You might think the quickest stock market crash since the Great Depression, a global pandemic, the daily death count on the news, and millions of people losing their jobs would turn people off investing.
Yeah, well, people are weird.
The past few months have seen an army of new customers open accounts with online brokers.
Still crazy after all these fears
At first the influx of avid traders was chalked up to the lure of commission-free trading in the US.
But the spike in interest came well after the advent of free dealing, and mostly coincided with quarantine:
Viral investing
Source: CNBC
Besides, UK platforms like Interactive Investor and Hargreaves Lansdown that charge dealing fees have also been as busy as a doctor with a Covid-19 test kit during lockdown.
According to the Financial Times:
The Share Centre reported a 269% increase in brokerage account openings from March 9 to 30, compared with the same period in 2019.
The month of March is typically busy for investment and savings accounts as the Isa season reaches its height, but the numbers have exceeded the expected annual uplift. Half of all accounts opened on the platform since February 17 were opened in the final two weeks of March.
Interactive Investor, the UK broker, reported a 119% increase in the number of Isa accounts opened on its platform between February 18 and the end of March compared with the previous year. The number of self-invested personal pension (SIPP) accounts opened was also up almost 50% over the same period. Interactive Investor has reported record trading volumes since mid-February.
Vanguard UK reported a three-fold increase in the number of new accounts opened in the first quarter of 2020, compared with the same period in 2019. Account openings in March were up 60% on the previous month.
You can anyway trade for free in the UK, too, with FreeTrade1.
The UK-based Robin Hood rival now has over 150,000 customers. More than 50,000 signed up in the first few months of 2020.
Other explanations for the trading craze point to the sports shutdown – which also kyboshed the gambling business – or to how millennials grew up watching the market recover from every setback, and now want their piece of the action.
‘Just buy the %$& dip’ has been a winning mantra since 2009. It’s doing okay in 2020, too.
But maybe the boom in traders was simply because billions of people were sitting around at home bored and self-isolating?
During lockdown we meet our friends online, date online, get our rocks off online (maybe no big change there), and learn how to bake sourdough online.
Why not go all Wolf of Wall Street online, too?
There’s nothing dumb about investing during a bear market. A crash means shares are cheaper, and expectations for future returns higher. With a long-term view it’s rational.
It’s not how people usually behave though – that’s the point. Share trading mania is associated with markets soaring, not slumping. Think dotcom boom or Bitcoin bubble.
This is what makes the surge in interest during the coronavirus crash so remarkable.
You too can lose money on the stock market!
The point is: millions are now in shares who weren’t just six months ago.
And some pundits say they’re already having an impact – mockingly pinning the recent ‘irrational’ rally on these smartphone traders buying Tesla and Zoom while the smart institutional money sits on the sidelines.
I don’t buy that.
For a start I don’t think the smart money is all that smart when it comes to market timing.
Besides, I welcome this legion of new investors.
I’ve heard podcasters laugh at their exploits, but we all begin somewhere. I also believe capitalism works best when more of us think like capitalists – rather than just leaving it to the 1% to get rich.
More people investing in shares means more chance of spreading it around.
Or at least it does if they stick with investing for long enough…
And that’s the one thing I am worried about.
Because the statistics behind short-term / day-trading are brutal. Most people who try to trade lose money. The vast majority will lag super-simple investing that uses index funds.
Day-trading is not only very hard to profit from – it’s too much fun to be profitable, unless you happen to be running a brokerage:
Losing money makes you want to go back for more. Las Vegas wasn’t built on the triumphs of its punters, but on the takings of the house.
And in the long run, the house nearly always wins.
People choose day-trading as opposed to trying their hand at freelance tax accountancy because one seems exciting and the other insanely tedious.
But the truth is that if you want to make easy money, you should do something hard.
If you can’t beat ’em…
I’d be a hypocrite though if I didn’t admit that I am an avid active investor myself.
So next week I’ll share 12 tips for new traders that might help set you off on the right path with stock picking. Subscribe to make sure you get it.
Why do you think the share trading boom has taken place during such a grim time for society and the economy? Let us know in the comments below.
