The retail trading phenomenon driving up shares of GameStop, AMC and a few other stocks has become one of the biggest investment stories in recent memory, in large part because a battle between Wall Street hedge funds and Main Street investors makes for a compelling story. But when the momentum fizzles out, we believe there are both ramifications and lessons to learn from the event.
In an interview Friday, Dana portfolio managers Michael Honkamp and David Weinstein shared their perspectives on some of the things the financial community should take away from what’s happened.
Q: Beyond the Reddit posts, what are the forces feeding this phenomenon?
Michael Honkamp: Current market conditions are ripe for all sorts of asset appreciation, and we’re seeing that in commodity prices and other pockets of the market. In short, we’re coming out of a sharp recession with many consumers in good shape, and with central banks and governments practically spraying money on the economy. If you look at the money supply growth, the slope is unlike anything we’ve ever seen. At the same time, consumers have limited spending options. The rise in retail trading of some of these stocks is just another sign of excess.
David Weinstein: I would just add that there were some industry forces that converged to help fuel the rise in these stocks. We’ve all been stuck at home, with little to do. Retail investors have become more sophisticated. You’re seeing them participate in options markets like never before. At the same time, Robinhood has been disruptive to the brokerage industry, making trading cheaper and taking it to the masses. Buying fractional shares has also allowed more people to participate in investing. These are long-term positives – we want everyone to have access to stock markets – but it can also lead to events like we saw last week.