The moment is etched in my memory. In the summer of 2020, a much younger, tech-savvy colleague burst into my office and shouted without breathing, “Alex, you should write about Reddit and how young people are making tons of money on social media and sharing tips. ‘
My 75 years of age and five decades of caution in writing about the financial markets kicked in immediately.
The flow of money into the near-defunct video game retailer Gamestop and a string of other hopeless American companies like AMC and Bed, Bath & Beyond, which traded wildly and have since become known as meme stocks, left me cold.
Meme stocks, for the uninitiated, are stocks popularized by social media and whose title is derived from the Greek word for “imitated.”
Ill-informed tips on social media combined with the ability to trade commission-free through sites like Robinhood seemed like a fad to me. It didn’t fit with the more down-to-earth approach to investing, backed by expert analysis and commentary, that I would expose our readers to.
As much as they appreciate speculative tips, I couldn’t imagine readers scouring the Internet for the next stock price blowout. Nor could I imagine that this would ever catch on in Britain, where share transactions are subject to commissions and a much-despised stamp duty.
Moreover, younger readers already have enough trouble paying the rent and saving for a mortgage. If they wanted to bet, local William Hill and the 3.30pm jump race at Cheltenham would be a more sensible bet.
Reddit has become a £24 billion behemoth, with enough value to crack the top 30 of the FTSE 100 if it were a UK stock
About five years later, this older gentleman, or should I say old fool, has changed his mind not for the first time. The US has always had a strong following in the retail stock market. As a reporter in America during the free-market Reagan years (1980-88), one of the lasting images as I traveled across the vast country was how many small towns in the Midwest had a Merrill Lynch office or a Charles Schwab sign on Main Street. . Stock ownership and trading were as American as apple pie and pickup trucks. But it was for the post-war baby boomers, who had only known prosperity, and not for the young people on their Nintendo machines and Sony Playstations.
Now I know differently. Since 2020, when the meme stock phenomenon took off, the S&P 500, Nasdaq and Dow have become the playground for millennials, Generation X and Generation Z.
Reddit, the platform where many of this new generation of investors look for snippets of information and company data, is no longer a samizdat site. It has become a £24 billion behemoth, enough value to crack the top 30 of the FTSE 100 if it were a British stock.
Robinhood Markets has become a favorite stock broker for US retail investors. It came out of nowhere and is now valued at almost £30 billion, making it many times more valuable than all the UK investor platforms such as Hargreaves Lansdown and AJ Bell.
Its market capitalization is not far below that of some of the UK’s poorly regarded big banks. Since launching just over a decade ago, Robinhood’s revenue has increased sixfold to £1.6 billion and assets under management have risen to £75 billion. The number of users, most of whom are younger retail investors, has skyrocketed to 11.8 million.
Established American broker Charles Schwab
There is a huge contrast with UK platforms. The average account size at Robinhood is just $4,000, compared to $234,000 at established US broker Charles Schwab. (Barclays bought the UK arm of Schwab 20 years ago and is the only UK retail bank to still have a strong share trading presence).
The Reddit site’s memes section has some 29.7 million subscribers, and the extensive discussion of stocks to buy is a big driver of trading to Robinhood. The messages, generated by younger investors, draw from a much broader range of sources than the conventional investment community. They include the consumer experience of the investee companies, contributions from employees, often at the lower levels of companies, and from social media influencers.
What’s really impressive is Reddit’s appeal, across all its favorite subgroups, to 18-to-29-year-olds, who make up 44% of its users, while another 31% are 30-to-49-year-olds. Fogies, like this writer, in the 65-plus range represent just 3% of Reddit users.
Collecting stock information for habitués is vastly different from traditional research, which draws on a range of broader stakeholder sources.
It provides brilliant insights from the ground up that are too often missing from limited technical analysis. A limited focus on quarterly earnings per share often ignores the bigger picture. There have been recent insights into how basic information can work in Britain. Reports of a Guinness shortage in British pubs in the run-up to and during the festive season did not stem from a regulatory announcement to the stock exchange by brewery owner Diageo, but from social media posts from fans of the dark stout. Tim Martin of Wetherspoons, Britain’s biggest landlord, was quick to act, promising strong words against Diageo.
When reports of a Guinness shortage in British pubs were reported on social media, Tim Martin, the boss of Wetherspoons and Britain’s biggest landlord, quickly cut to the chase and swore strong words against Guinness maker Diageo.
Millennials and Generations X and Z appreciate the ease of use and apparent low price of the Robinhood platform. There is no commission structure and if the transaction is not executed through the London Stock Exchange, stamp duty is avoided. Such costs are particularly drastic for small blocks of shares.
Robinhood effectively aggregates small orders and routes the trades through market makers, who act like old-fashioned City Jobbers (a pre-Big Bang institution) and the fees are absorbed by the price of the buy or sell trade. The costs are there, but the private buyer or seller does not see them.
In Britain, the closest platform to a Robinhood is Interactive Investor, asset manager Abdrn, which offers a flat, low commission structure.
Meme culture and information are accessible to Britain, which represents 7.33% of Reddit users. Just under 50% are in the US. At the moment, the UK government’s focus is on persuading UK pension fund managers to invest the savings of workers in Britain more adventurously in growth companies, green energy and infrastructure. How much better would it be if the City of London, like the US, could make investments exciting and cheap enough to attract a younger generation of private investors?
Being smart on social media is part of that. But making stock market transactions in Britain cheaper, by abolishing stamp duty, could make a huge difference.
Meanwhile, British investors can tap into the enthusiasm and expertise of a new generation by joining Redditt and buying shares in fast-growing social media site and foreclosure agent Robinhood. As a previously skeptical silver surfer, I now recognize how we can all learn from smart and more technically alert younger cohorts.
Should You Buy Stocks in Reddit and Robinhood?
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