Shane Neagle, Editor In Chief at The Tokenist, delves into value investing, exploring whether it is making a comeback, or whether it’s been here all along.
As savvy shoppers prefer to wait and buy a TV when it goes on sale rather than paying full price, a value investor seeks to buy a stock at a discount. This model requires a substantial amount of patience, diligence, and research—but it can also pay out well.
Prices of stocks and other assets fluctuate based on demand, market sentiment, good and bad news, and other factors. At times, these fluctuations might leave a stock either overpriced or underpriced. This is why value investors are sceptical of the efficient-market hypothesis and believe a stock's price does not always reflect its intrinsic value.
Value investors have the premise that they will own parts of a business when they purchase its shares. Of course, this is true for all investors—everyone investing in a business will own parts of it, even if they are not value investors—but some just "play the market," meaning they take action based on technicalities, and disregard the fundamentals.
Value investors call the difference between a stock's current price and its intrinsic value "margin of safety." A higher margin of safety suggests there is the potential for more profitability and a lower risk of making a loss. Since not every value stock will turn its business around favourably, the margin of safety represents an investor's risk tolerance.
The prime feature of a value stock is that it is undervalued in comparison to its financial performance — metrics like revenue, earnings, and cash flow. Small businesses can record these using a simple accounting software. Yet as the company grows, the task of compiling such information by the company — and accessing such information by a researcher — becomes increasingly difficult. We’ll dive more into that in a moment.
Other defining characteristics of a value stock are fundamental factors like brand, long histories of success, business model, consistent profitability (even if insignificant), target market, dividend payment, and competitive advantage. For instance, Cisco Systems, Inc. can be deemed as one of the biggest value stocks available. The company, which delivers software-defined networking, cloud, and security solutions, tends to display most of the value stock characteristics. Here is a breakdown:
However, it is worth noting that finding value stocks requires a reasonable amount of subjectivity — it can be more of an art than a science.
As a favoured investing strategy by some of the world's most prominent traders, value investing comes with a number of unique advantages. In the first place, it offers the potential for significant gains. This is because value investors buy stocks at a discount and sell when they come to fruition (reach the estimated intrinsic value).
Moreover, since value stocks are already severely undervalued, they are not subject to the risk of suffering extended losses. This creates a favourable risk/reward ratio given that the stock is evaluated accurately. Further, considering that value investors buy for the long term, they also don't have to worry about short-term fluctuations and volatility. However, value investing also comes with a number of downsides. Firstly, it is quite difficult to identify undervalued companies. In addition to a certain level of expertise, value investors need to have a fair amount of subjectivity to be able to accurately estimate the intrinsic value of a company.
Furthermore, value investing requires a substantial amount of patience and diligence. At times, value investors might have to hold their positions for several years as it can take quite some time for the market to understand the value of a stock. Therefore, those who expect to reap the benefits fast might find that this strategy isn’t ideal.
Throughout history, a number of investors have managed to earn a name for themselves for being exceptionally successful value investors. Among them, two names stand out: Benjamin Graham and Warren Buffett.
Benjamin Graham was an economist, professor, and investor who is regarded as the father of value investing. He published Security Analysis in 1934, and The Intelligent Investor in 1949 as the founding texts of value investing. In his books, Graham described the concept of intrinsic value and the necessity for establishing a margin of safety when trading value stocks. Besides his books, Graham made contributions to value investing by mentoring legendary investors like Warren Buffett. Buffett, who is now CEO of Berkshire Hathaway and the world’s 8th richest person with a net worth of over $100 billion, studied under Graham at Columbia University and worked at Graham's firm for several years.
Following Graham's school of value investing, Buffet looks for securities that are unjustifiably undervalued compared to their intrinsic worth. He has become one of the world's most successful investors, earning himself the nickname "Oracle of Omaha," which implies other investors closely follow his investment picks and comments on the market.
Nevertheless, it is worth noting that many financial experts believe value investing is an old-school strategy. Some argue that the rise of hard-to-analyse intangible assets—assets that are not physical in nature—has made value investing irrelevant in 2021. A look at Keith Gill's investing strategy suggests otherwise, however.