If you want to try share trading, do so for free with Freetrade. Sign up via that link and we both get a free share to get you started. The Interactive Investor link in this article is also an affiliate link. These are marketing costs for these businesses, and doesn’t affect the price you pay.
- Note: This and other links may be affiliate links. See my comment at the end of the article. [↩]
“For a start I don’t think the smart money is all that smart when it comes to market timing.”
I don’t know anyone that is able to market time successfully
People realized the sheer volume of money printing and rushed to grab a tangible asset on a cheap!
If my 28 year old son is anything to go it is because he has spare cash at the end of the month, no transport costs no pub rounds etc. and he has time to research the market
I have no idea why other people are doing it. The reason I am, is because, like the poster above said, governments are going to print money to get out of this, and shares seem the least bad option at the moment (for the same reason, I would not expect the housing market to take much of a hit).
Fyi you can ask Rishi Sunak questions:
https://action.conservatives.com/ask/rishi-sunak/?utm_source=newsletter&utm_medium=email&utm_campaign=1738&utm_content=top-button
I just think the extra investors were people waiting for a crash – who were scared by the financial media that prices before were too high but who waited for their moment, these be fickle I think, market timers swayed by media and opinion, but perfect is the enemy of good; maybe they’ll convert to passiveolicism
I have a friend who works for an algorithmic trading company which seems to make steady profits. He has told me it is a constant battle to stay ahead though, forever tweeking the software, etc. They are investing a lot into AI at present, as I am sure other similar firms are, so watch out for the first AI induced flash crash 😉 The idea that amateurs with a free brokerage account and a few hundred quids worth of IT can outwit these guys is laughable. Maybe they are the source of the profits?
Having said that, there was that case a little while ago of an autistic amateur who made millions after working out what the algos, or was it the high frequency traders?, were up to and gaming them. Until US regulators caught up with him.
I would say that the rapid increase in the Vanguard UK accounts has a lot to do with the launch of their personal pension. I even opened one for my sister in law so she could put her £2,880 per year into. It knocks spots of competitors for value when it comes to small SIPPs.
I don’t normally invest in ISA’s or trade shares preferring to put spare cash towards pension and my employers sharesave scheme.
In the last few months I’ve been buying via an ISA to take advantage of the dip
1) VWRL – used money that should have paid for 2 week family holiday that’s been cancelled (shares up 20% so far)
2) bought a load of my employers shares as price halved in March (using sharesave cash as I cancelled my plan)
3) bought TRIG with some spare cash from a bonus we thought would have been cancelled but ended up being paid
4) bought a single company stock I’d been tracking for a while just using cash saved from not commuting, eating out & other planned trips that haven’t happened due to lockdown.
There have been a lot of articles in the press last few days about savings rates in various groups and demographics. Millenials came out top as a percentage increase but the rich are at it too… https://www.theguardian.com/money/2020/may/31/uks-richest-20-reduce-spending-by-23bn-during–coronavirus-lockdown
I would think this and the prospect of printing money, as mentioned above might be something to do with it. Most of the teen and twenty-something gamblers I know like the visuals of sport and the excitement of a quick (loss) win. Shares, even day trading, is not a great substitute. I can’t work out if this rally pleases me or scares me which is about right, as, like many who post on here, I know market timing and prediction is next to impossible from experience. (Full disclosure, I have been a minor buyer during the last few months above my normal level)
JimJim
Consider too that it may be an act of desperation – businesses/individuals going down the plug hole taking one last roll of the dice – on the stock market since they can’t do normal work
This possibly isn’t the forum for it but I have seen quite a few people on here in the past talk about holding/buying VWRL (the latest being Brady at #7 above) but nobody really mentions holding/buying VWRP – is there any particular reason why people prefer the former?
One more theme to consider is the mortality imperative. Facing that may prompt two responses;
1, Spend it while you are still around to enjoy it (hard during lockdown)
2, Give it to the kids, grand kids et al. (but hold it in trust – invested- until you are dead or they are not as rash with spending as they are at present, opening a pension for kids seems quite popular among my friends, anecdotally) Possible! And articles in the F.T have of late being discussing just that so perhaps it’s a trend?
