Looking back, looking forward
It goes without saying, that 2020 was a year to remember. Who would have guessed we would have seen a global pandemic that would fundamentally change how we live our lives everyday? That would have us work from home, keep our kids out of the classroom (at least the non-zoon versions of them), shutter hundreds of thousands of restaurants and small businesses, cancel sports seasons, bankrupt move theater chains, create a run on toilet paper, force us to keep six feet of distance from one another, wear masks whenever we’re outside of our bubble, and, maybe most surprisingly, create the highest interest in self-directed investing since, well, ever?
You heard that last one right. While cooped up at home with stimulus checks burning holes in our pockets, people turned to the stock market for some much-needed fun and excitement. In the first quarter alone, Robinhood added 3 million new accounts. Other brokerages followed suit, although not nearly as fast as Robinhood. Their confetti-flavored gamification of the market turned millions of millennials’ phones into coronavirus casinos promising, at best, the thrill of victory, and at worst, the agony of defeat.
Which brings us to 2021. My humble opinion is that a reckoning is coming, and the losers won’t be the executive suite at Robinhood. They’re well on their way to an IPO this year, which will make them rich beyond their wildest dreams. The losers will be the investors who gambled their way through 2020. I say gambled for two reasons. Many of the folks who put their hard-earned money to work in the market had little to no experience understanding the ins and outs of stock trading. They bought gutted stocks in companies teetering on, or already in bankruptcy, sure of their return after the pandemic passed. But as Covid continues to mutate and spread, the odds of that happening grow dimmer by the day. Secondly, it’s January, the time of year when we have to start to think about looming tax bills in April. Those who one-clicked their way to fast and often lucky gains in the market may have a hefty tax invoice to pay come April 15th.
All of this is to say that while I love that democratizing investing is bringing more and more folks into self-directed investing, we need to create some guardrails that keep people from making choices that could hurt them. I like to think of it as lane-assist, that snazzy technology that is pretty much standard in all new cars these days. We might not always be able to keep people from hurting themselves, but we do need to let them know the possibilities of what their choices could lead to. It is their “libertarian” right to drive off the cliff if they choose, but there should be plenty of bells ringing and lights flashing happening as they do, not confetti and happy emojis. As I’ve stated before, investing has potentially huge upsides and huge downsides. Having been a trader for decades and having built a new brokerage, I’m obviously in support of the practice. I just believe that we have a fiduciary responsibility to our customers to make sure that they know what they’re getting in to before they start trading. We’re building a sophisticated series of prompts driven by the data of how our customers are behaving that educates people as to the consequences, positive or negative, that their choices could, in fact, lead to. We don’t encourage behavior one way or the other, we just present the facts. That’s a responsibility we owe our customers. Not just access, but informed decision-making. That’s true investor empowerment. Knowledge that leads to mastery over time, not chaos. Hopefully that will lead to success for people in 2021, regardless of how Covid-19 wreaks havoc.