Keith Patrick Gill, the guy who is largely known for his role in the GameStop saga, is a self-characterised value investor. Known as Reddit user u/DeepF***ingValue, he is a prominent trader within the retail-centric r/Wallstreetbets community. For his role in the GME phenomenon, Gill faced a class-action lawsuit and also had to testify before the House Financial Services Committee. In his testimony, he acknowledged that GME was undervalued compared to its intrinsic value. He said:
"I believed the company was dramatically undervalued by the market. The prevailing analysis about GameStop’s impending doom was simply wrong."
Gill also declared that he examines a company's value before investing. "As an individual investor, I use publicly available information to study the market and the value of specific companies. I consider a complex array of factors and track hundreds of stocks – all in search of market inefficiencies," he stated.
All of this suggests that Gill is openly a value investor. And even though it has become difficult to use value investing techniques due to the increasing complexity of the markets, value investing continues to remain alive and well.
Maxim Manturov, Head of Investment Research at Freedom Finance Europe, explains what retail investors should know as the “meme stock” movement continues to thrive.
The key to success is to understand the motivations behind emotional investing and to avoid both euphoric and depressive investment traps that can lead to bad decisions. The investor psyche can overpower rational thinking during times of stress, whether the stress is caused by hype or panic. To capitalise on market euphoria or frightening events, it is critical to take a rational, realistic, and strategic approach to investing.
With this topic in mind, below I explore the rise of the “meme stocks” movement, and whether investors should look to capitalise on this growing trend or steer clear of impulse buys.
“Meme stocks” are stocks of companies that have recently seen a sudden surge in trading activity, usually supported by online social media platforms such as Reddit and Twitter. The hype surrounding a particular stock encourages retail traders to invest, knowing that its share price will likely rise and do so quickly. In addition, the “meme stocks” exchange community often favours stocks with high, short-term gains. By forcing everyone who sold the stock to cover their short position, this leads to further stock growth overall.
The term “meme stock” originated on the Reddit online discussion forum, where a sub-Reddit known as WallStreetBets became heavily popular. Towards the end of January, the users of WallStreetBets criticised large financial institutions and hedge funds for constantly 'shorting' the shares of distressed companies such as GameStop and AMC Entertainment. This led to retail traders buying large quantities of shares in these companies, taking advantage of the ‘buy and hold' approach.
Following this surge, news of the short squeeze spread across various social media platforms, attracting a lot of attention from investors across the globe, even to the point where the phenomenon came to the attention of the SEC. This resulted in certain hedge funds and brokers who worked with them making some pretty hefty losses.
It is important to remember that “meme stocks” are nothing more than speculation. Essentially, it is not worth allocating large sums to these trades, given the stock's volatile behaviour or unsubstantiated valuations backed only by information noise. In the long term, the company fundamentals will matter a lot, and after a short squeeze rally, the prices can easily go down as fast as they went up, so it is worth acting with caution and being aware of all the risks.
The movement of “meme stocks” has more to do with factors brought about by the pandemic. Historically low interest rates and incentives, as well as high levels of liquidity in the markets, combined with increased leisure time and self-isolation, provoked many people to enter the stock market for the first time. In addition, the increasing availability of zero commission accounts and trading apps for millennials contributed immensely to the growing trend.
Over one million new online brokerage accounts were opened in Q1 2020 alone, with equity trading becoming one of the most popular applications for Covid's incentive cheques in the US. Yet, the retail investment boom is not unique to the US. Almost all major stock markets have seen similar trends, with local trading applications becoming more widespread.
The future of the “meme stocks” movement will depend on the fundamental reasons for its emergence in the first place, including liquidity levels in the markets, interest rates, and monetary policy. Without these components, the rise of “meme stocks” might have never happened in the first place. As such, while it is likely that this theme will continue to exist, it will not move at such an incredible scale as in January with Gamestop and AMC stocks.
While it is clear that investors should avoid impulse buys, with the right level of research and precaution “meme stocks” can result in profits for more experienced buyers. So, what are the top “meme stocks” that investors should watch in 2021?
We may seek social trading in the same way we would look for a social network, such as Facebook, Linked In, Instagram, Pinterest, or Twitter. The difference is that you are trading in financial markets, and you can also observe other people's track records. However, the interaction is essentially the same as in other social networks; you have your feed where you can view other people's postings about markets, questions, surveys, and so on.
Some social trading platforms make it simple to locate successful investors whose trading approach matches your requirements. However, this is not always easy because finding the proper investors to emulate might take time and expertise.