JimJim
@Naeclue
https://blogs.cfainstitute.org/investor/2020/05/01/book-review-the-man-who-solved-the-market/
“It’s a lot of dentists.”
Good article
I had some spare money from not eating out or buying coffees and wondered what to do with it. I bought a piddly amount of RACE shares…. 5! I did it so I could say I own a Ferrari!!
They’re up 8% since I bought too. That is one share I do not understand. Clearly the brand name is a massive chunk of good will on the balance sheet like Coca Cola was in the 90’s.
So I can say I own 5 Ferraris…… Shares that is!
Good Luck All
I was saving into a 5 year company share save scheme at a 20% discount, it would have completed in November 2021 so I already had a fair bit in there. I was never quite sure how it would work when I came to sell the shares, would there be a tax bill on any gains and so on. I also thought it was a bit risky to have my employment, my pension, and a lot of my savings all through one company.
And then covid happened and the company share price dropped by half, well below the price I was buying it at. So I decided I’d just take the cash out and put it into a Vanguard ISA. I ‘drip fed’ it in over the last few months, thinking shares could drop even lower. Anyway I’ve put it all in now and it’s already showing 20% uplift and I don’t have to worry about taxes further down the line.
That’s just me but I bet there are others out there who did the same or similar.
@ Mark – that’s a good question and, for my own part, as a VWRL holder, it’s because I’d never noticed it before. Accumulation units would be handy as Hargreaves Lansdown, for example, charge a 1.5% $/£ exchange fee, and commission on top, for the reinvestment of dividends. Worth investigating, thanks.
@Mark
I own both VWRL and VWRP largely because latter only launched in Spring 19. It is a personal choice if you want to take the divs – around 2.1% last year- or accumalate. Taking them means diversifying but that is the point of VWRL anyway.
You could also argue as VWRL pays out quarterly you could get an income stream, albeit at a modest div rate.
Finimus did a piece on accumalation v standard that is worth reading on his website.
In my kids JISA’s and JSIPP’s I always buy VWRP. I converted their VWRL to VWRP last year largely as it’s easier and less fees.
For my own SIPP I’ve not bothered and use the dollars to buy other things, but have bought myself some VWRP since.
GLA
I think what’s obvious is that people have had more time on their hands from being at home / off work. What’s perhaps less intuitive is that disposable income has in many cases increased in recent months. It’s clear in the data that, in many countries, savings rates are spiking higher. Some of that time and savings will be going into investments and trading.
I’d also argue that the volatility has provided a fantastic environment for short-term position taking. No need to be patient. You find out fast if you’re right or wrong. You can make/lose material sums of money in few hours/days.
I think a huge uptick is because there’s nothing else to do with spare cash at the moment. There’s a big chunk of people who are now ending the month with spare cash, and are getting emails from their banks every few weeks about savings rates being cut.
What is there to do with your money if there is nothing to spend it on and no returns on saving? Start investing!
Both of our SIPPs are in drawdown, so we rely on both dividends/coupons, and also on rebalancing a couple of times a year to free up more cash. We’re about 50% in bonds, and the latest rebalance was in April. VGOV was soaring so high, that even with the cash allocation to last the next six months (with dividends) so still had to buy some equities to rebalance. It felt a trifle odd, but if that’s what the spreadsheet says …
Reasons:
1. Interest rates practically zero or negative. Free money.
2. Fed will prop up the market/economy no matter what; you can’t lose.
3. The Market Will Always Go Up.
Sound like the early 2000’s property market yet?
And I disagree strongly with you calling this a “bear market” – it’s not. There was a (large) plummet for a giddy few weeks and then a strong rebound since, continuing on trend. The truth is, nobody’s seen a “real” bear market for decades, by which I mean stocks drop or go sideways for years and years on end…
@wephway
> I was saving into a 5 year company share save scheme at a 20% discount, it would have completed in November 2021 so I already had a fair bit in there.
Was this an SAYE scheme? If so, the money is usually invested with a building society, so no exposure to the company shares until you exercise. It really is a one way bet so cashing out wasn’t really the best option.
