 largest US publicly traded companies indexed together. Indexing these companies together creates a reflection of the stock market, a low-risk strategy for long term investing.
Although Wharton is concerned about some of the new investing trends that have become popular amongst young people, he still expressed an urgency for them to begin investing.
“The younger age you begin, the more time you have for your money to grow,” Wharton said. “Look at really good, financially and fundamentally sound companies to invest. A stock ownership in a company and the ability to own great companies is an amazing opportunity in our capital market system.”