With social trading, you get a more in-depth look at what you're investing in. You have access to the investors' historical returns (which are not predictive of future results), risk score, drawdowns, holding period, and even current holdings, so everything is clear to those who wish to start copying.
Social trading operates like a well-oiled system, with brokers, platforms, inexperienced traders, and experts playing vital roles.
It's a professional network that acts as a link between novice and experienced traders in trading and a forum for conversation and information sharing. It frequently resembles a typical social network, with capabilities such as publishing information, commenting, postings and sending messages.
Traders who are professionals assign roles as signal providers. They trade on their accounts, allowing inexperienced traders to replicate their moves. They can even have their professional blog on various sites.
Investors and novice traders are the platforms' primary users. They can duplicate the trades of experts, communicate with and copy signals from skilled traders, and do so on their accounts at the agreed ratio.
Brokers ensure order execution and access to copying instruments. They benefit from increased trading activity and the acquisition of new customers. Some brokers, such as eToro, FXTM, and RoboForex, have their social trading platforms, while the vast majority rely on third-party suppliers.
Is a provider of social trading software, a platform that brings together clients from several brokers in one location. MQL5, ZuluTrade, and DupliTrade are the most popular suppliers.
A lot is dependent on the broker and platform you've chosen. Consider platforms with the regulation in one of the nations with an established legal system (for example, the United Kingdom, Cyprus, Australia, and the United States) and transparent statistics for study.
Social trading on Forex from the world's leading brokers is risk-free, and the main dangers, in general, are in the trade itself. However, as the popularity of the service grows, scam brokers may also provide copy trading. Scam brokers are often unregulated, do not explain the dangers, and exaggerate the possible reward.
How have companies’ investor engagement strategies changed during the COVID-19 pandemic?
The pandemic has really shone a light on so many things. Some, we always knew but didn’t realise quite how key they were to our most basic way of working. Investor engagement is a case in point. We all recognise that investment decisions are not all about balance sheets and financial projections. The numbers need to stack up, of course they do, but that is not always enough. Clearly, trust plays a big part, but much of that trust is earned, not just from past successes and an individual’s track record, but a belief in the person you’re dealing with. We used to joke about sizing someone up by the strength of their grip in a handshake or how they relaxed over lunch or a couple of drinks. That’s all gone now. Hopefully not for much longer, but physical contact and the sheer physicality of actually meeting someone face to face; that will never be the same again. The WebCam World is here to stay which means we need to do a lot more groundwork, before that first online ‘meeting’. Potential investors need to have a good feeling about the players involved and the investment opportunity being presented before they get that video meeting. For PR and IR specialists, like me, shifting strategies to meet changing market conditions is second nature. For investment companies, themselves, this can be a real challenge, which can lead to a costly loss of focus.
How can you help companies when it comes to investor engagement?
As mentioned, the investor environment has changed - not in terms of returns, but in terms of engagement. I think the role of Pristine and myself is now, more than ever, to give investment firms greater control of this new environment. We do this very proactively, as now is not the time to sit on the sidelines and nudge or to be too subliminal. The world is in the grip of a paradigm shift and waiting for that world to come around to our way of thinking is not an option; better to be in there batting and shaping the new future.
The investor environment has changed - not in terms of returns, but in terms of engagement.
Let’s face it, we always say ‘challenges’, not ‘problems’, don’t we? We always put that ‘positive spin’ to demonstrate our positive outlook. Well, spin won’t cut it this time. It’s got to be all about action. No more ‘putting out the feelers’; ask the question- and make sure you get the right answer. No more email reach-outs; get on the phone- and don’t get off that call till you’ve got what you want. It’s the time for a little street fighting- and I love it!
What would you say are the advantages of hiring outside of your vendor when it comes to IR, PR and marketing?
I think in-house PR and IR has its place. It is very focused, obviously, which can offer some good results. However, its focus can, also, be its undoing. An investment opportunity is no more something to be seen in isolation than a market can be ring-fenced. To put over anything, you must be able to compare it with other things on the market. Context is very important. Don’t get me wrong, I’ve worked in-house, myself, and see the value in its focus, but I think a more ‘bird’s eye view’ won’t detract from that focus; but will fine-tune its targeting.
David Smith, a cryptographer from the Smart Card Institute, offers Finance Monthly a beginner's guide to various financial markets and what a prospective investor can hope to get out of them.