> I was never quite sure how it would work when I came to sell the shares, would there be a tax bill on any gains and so on.
Capital Gains, but 1) You have a generous annual allowance, 2) you can transfer shares to spouse and he/she can then sell to use their allowance, 3) approved schemes (most are) operate such that you can transfer an annual ISA allowance of shares (at value on day they go in there) to an ISA and sell there to avoid tax.
Figure on gains of £22k plus another £20k at “face value” sold without tax. I used to do this year in and year out, and helped many of my reports run the numbers to let them max it out.
The only good reason to cash in an SAYE (and I’ve done it myself) is if you’re close to the monthly max across all SAYEs currently running and cashing in one that’s “under water” will let you go big into a new one that’s about to kick off.
I could see people taking a punt on travel companies and airlines. I mean as much as Ermine and others hope their business models will vanish it is likely they will be back to normal in a couple of years. That said, it is a punt as no guarantee these companies will survive the next 6 months and even if they do there is no guarantee they will return to their former glory as more nimble / less indebted etc players have an opportunity to snap up market share and take their place.
@gadgetmind
Yes it was a SAYE scheme. You’ve got a lot more experience than me so I’ll defer to your wisdom, all I’ll say is that paying £1.20 for shares that are valued at less than 90p doesn’t really seem worth it.
I also wonder about how much in dividends you lose out on over a 5 year period when you do these schemes, is there any data on that? I get that you can’t really lose, because you can always just take out what you’ve put in as cash, so that is a plus for many. But it’s also very much like gambling on a single stock when you could be spreading your bet on an index tracker and receiving dividends and accumulating over a 5 year period.
@whepway – I see to remember that you got some extra cash at the end either way to sort of reflect lost interest. But it was a long time since I did one. Obviously you are really relying on the option price being a lot lower than the share price. If not, then you would take the money anyway. Are your companies shares likely to go back above the option price?
@gadgetmind – I am not sure where your figures to expect come from? Your saying that on average SAYE schemes return 21k profit plus the 20k of cash you paid in? Surely profit is very dependant on share price at time of exercising your option
A bit off topic but the latest VWRL dividend, announced yesterday, appears to have been cut by 40% compared to the equivalent distribution last year – $0.65 to $0.38. An early taster of what’s to come I guess. I hope all these freshly minted punters weren’t buying on the basis of historic yield.
@ TI. I signed up for Freetrade via the monevator link about 2 months ago. I got £5 worth of J.P.M. American Inv. Trust shares for free after a few weeks. For me it was because there was no sports/horse racing to have a bet on. I concentrate on penny shares, anything sub £1.00. There is plenty of volatility in this area. Its also surprising to see some well known companies in this sector, Saga was at 15p, M&G touched £1. The combination of free trades and volatility is excellent.
The weak were getting killed and the strong survive, the virus was simply playing capitalism and 80:20 principal at it’s worst,
@Grisleybear — Cheers for the sign-up. That’s a pretty good free share. 🙂 I agree, fee-free trading really makes a difference, especially for small amounts of money.
@Ruby
HL $:£ exchange fee for VWRL?
Surely VWRL is listed in £, so any exchange rate shinanigans are within the fund and nothing to do wth HL?
@whepway
> all I’ll say is that paying £1.20 for shares that are valued at less than 90p doesn’t really seem worth it.
Totally true, so you wouldn’t exercise at the end under those circumstances. Worst case is you’ve lost out on some interest, upside can be huge, so a very asymterical risk/return ratio. You swing the bat at every one of these opportunities!
> But it’s also very much like gambling on a single stock when you could be spreading your bet on an index tracker and receiving dividends and accumulating over a 5 year period.
Not really as a single stock is high risk whereas with SAYE there is close to zero risk.
@Richard I am not sure where your figures to expect come from? Your saying that on average SAYE schemes return 21k profit plus the 20k of cash you paid in? Surely profit is very dependant on share price at time of exercising your option
I have no idea what SAYE average returns are and was just showing that CGT isn’t really an issue for most people. I did *very* well from some SAYE schemes with 15x the cash back that I put in. Others were Meh, and others I just took the cash. However, I still “went large” every year and recommended others did the same. Some were reluctant, and then five years later they got a big fat house deposit and a holiday. I put all of my SAYE money into ISAs and pensions and then retired at age 54!
