As investors bid up shares of the probably worthless shares of the bankrupt Hertz ninefold for seemingly no reason at all, some speculated that the truly senseless move was the result of boredom: Too many day traders with too much government stimulus/enhanced unemployment money and too much time on their hands buying things for the sake of buying them, or for the adrenaline rush that comes when those shares collapse once more because the New York Stock Exchange is not as easily fooled as some guy who has run out of things to get mad about on the internet.
Well, they were on to something. What’s more, it wasn’t only day-trader boredom driving things. Gambling, as you may have heard, is pretty addictive, and one of the main things people gamble on—sports—is not happening right now. Some of those people—quite a lot, in fact—have apparently heard the old saw that investing in stocks is simply gambling, and taken that as an invitation rather than a warning.
Millions of small-time investors have opened trading accounts in recent months, a flood of new buyers unlike anything the market had seen in years, just as lockdown orders halted entire sectors of the economy and sent unemployment soaring.
It’s not clear how many of the new arrivals are sports bettors, but some are behaving like aggressive gamblers. There has been a jump in small bets in the stock options market, where wagers on the direction of share prices can produce thrilling scores and gut-wrenching losses. And transactions that make little economic sense, like buying up the nearly valueless shares of bankrupt companies, are off the charts….
“Investors are increasingly asking us about the participation of individual investors in the shares and options market,” analysts from Goldman Sachs wrote in a note published late last month. “Our data suggests that individual investors are indeed a significant proportion of daily volume.”
Depending on how much illegal sports wagering you believe there is, and on how little of it has flowed to Korean baseball books, there’s $145 billion or so sloshing around, and a sudden embarrassment of free trading options to pour it into, well….
There has been a surge in small investors using option trades to make pure win-or-lose bets on where stock prices will be at a specific time, said Matt Maley, chief market strategist at Miller Tabak, an asset management firm.
“That’s another sign that it’s these gamblers,” he said.
It all sounds like another disaster waiting to befall our already battered and benighted world. But, as it turns out, those bored gamblers are doing pretty well for themselves.
A portfolio of stocks popular among individuals has surged by 61% since the bear market trough compared with a gain of 45% for both hedge fund and mutual fund favorites and a 36% rise in the S&P 500 Index… “The narrative of Main Street weakness versus Wall Street asset inflation is misleading,” the strategists said. “The surge in retail trading activity has amplified the market rotation toward cyclicals and value stocks.”