Most people get intimidated by the idea of making an investment – mostly because they don’t understand the different types of financial markets and which one could be the best suited for them. Our article today sheds light on the different types of financial markets so that you can make better investments in the future.
Most people are aware of stocks. They are probably the most popular and simple kind of investment that has been around for a really long time. Basically, when you invest in stocks you are buying a part of a share in a public trading company. Some of the biggest companies in the world today such as Microsoft, Apple, Samsung, all sell their shares. However, they sell only a small percentage in the stock market.
Once you buy the stock and the prices go up in the stock market then you can sell the share at a profit. The downside is obviously if the price goes down and you will go into a loss. If you wish to buy stocks then brokers are the right people to get in touch with as they will help you make an investment.
Buying a bond means you are lending money to an enterprise that is either government-owned or is a business. Businesses issue corporate bonds whereas the government issues treasury bonds or municipal bonds. Once you have held the bond for a particular time period and it reaches maturity, you can acquire the bond with interest. Bonds are generally a low-risk investment and come with a lower return as compared to stocks.
Buying a bond means you are lending money to an enterprise that is either government-owned or is a business.
This is a relatively simpler investment. Foreign exchange investors buy a currency that is expected to increase in value in the future and then they make a profit out of it. The profits all depend on the exchange rates at the time of selling.
Mutual funds refer to a pool of investors who are investing in several companies at the same time. These funds are either managed actively, in which the manager chooses the companies for the investors to put their money, or they can be passively managed, in which the fund tracks some stock market investment. There can be mutual funds which are a mixture of actively managed and passively managed funds.
One of the safest forms of investment is a certificate of deposit in which you give money to a bank for a certain time period and once the time period is over you can withdraw the money along with the interest which was pre-determined.
Investing in physical assets means you are buying an asset that holds a market value and can be liquidated when you need the money. These assets can be precious metals, jewelry, property, etc. As in the case of most investments, investors who put their money here expect the prices to increase so that they can sell their property, jewelry, etc. at a higher price.
Cryptocurrencies can be thought of as digital currencies that have market value and are a great investment option. Bitcoin is one of the most famous cryptocurrencies that is now coupled with advanced smart card technology. However, cryptos can be an extremely risky form of investment as their value fluctuates tremendously.
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Most people are offered a retirement plan at either their workplace or some other means. Retirement plans are not exactly an investment category but they can be thought of as a means to make other investments as they give you countless advantages such as tax leverages.
A lot of people use annuities coupled with their retirement plans to make investments. Once you purchase an annuity you come to terms with a contract with an insurance company that provides you with payments periodically. The payment duration and the amounts are both predetermined. Annuities are a low-risk investment but they are low-growth as well.
Options can be thought of as a complex kind of stock. An option gives you the ability to either buy or sell a certain asset at a predetermined price at whatever given time. An option may decrease in value and might end up in a loss for the investor.
Overall, financial markets make it possible for companies to acquire capital due to their regulated and open system and enable businesses to balance risk with the help of foreign exchange, commodities and other derivates.
Some of the investors who are earning billions from the stock market have suggested doubling your invested money every three years at a CAGR of 24%. Investing in stocks doesn't mean you can sit idle and earn higher returns. You can earn profit as well as lose it. But staying patient for the long run and diversifying your portfolio is a good option.
Speaking of diversifying, the RBI of India has permitted investors to invest an amount in US stocks. Most of the stocks are traded on an exchange such as NASDAQ. Some of the best NASDAQ stocks of the year include Workday WDAY, Nvidia NVDA, Zoom Video Communication ZM, Tesla shares, Jd.com JD, Marriott Int MAR, Apple AAPL, Expedia Group EXPE, and Ulta Beauty ULTA.
A stock market, also known as an equity market or share market, is an auction where several buyers and sellers join to carry out the purchase and selling of stocks. Purchasing a share of a company means you are given legal ownership for a part of the company.
Some of the investors who are earning billions from the stock market have suggested doubling your invested money every three years at a CAGR of 24%.
Here are some tips for you:
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Investing in stocks means you want to increase your capital but there is nothing free in this world. Hence, to earn more you need to face the risk factors. Besides this, you need to have patience, skills, a focused mindset, clear financial goals, and a proper plan of investment. No one can say for certain that you will become rich by investing in the stock market but there are chances that your capital will keep growing if you are holding the stocks for a longer period.
