The year 2021 will be remembered as one in which markets tumbled down a rabbit hole and entered financial wonderland: A once-elite undertaking became more populist, tribal, anarchic and often downright bizarre.
Retail investors upstaged hedge funds, crypto squared up against fiat currencies and financial flows crushed fundamentals. Farewell stocks, hello “stonks”: Memes matter now.
Here’s a taste of the madness: Entrepreneur and social media puppet master Elon Musk became the world’s wealthiest person. Tesla Inc.’s market capitalization exceeded $1.2 trillion, more than the next nine largest automakers combined.
One of those others, Rivian Automotive Inc., went public in November and only recently started generating revenue. It was soon valued at $150 billion.
Hundreds of special purpose acquisition companies, or SPACs, together raised more than $150 billion to find a company to list on the stock exchange, with their targets often more of a business plan than a business.
Cryptocurrencies, the bulk of which have no intrinsic value, were at one point collectively worth more than $3 trillion. A non-fungible token artwork (NFT) — in this case, a JPG file by an artist named Beeple — sold at a Christie’s auction for $69 million.
Struggling video games retailer GameStop Corp. and cinema chain AMC Entertainment Holdings Inc. soared as much as 2,450% and 3,300%, respectively, when Redditors coordinated online to punish hedge funds that were betting on the companies’ demise.(1)
And because there’s no gold rush without pickaxes, retail brokerage Robinhood Markets Inc. and crypto exchange Coinbase Global Inc. became two of the year’s biggest initial public offerings: At the peak they were valued at $59 billion and $75 billion. (In December the home of WallStreetBets, Reddit Inc, announced it had filed confidentially for an IPO)
Investors have poured an astonishing $1 trillion of cash into equities funds in the past 12 months, or more than the combined inflows of the past 19 years. At the peak in January, retail investors accounted for almost one quarter of US equities trading, according to Bloomberg Intelligence.
An estimated 16% of US adults have invested in crypto, according to Pew Research Center; among twenty-something men, that proportion is closer to half. In 1929 shoeshine boys gave out stock tips; today’s teenagers ask their parents to open a crypto trading account on their behalf.
The short explanation for all this feverish activity is that thanks to central bank and government stimulus, far too much money is sloshing around in the financial system. The aggregate money supply has increased by $21 trillion since the start of 2020 in the US, China, euro zone, Japan and eight other developed economies. “Stocks only go up” isn’t just a wry catchphrase: Essentially it’s been the lived experience of young investors this past decade. And so they ignore nosebleed valuations and buy the dip.
But something’s changed too in the culture of investing. It’s no longer enough to admire a company or asset and buy the stock or token. Some of the biggest investing trends have become an extension of personal identity, akin to your religion or your sports team. Sometimes that connection is overt: From Christmas Day the home of the L.A. Lakers will be renamed the Crypto.com Arena. Footballer Tom Brady has launched his own NFT collection.
These movements can be fun and empowering, but financial super-fandom can quickly become toxic. I worry that the same forces diminishing modern politics — partisan divisions, pervasive distrust, social media echo chambers, misinformation, cancel culture and conspiracy theories — are seeping into the investing world, where they’re warping capital allocation, inflating a series of bubbles and challenging the ability of regulators to protect investors and the markets.
Bloomberg
