Why Millions of Americans Took Investing Into Their Own Hands
On a Wednesday in June, deep in a corner of the Reddit message board r/WallstreetBets, a user going by Your_Boy_Roy_ published a lengthy post. The subreddit, which now has almost 11 million members (or “Degenerates,” as the page officially lists them), has become an epicenter for crowdsourced, short-term, high-risk stock speculation and analysis. Roy had been a member of the group since “its prime,” and had to get something off his chest.
“You are all being ridiculous with these endless posts,” he titled his spiel. The subreddit, he wrote, was facing an epidemic of “I made $368 on my BIG DICK YOLO PLAY” entries: overeager, ill-informed, low-stakes-masquerading-as-high-stakes material that he deemed in violation of the forum’s typically brash-yet-chipper atmosphere.
For those who may have forgotten—or somehow not heard—in January, thousands of r/WallStreetBets members made major news, and major amounts of money, by half-ironically rescuing the stock of GameStop, a nearly bankrupt gaming retailer. They shared rocket emojis, then together bought up enormous sums of GameStop shares, causing its share price to briefly surge by 2,265 percent (from $20.42 to $483) and threatening to liquidate a hedge fund that had bet heavily against the company. This nifty gambit of taking GameStop “to the moon,” and the ensuing fracas surrounding it, made Robinhood—the controversial brokerage startup that many Redditors used for the plot—a household name. The billionaires Elon Musk and Mark Cuban rounded out the cheerleading section (Cuban thanked the Redditors for “changing the game”). And in spite of the scrutiny that Robinhood received for hastily halting GameStop trading in order to ensure it had enough collateral to backstop trades, the whole cause célèbre birthed the mainstreaming of “meme stocks”: public companies that benefit from their market value surging, not mainly because of business fundamentals but because of their popularity among the masses, driven by social media.
But for Roy—and the tens of thousands of other Redditors “upvoting” his post—r/WallStreetBets’s MO had been warped since its newsmaking triumph. “All of a sudden this sub is all about teamwork and taking down the corporate elite and ‘please we need help for stock XYZ!!!’” he wrote. “This is not a bunch of masked individuals here to help you get out of the hole you dug by betting your rent money.” The argument stemmed from a niche nostalgia for the days of yore (mere months prior), when the sub was a fraction of its current size and, as Roy put it, “memes from Gladiator” mixed with “high quality material” on executing perilous trades.
Whether you find it funny, offensive, indecipherable, or an oddly informative bit about a subcultural squabble, Roy’s full post was among the most popular on Reddit last month. It’s also, as the rhetorical scholar Whitney Phillips told me, a “perfect distillation” of “trolls trolling trolls”—a form of “boundary policing we see across internet cultures.” And the comments on the post, whether goading or praising Roy, are a microcosm of the rollicking, polarizing energy that emerged during the wild plague year of 2020 in which more than 10 million Americans opened new brokerage accounts (many—if not most—self-directed with no adviser).
Because the GameStop escapade became a cultural phenomenon, because there are so many new attempts at meme-stock pumps, and because several Reddit channels maintain an almost-patriotic commitment to foul language, which attracts negative press, Redditors have taken up an inordinate amount of space in the public discourse about the online investing boom. In the popular imagination, then, these new traders mostly look like the r/WallStreetBets avatar: young-ish, white, and male—with little interest in egalitarian goals and a defiant demeanor that falls somewhere between South Park and Wolf of Wall Street characters.
But in a series of interviews I conducted with economic analysts, amateur and professional investors, cryptocurrency lovers, and former hedge-fund managers, several people expressed the view that the subcultures borne out of America’s untamed investing boom are many and varied. They’re diverse, if not integrated; some silly, some assiduous—yet all infused with a quiet desperation to reach escape velocity and defeat the gravitational pull of class stagnation that’s lasted decades.