In the present era, every person strives for economic sustainability. People struggle to make ends meet financially, as jobs are paying average wages and businesses are merely covering the running costs under this economy. At a time when there are not many profitable business opportunities, the trading of cryptocurrencies has emerged as a feasible mode of financial investment. Digital currencies have taken the economic world by a storm and it has completely altered the concept of traditional currency.
The global economy has seen major fluctuations over the course of the last two decades. The financial crisis of 2008 proved to be extremely hurtful to businesses, and it was an indication that the traditional concept of currency was unable to tackle modern complications. This is when cryptocurrencies, like Bitcoin, started to make their way into the mainstream financial world.
New investors and traders are now inclined towards digital currencies like Bitcoin. There is an increasing demand for Bitcoin in the digital market. The boom in the prices of bitcoin in 2017 came as a shock to the financial world, and many of Bitcoin’s early investors were able to gain thousands and millions of dollars in profit. Since then the business world has kept a keen eye on the performances of Bitcoin in the market.
The traditional banking system is deemed incompetent by the public, as the general perception is that it has too many complications and complexities. Plus, there is a governing body over these banks which keep a regulatory check on every transaction made from a single account. People have to go through a lengthy process even to open an account.
Bitcoin, on the other hand, is an independent entity, and it has provided an easier alternative mode of transaction for the public. Without any external controls, transactions through Bitcoin are more safe and secure. Furthermore,Bitcoin can be traded and mined from anywhere in the world, as it unites the digital world in one forum. However, banks usually do not allow international transactions, and if they do the cost is much higher. The global economic market sees bitcoin as a more feasible and profitable mode of transaction.
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Bitcoin is used by millions of people all over the world, and this fact has forced major brands to recognize Bitcoin as an acceptable mode of transaction as well. However, there are still many complications to this new concept which are not simple to comprehend by the general public. This is why there are platforms that guide new traders and investors in the field.
These platforms provide demo accounts to provide practical experience to the traders, and even allow their accounts to function from a minimal investment. They have no extra charges, and they provide market analysis and predictions to the users, which later helps them in gaining trade profits.
These platforms have a high success ratio, and they use modern technologies like blockchain and artificial intelligence to make predictions. Accessibility and feasibility is another benefit of trading through these platforms, because they are easy to use and can be accessed at any time to trade bitcoin on your phone. They allow manual and automated training as per the convenience of the users and give traders a chance to make their own decisions.
With the growing influence of bitcoin and other cryptocurrencies, these platforms are expected to play a vital role in training and guiding new traders. Also, these platforms have a minimal risk of loss which encourages new investors in the industry.
A number of the world’s biggest private equity firms, including Silver Lake Partners LP, Thoma Bravo LP and Blackstone Group Inc, have seen their stakes in software firms greatly devalued following a wide-reaching hack on software provider SolarWinds Corp.
SolarWinds stock has slid 20.8% from last week’s close after reporting on Sunday that suspected Russian hackers had inserted malicious code into software used by the company to carry out updates, allowing the operatives to access sensitive systems undetected.
The “Sunburst” operation, remarkable for its size and sophistication, constitutes the biggest cyberattack against the US government in more than five years. Around 300,000 companies and agencies use systems provided by SolarWinds, with around 18,000 believed to have used compromised versions of its software since the attack began in March.
SolarWinds’ customers include most US Fortune 500 companies, all of the top 10 US telecom providers, the US military and various other government branches. The UK government and the NHS are also listed among the company’s clients.
Silver Lakes holds a stake of nearly 40% in SilverWinds. Following the plunge in the value of its shares, this stake is now worth $2.3 billion, and Thoma Bravo’s 33% stake is now worth $1.9 billion.
Blackstone’s $400 million November donation in cybersecurity firm FireEye Inc also suffered from the hack, as the company’s shares fell 11% after hackers stole a collection of hacking tools used to test clients’ cyber defences. FireEye, which has contracts across the US national security sector and with its allies, uncovered the SolarWinds breach while probing this attack.
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Regulatory filings showed that, following the theft of its tools, FireEye amended its deal with Blackstone and co-investor ClearSky to make it more favourable to the private equity companies. The firm opted to convert the FireEye-preferred shares that the investors stood to receive to common stock at $17.25 rather than the initially agreed $18.
