Vantage Point: Volatility  

Why young investors do not need to fear the new and different

Tiernan Quantrill

Tiernan Quantrill

January 2021 may in future be seen as having heralded the birth of a new type of investor. 

With the global pandemic in full swing, lockdowns had severely limited opportunities for young people to spend in the ways they were once familiar with: no nightlife, no travel, no eating out.

Sitting for the first time in their lives on spare, inactive cash, their interest in investing inevitably grew. 

While some adhered to the old ways - well diversified index funds; blue-chip stocks with regular dividends; the drab, perpetual security of gold - a significant proportion turned to the childlike fun, and adolescent volatility, of “meme portfolios”.

One page on the forum r/WallStreetBets, under the influence of Keith Gill (a CFA) spotted the chance to short squeeze hedge-fund Melvin Capital by purchasing shares in GameStop  helping to create a so-called “meme stock” belonging to an American video game retailer that had experienced no significant growth for the past four years. 

At Gill’s insistence, many users of the Reddit forum bought en masse, hoping to trigger price rises that would force Melvin to cover their short position, something he could only do by buying more shares thereby triggering an even greater price rise from which the Wall Street betters could profit. 

The squeeze was a roaring success in terms of driving share prices upwards. GameStop’s stock price surged from $17.25 on the 11th January to over $500 before markets opened on the 27th, according to Bloomberg data. The forums where the organisers of such initiatives congregate filled with stories of personal finances transformed overnight. 

A generation, saddled with student debt and destined to be less well-off than their parents for the first time in over a century, had had their appetite for investing whetted, and groups of online influencers were all too keen to sate it.

These same folk pushed cryptocurrencies, NFTs and a further succession of meme stocks on the forums as the key to replicating the returns of the Gamestop bubble - all assets that are characterized by high levels of volatility. 

Trading in GameStop shares was halted on the 28th. Many who had bought the previous day’s high, believing r/WallStreetBets’ collective refrain that GameStop’s share price was going “to the moon”, instead found themselves plummeting to earth. 

And this was by no means isolated to GameStop traders: a number of lesser-known cryptocurrencies crashed, with trading also being halted on meme stocks Nokia, Blackberry and AMC Theatres. 

WallStreetBets, formerly triumphant, filled with stories of wasted savings accounts and shattered optimism. But many of those who lost out didn’t seem to care. Whether because of righteous anger towards a financial system they felt excluded from, or because of a sense that - no matter how much they were down - the prospect of a big win remained worth it, this new breed of young investor was here to stay.