The beginning of this latest everyman-investor craze coincides with the coronavirus pandemic. Just after Valentine’s Day last year, the S&P 500—a market index of 500 of the largest companies on U.S. stock exchanges—was at an all-time high. By late March, it had lost roughly a third of its value, reflecting the looming sense of doom that dominated those early days of shutdowns. Soon thereafter, however, the United States Federal Reserve pumped trillions of dollars into backstopping the financial system and the stock market settled. Then, even more remarkably, despite historic unemployment and mortal uncertainty, it began to boom. By late summer, the S&P was soaring past its February highs.
Once it became clear that credit flows were stable and that the massive Coronavirus Aid, Relief, and Economic Security Act would prop up many if not all household incomes, institutional investors—the firms that invest on behalf of clients—adjusted to the stay-at-home economy and did what capitalist bodies do: try to boldly forecast, shape, and bet on who would profit in the near and mid-term future. This left many ears perked and mouths agape: Why wasn’t the stock market reading the room? How could it be on pace for historic highs with employment rates at historic lows?
Research analysts at Charles Schwab, a brokerage firm, call the cohort of people who rushed in after getting a serious bout of financial FOMO “Generation Investor.” Last year, individual investors were responsible for about 20 percent of all stock trading—double the percentage from a decade ago. Over the past several years, the advent of cheap, easy swipe-and-tap mobile brokerage apps like Robinhood has made the movement of people’s money frictionless, in a manner that only used to be possible for the affluent. Just a generation ago, unless you had a fat pension, a generous 401(k), or could afford your own broker, then you were largely on the investing sidelines.
Survey data from Schwab analysts suggest that more than 50 percent of all new investors are Millennials, that 16 percent are Gen Z, and that more than half of the cohort started investing during the pandemic in order to build an emergency fund or to gin up another source of revenue. Only 2 percent of Robinhood users are high-use “pattern day traders,” according to the company. The median account balance of its investors is $240 and the average is $4,500 (as opposed to an average of $100,000 for E-Trade). More than 18 million people now have a funded account at Robinhood—striking, but still fewer than the roughly 30 million users at each of the more traditional brokerages such as Schwab, Vanguard, and Fidelity, which also added millions of younger users.
On a Zoom call, Lazetta Rainey Braxton, a co-founder of 2050 Wealth Partners, a financial-planning firm focused on equity, told me what she’s seen during the boom: “People had time on their hands. They’re thinking about life and they’re thinking, I don’t want to keep on living how I’m living; I need more money; how do I get it?” Seeing how the affluent somehow self-propelled to security, Braxton said, people who had historically been excluded from markets—especially people of color—started asking, “What is this nebulous market thing?” They aren’t pros “in the craft,” she said, “but [they] are doing their best now at mastering the craft themselves, whether on TikTok, Twitter, or wherever else.”
“Everybody has their own risk tolerance,” Ron Moore, a 50-year-old from rural Indiana, told me. Motivations, too, can vary. But plenty of people he knows in “Middle America,” as he put it, joined in on meme-stock trading (as well as mainstream investing) in order to challenge short-selling hedge funds like the ones that tried to bring down GameStop. “When we get $1,000 as a person and a hedge fund loses potentially billions, yeah, they’re mad. Are we mad at them? I don’t know. All I know is we know they’re pissed at us. So that’s why it’s becoming a thing to talk about,” he said, with a touch of Old Testament glee.
A former hedge-fund manager I spoke with, Mark Dow, argued that the populist online chatter of this trading boom is mostly a “monetization of distrust” that cropped up after the last financial crisis. Dow, who also previously worked as an economist at the U.S. Treasury and the International Monetary Fund, has become popular online—specifically in the spheres of “#FinTwit” and “#EconTwitter”—for his quick-witted, sardonic commentary about markets. Social media, he said, spreads “grievance culture” along with conspiracies, real or imagined, and then serves as “an unprecedented vehicle for effective coordination.” Pair those dynamics with how “so many of the young people participating are native gamers,” Dow said, “and that’s where the gamification aspect of this comes from.”