FireEye shares traded at around $13.58 on Tuesday afternoon.
UK-based consumer goods giant Unilever said on Monday that it would give shareholders an advisory vote on its plans to curb emissions at its next annual general meeting in May, becoming the first blue-chip company to give investors a voice on its climate plan.
Unilever has set a goal to reach net zero carbon emissions from its own operations by 2030, and to reduce the average carbon footprint of its products by 50% by the same deadline. The firm announced in June that all of its products would be carbon neutral from production to point of sale by 2039, and now plans to create a €1 billion climate and nature fund to invest further in improving the environmental impact of its operations.
Unilever will publish a detailed action plan outlining how it expects to hit these targets in Q1 2021, after which it will report progress against the plan annually and seek shareholder approval of its current measures. This plan will be updated every three years.
“It is the first time a major global company has voluntarily committed to put its climate transition plans before a shareholder vote,” Unilever said in a statement.
In order to achieve its climate goals, the company said it would need to transition its operations to 100% renewable energy, eliminate deforestation from its supply chain and rework many of its flagship products.
“Climate change is the most pressing issue of our time and we are determined to play a leadership role in accelerating the transition to a zero carbon economy,” Unilever CEO Alan Jope said.
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Unilever is one of the world’s largest consumer goods companies, with a market cap of $120 billion. Through household brands including Ben & Jerry’s, PG Tips and Domestos, the company claims to reach over 2 billion customers worldwide.
Stuart Lane, CEO at Trade Nation, shares his findings on the trading habits of millennial and Gen Z investors and how they have been influenced by emerging trading platforms.
There’s been a surge in trading interest among the whole population since the start of the coronavirus pandemic, but especially so in millennials and Gen Zs. A survey by E*Trade Financial Corp found that over half of younger investors have traded more frequently, and while many have made notable gains, there have also been some serious losses.
Roughly 46% of millennials and Gen Zs are trading derivatives more frequently — double the average rate. What’s more, 51% say their risk tolerance has increased. This makes for a potentially dangerous combination, especially for amateurs, of whom there are plenty. Robinhood (by far the most popular trading app of millennials and Gen Zs) has said almost half of its new customers this year are first-time traders who, therefore, may not know the risks surrounding complex derivatives such as CFDs. As Trade Nation notes: “CFD trading certainly isn’t straightforward and there’s a lot of confusing terminology and hidden costs involved too. This means it usually isn’t the best way for traders to kick off their journey.”
And in addition to the risks individual traders may be opening themselves up to, experts like Princeton economist Burton G. Malkiel believe that the outlandish trading activities of millennials and Gen Zs are also wreaking havoc on the financial markets.
The general consensus is that trading has been a great way for the younger generations to fill extra time and deal with the boredom of lockdown. As the founder of RagingBull, Jeff Bishop, told CNBC: “A lot of people are at home and have got more time on their hands. And many, unfortunately, have lost their jobs and are looking for new opportunities. Younger investors are looking for ways to recoup their money.” Furthermore, many Americans have been able to fund their trading activities with their government stimulus checks, with software and data aggregation company Envestnet Yodlee reporting that trading was among the most common uses for the checks in almost every income bracket.
There’s been a surge in trading interest among the whole population since the start of the coronavirus pandemic, but especially so in millennials and Gen Zs.
Apps like Robinhood, eToro and RagingBull have also made trading more accessible for these traders, seeing demand for their services rise by 300%, 220% and 158% in the first quarter of 2020, respectively. And given that the vast majority of millennials and Gen Zs have been using their smartphones more due to the coronavirus outbreak, it’s unsurprising that the time spent on apps like these has also increased.
The E*Trade survey found that almost half of young investors are trading derivatives more frequently compared to 22% of the general population, while there’s been an especially sharp increase in options trading. What’s more, the surprising nature of their most popular stock picks have stunned, and perhaps even humbled, many Wall Street investors.
"We see a lot of buying activity of specific industries that were impacted by the pandemic," said Robinhood co-founder Vladimir Tenev, as reported by CNN. He singled out shares of airlines, videoconferencing and streaming media companies, and biopharmaceuticals. For example, even though Warren Buffet dumped his airline shares in light of the coronavirus travel restrictions, millennial and Gen Z traders had faith in a recovery. Frank Holmes, CEO of US Global Investors, told CNN that he noticed a surge in interest for the JETS airline ETF in March. Examining Robinhood trends, he learned that plenty of young investors had been buying it after a major dip. The funds' assets went from $34.6 million at the start of March to $615 million by the end of April — a 1600% increase.
“Although a lot of people may say that it’s crazy, it has turned out pretty well,” JJ Kinahan, the chief market strategist at TD Ameritrade, told Bloomberg. “Retail investors for the last few months have been a little bit ahead of the curve. There’s been a lot more perhaps optimism among retail traders around the turnaround than there has been from professionals. This continues to show that.” However, it’s inconclusive whether moves like this are really paying off for younger traders. While some analysts (such as those at Goldman Sachs) claim the stocks of Robinhood investors have outperformed hedge funds and the indices, others have found a negative correlation between these stocks and their returns.
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Robinhood has been the app of choice for many millennial and Gen Z traders, and though their ambition to “democratise finance for all” has clearly appealed to this market, it also means that many amateurs have jumped into trading without any experience and gone on to make grave mistakes.
“Robinhood has gamified investing. Trading is now so simple that it can be easy to make impulsive decisions,” one millennial investor told Financial Times writer Siddarth Shrikanth, adding that they immensely regretted the progressively riskier trades they had made during lockdown. Shrinkanth noted that while Robinhood doesn’t provide investment advice, it does “little to deter poor decisions”. For example, almost 200,000 users were holding very complex United States Oil ETFs in the days after it crashed in April. “Why were younger investors drawn into volatile commodity tracker funds, despite repeated warnings from regulators that these risky products were unsuitable for retail investors?” he questioned.
Many millennials and Gen Zs are diving into trading complicated financial instruments without fully understanding the risks. And as well as the potential for devastating losses, this can also come at a tragic human cost. Alex Kearns, a 20-year-old Robinhood trader died by suicide after seeing an unexpected $730,000 negative balance on his account, which he didn’t understand and may have only been temporary.
Many millennials and Gen Zs are diving into trading complicated financial instruments without fully understanding the risks.
In addition to the potential problems for individual millennial and Gen Z traders, it’s also thought that their activities may be having a significant impact on the markets. For example, having filed for bankruptcy in May, Hertz shares had surged 800% just a few weeks later, with this being one of the most popular Robinhood stocks. Stocks like these may be rallying because of the sheer number of users on the platform — there were more than 160,000 Robinhood investors who owned Hertz stock as of 17 June.
That said, not everyone believes millennial and Gen Z traders are responsible for inflated stock prices. “In June, Barclays published a study of moves in the S&P 500 and positions taken by ‘Robinhooders’,” explained The Telegraph’s Garry White. “It concluded that retail investors speculating in stocks are not responsible for the market’s rally and the top picks of the app’s users tended to underperform, and moves in the S&P 500 were independent of the positions taken on these apps.” He also concluded that while many Robinhood users may see big gains, ultimately: “this strategy needs a lot of attention to follow market moves and it seems inevitable that most will eventually lose money”.
Finablr Limited, the owner of Travelex and other money changing companies including UAE Exchange, announced on Tuesday that it had been approached with a takeover bid from Prism Advanced Solutions.
The details of the deal were not disclosed, but it is understood that Prism’s offer was made for purchasing 100% of the share capital of FInablr and its subsidiaries. The two companies are now working towards finalising the exact terms of the deal.
“After months of hard work under very trying liquidity conditions compounded by the impact of the coronavirus on our operations, I am excited to now go forward with Prism,” said Bhairav Trivedi, CEO of Finablr, in a statement. “We are honoured to be involved in this game-changing transaction in the Middle East."
Prism Advanced Solutions is a consortium of investors with connections to Israel, fronted by Guy Rothschild, a Swiss-based financier and former CFO at Maclaren.
“We acknowledge that it's going to be a challenging journey and that there would be difficulties along the way, but we are confident that with the support from all parties involved we will realize Finablr's full potential,” Rothschild commented on the deal.
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Finablr has come under great financial strain this past year as it was reported to be $1.3 billion in debt, with further losses coming as the COVID-19 pandemic impacted the company’s forex business. Its shares were suspended in London in March, having fallen 95% prior to their suspension, and its CEO and CFO subsequently resigned
A filing with the London Stock Exchange (LSE) indicated that Prism intends to restructure and settle Finablr Limited’s debts and will shuffle its board. The offer also includes the provisions of providing working capital for Finablr and its subsidiaries.