For proponents of greater financial regulation such as Dennis Kelleher, the president of the nonpartisan, nonprofit reform advocacy group Better Markets, that gaming vibe is exactly where the problem within this boom lies. He worries most about apps like Robinhood that, unlike traditional brokerages, don’t have a large range of business functions to help diversify revenue streams. That means that most of Robinhood’s revenue relies on a high volume of customer orders, especially customers using “options trading,” a trickier technique that can multiply gains yet, in other instances, produce brutal losses. “Their model and their wealth is dependent upon inducing as much mindless trading as humanly possible,” Kelleher told me. “That’s a conflict of interest that cannot be resolved.”
Robinhood—which will become a publicly traded company this week on the Nasdaq stock exchange—has rolled back some nudgy features, such as confetti blasts that popped up on users’ screens after every trade. Still, in late June it was slapped with a $70 million fine from an industry regulator, Finra, in order to settle allegations that the brokerage approved ineligible traders for high-risk strategies and, among other things, “failed to exercise due diligence” and displayed incompetence that harmed investors. Most infamously, last June, Alexander E. Kearns, a 20-year-old student at the University of Nebraska, died by suicide after making complex options trades then seeing a negative balance of $730,000 on his Robinhood account, although the trades hadn’t settled and his losses were nowhere near as severe as they appeared on the app’s slick interface. (After suing Robinhood earlier this year for wrongful death, negligent infliction of emotional stress, and unfair business practices, Kearns’s relatives settled for an undisclosed amount with the company, which neither admitted to nor denied the family’s allegations.) “We were devastated by Alex Kearns’ death,” Robinhood said in a statement at the time. “Since June, we’ve made improvements to our options offering.”
Various people find themselves equally concerned with whether the upsides of the retail-investing boom have been marred by the toxic masculinity of some people who are most visibly participating in it. “Internet culture,” Whitney Phillips told me, “has long had spaces and behaviors that are simultaneously negative and positive, spaces that are revolutionizing things in good ways, in this case maybe finance, but that also tolerate marginalization.” For every feel-good populist story about a working-class person empowering themselves through these newfangled ways of investing, she said, there’s a dark, discomfiting joke going viral on some message board that, in context, doesn’t feel like much of a joke at all. (For instance, the abbreviation used on r/WallStreetBets for a certain type of short-term trade—FD—stands for “faggot’s delight,” a shockingly crass homophobic slur.) The red line for Phillips with regard to r/WallStreetBets is with the forum’s bio, “Like 4chan found a Bloomberg Terminal”—an irredeemable ode, in her view, to a site that makes allowances for harsh, discriminatory rhetoric and politics stemming from almost every -ism one can name.
Trung Phan, a 36-year-old former financial-technology analyst, told me that he thinks the social debates about the inclusivity of these spaces are distractions—“secondary to the fact that some of this [Reddit] analysis is on par or better than what you’re going to get from investment banks” and “immaterial” compared with the positive ways that finance has become “democratized” in the past half decade or so. According to an encouraging new survey, three times as many Black investors as white investors reported entering the stock market for the first time in 2020; and more than 60 percent of Black Americans younger than 40 now have money in the market, about equal to their white counterparts for the first time in history. Although, overall, active investors are disproportionately white and male, Ben Carlson, a portfolio manager at Ritholtz Wealth Management, told me that he was pleasantly surprised about the data. “It’s hard to tell sometimes with surveys,” he said—much like with political polling, sampling methodologies can vary widely. “But this one seemed halfway legit.”
Dr. David Rhoiney, a 36-year-old U.S. Navy surgeon, who is Black, started a free blog about personal finance in April 2020, after he saw friends lose jobs and resort to GoFundMe accounts to help cover expenses. He had gotten into investing after going through financial hell early in adulthood. “The back-and-forth is largely playful,” he says of Reddit’s finance forums. “The reality is, unless you’re in on it you won’t understand the intention of it. It’s like a locker room.” Rhoiney’s a former student athlete, but he still prefers some of the more low-key investing communities on YouTube and Twitter to Reddit’s boisterousness.
One such investing community that has exploded in popularity over the past couple of years focuses on cryptocurrencies, the long-mocked digital coins that are now collectively worth trillions of dollars. “Crypto people,” who have repeatedly made finance hashtags trend higher on social media than news and entertainment topics (something once unimaginable), use a mix of earnest analytical threads, virtual conferences, ads, and waves of humorous memes to boost their various digital coins and NFTs. This includes the merry holders of Dogecoin, which has a market value in the tens of billions of dollars, yet began as a joking homage from an IBM engineer and an Adobe engineer to the beloved meme about Shiba Inus. The #dogefamily, as many of its members call it, has a bubblier feel than the aspirational-alpha-male bravado that surrounds some other headline-grabbing web forums.
“One of the reasons I love it? It’s a big melting pot,” Jenny Ta, a former Wall Street trader who now invests heavily in Dogecoin, told me, referring to the overlapping sets of Doge boosters. Ta says she’s close internet friends with the anonymous man behind the uber-bro Twitter account @WSBChairman, but that her general impression of many subreddits—“Gen Z and Millennial white guys pumping each other’s bets”—isn’t her “thing.”
Despite the concerning wave of horror stories this past year about young people who bet big on trades and lost it all, there’s some early evidence that the “just got a driver’s license, time to race my new car” energy of newbie investors is calming down. While retail-trading volume remains high, it tapered substantially in spring from its heights during the Robinhood-GameStop craze—even though more than 10 million new brokerage accounts were opened by individual investors in the first half of 2021, according to estimates JMP Securities. And the Schwab “Generation Investor” survey found that while 44 percent of newcomers were trading with a short-term rather than long-term attitude in 2020, only 28 percent said they would follow a similar strategy in 2021. “I come from an immigrant family and we always have a scarcity mindset,” Kinjal Shah, a 27-year-old senior associate at Blockchain Capital, told me. “So I’ve never treated trading or investing like a game.”
“Don’t get me wrong,” Shah said a few moments later. “I’ve seen my crypto go down like 80 percent, but now I’ve got abs of steel and nothing can really bother me.” I joked that she sounded like a Robinhood dude talking about his “diamond hands” as he bravely tolerates heavy (but, hopefully, temporary) losses. She laughed and responded: “Well, you want to have fun! And so maybe there is a little bit of dopamine to it.” Though she’s found the crypto community to be generally welcoming, she recently co-launched the Komorebi Collective, which aims to create a network for investing in female and nonbinary crypto entrepreneurs. “The one thing I want to put out into the world,” she told me before hanging up, “is I want people to see that there are online spaces and communities and people who treat retail investing as a little bit of in-between—where it can be fun, but you’re also taking it very seriously and everybody can do it.”
Carlson, the wealth manager, for his part, guessed that the solid majority of new money coming in from the investing boom is still going into relatively safe investments: stable stocks, 401(k)s, mutual funds, index funds, and broad exchange-traded funds known as ETFs. “Are there some who are YOLOing? Sure,” he said. “But it’s probably not a large percentage.”
No matter their profiles, in the end, people have to earn enough to save in order for them to invest. This trading boom among the masses—for all of its pizazz—has clear limits given that, in 2019, roughly 44 percent of workers were employed in low-wage jobs that pay median annual wages of $18,000. Maybe there’d be fewer big bets taken in America’s hustle economy if more people were financially secure in the first place. As Maxine Waters, the chair of the House Committee on Financial Services, said during a congressional hearing about the Robinhood saga, “Many Americans feel that the system is stacked against them and, no matter what, Wall Street always wins.”
Populist investors taking on another hedge fund, Reddit making moves to ban the foulest language of some traders on its platform, or Congress adopting an Elizabeth Warren–style revamp that seeks a more carefully democratized investing world would likely be welcomed by different constituencies. But none of it would address that underlying corrosion of social mobility that so many Americans feel. Changing that reality probably requires a fresh set of cultural modifications around sharing, class, clout, race, and whether anyone deserves low wages—something that, at least for now, is still achingly out of reach.