Both parties aim to close the deal within the next four weeks, once a share purchase agreement has been negotiated and Finablr has gained the approval of its shareholders and regulators to go ahead with the merger.
Alexander Coleridge, founder at TapSimple, outlines how non-profit companies can recover and thrive during these times of uncertainty.
To find their feet and serve those in need, charities will need to adapt to this changing environment, leveraging technologies to find new and better ways to fundraise, connect with audiences, and operate efficiently. The charity sector represents a great opportunity for innovation, with charity tech being the key to helping the third sector bounce back after COVID-19.
The charity sector has an annual income of over £75 billion per year, which is larger than the British automotive industry. Historically, charities of all sizes have suffered from outdated technology. Ineffective fundraising, a lack of data management capability and the absence of innovation around fundraising are key concerns for the industry, but there is a growing awareness within the charity sector that alternative payment methods, machine learning, chatbots and voice assistants would speed up processes.
According to some industry commentators, the voluntary sector is operating between five and ten years behind the commercial sector in terms of embracing the digital revolution, which means we are long overdue a leap forward in innovation within this industry.
Meanwhile, the decline of cash - a response to the growth in cashless payment technologies - has been hastened by the pandemic, with cash viewed as unhygienic. This is having a significant impact upon fundraising. The pandemic has caused charities to look at alternative ways of raising funds and connecting with their audiences. As such, technology will be at the centre of charity trends as we look ahead.
The charity sector has an annual income of over £75 billion per year, which is larger than the British automotive industry.
The next 12-24 months will be critical for charities, who will need to invest in technology or fail. This means we will bear witness to technologies such as contactless, virtual events, AR, AI and other emerging technologies shaping more and more of the voluntary sector.
73% of charities say street giving is failing as a result of the decline of cash, but only 4% of charities are currently making use of contactless payment systems. This means investment in contactless solutions that cater specifically to the charity sector will be a major focus in the coming months as charities look for new ways to fundraise. Technology providing seamless mobile experiences will be especially crucial. In 2019, approximately 24% of all online donations happened on a mobile device, and digital interactions with the web, social media and mobile devices are growing - being used by people of all ages and interests. As such, charities must ensure they are mobile friendly and have optimised their online giving for mobile devices.
Some charities are already beginning to leverage technology that can help with fundraising, and those that have are seeing a major boost to donations in face-to-face giving. For example, TapSimple’s contactless and chip & pin technology, used by the likes of the NSPCC and Christian Aid, allows supporters to donate when they aren’t carrying cash, and encourages them to give amounts that are on average three or four times higher.
Innovations in Gift Aid collection are also increasing income and streamlining the donation process so that fundraisers can keep digital records, contact supporters down the line, and make each donation go further.
Technologies that boost connections with supporters remotely are also becoming increasingly important. VR and AR technologies can enable charities to build immersive experiences for their audiences. Alzheimer’s Research, for example, is now offering VR dementia training.
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In addition, TapSimple’s Virtual Events platform allows charities to engage donor audiences and raise money online, enabling attendees to donate directly from a live stream or video conference page. Charities have been holding a range of fun and innovative events including virtual coffee mornings, remote bingo, cocktail making classes and live Q&As.
Traditional crowdfunding is also being disrupted, merging with gaming to create ‘stream-raising’, where gamers raise money while livestreaming gameplay. Some organisations have already begun to raise money through livestreaming gameplay, and this is likely to grow in popularity.
While 2020 will have implications for all industries, 2019’s success for the UK tech sector indicates positives ahead: digital technology grew six times faster than any other industry. Purpose-driven UK tech companies are also increasing, with investment in UK tech companies that addressed the UN’s Sustainable Development Goals nearly doubling in the last year. Evidently, the technology industry is continuing to bloom, and the charity sector will present fruitful opportunities to solve deep seated inefficiencies and create value.
Giving is a challenging environment, especially at present, but necessity is the mother of invention and charities which can take advantage of burgeoning technological developments will be best placed to thrive. Technology will not only help the third sector rise to its present challenges, it can also help charities to evolve by creating more efficient and more engaging experiences; enabling the sector to connect to a wider, more global audience. Investors should be on the lookout for technology solutions providing ways to help the voluntary sector level up.