I fall into the millennial demographic and I’ve been pushing more money into the market over the past 8-12 weeks. A few key factors for me:
1) I wasn’t sufficiently together with my finances to be investing during the last downturn (apart from pension, where I hugely benefitted), so I don’t want to miss out on all the fun this time around;
2) I have a “stay at home” dividend over and above my annual budget which was already on track to max my ISA;
3) I’d like to see growth in something other than the R number.
So I’ve opened up a brokerage account to have some individual stocks buy and hold fun whilst 99% of my portfolio remains in passive trackers. I still think we may see a bigger second dip so the acquisitions are on the extremely conservative side of investing, but having fun so far and if I lose the lot – it’s made negligible impact on long term financial goals.
@ Kraggash – the dividend gets paid in $. The £ amount that lands in my HL account always seems to be XR + 1.5%. It used to be stated on their website, probably still is, but can’t find it. I recall @Naeclue moaning about this a while ago and I add my own.
@gadgetmind
15x? I am dubious…
I get all that, but I still think there are big benefits to be had from investing in the stock market now (well, back in March I mean), as I say I’ve already seen big gains that I would have missed out on plus there will be dividend gains over the next two years while the company share price is still very low.
I did see people taking their cash out early just before the last scheme started (last November) because the share price was low, but you can’t plug all of that cash straight back in so I’m not sure then if that’s necessarily a good idea either because you’d be losing all the potential gains on what you had in if that makes sense. So I guess you’ve gotta make a judgement call each time, it depends just how low the share price is, and how much you think it might increase.
Probably when the next SAYE scheme comes around I will opt in because it’s a good way to save without thinking about it (pay yourself first and all that), but I also don’t think SAYE schemes are as great as some people say they are.
@wephway:
I’m guessing you’re young and have so far escaped the dubious pleasure of seeing people make out like bandits from working a few years in the right technology start-ups…? 😉
@wephway — P.S. I just paid attention to your URL in your sig and realized you’re *that* blogger. 🙂
I sent an email to @TA just the other day saying that I check your blog ever 2-3 weeks to see if anything new has popped up (usually via @ermine’s gaff) and every time I see that photo of the lazy cat stretched out at Christmas at the top of the page from 2018 it always seems so serene and peaceful that I *almost* think maybe I should do a full trad-FIRE, decamp to the countryside, and dedicated myself to learning to grow bonsai trees and writing bad poetry. 🙂
Hope all is working out for you.
@Investor
Ha, thanks, yes I stopped blogging for a few reasons. I have been thinking about starting again on a limited basis, it has been an eventful couple of years (for me and for the world), I’ve had lots of interesting thoughts and ideas, and there have been a few times I’ve wanted to rant about something or other (!) But we’ll see, life is about to get much busier…
Cheers, hope you’re doing well too, W
@wephway – depends on the company. Company I worked for I took as cash every time as their share price did nothing but drop. I did BAYE as well, think I was down even after all the tax breaks. If company was a major force but is now in thermal decline then don’t expect wonders from SAYE…. on the other hand, if it is break new grown and growing fast then I can see x15 as easily doable.
@gadgetmind – ok, I think I read this ‘Figure on gains of £22k plus another £20k at “face value” sold without tax.’ and took the figure to mean you should figure on getting these numbers. I agree, I always went in the max I could, it just felt like a heads you win tails you don’t lose. Of course in my case this was probably the wrong decision and the money would have worked harder in the market. But if you are confident about the general direction of the share the price you would be silly not too.
@ The Investor
> I’m guessing you’re young and have so far escaped the dubious pleasure of seeing people make out like bandits from working a few years in the right technology start-ups…?
Google Imagination Technologies if you don’t know of us/them already. I was a director of IMG.L for 17+ years, and saw good times and bad times. During the good times, we were selling shares for £7+ that we got for < 40p when the SAYE kicked off.
In parallel, I was using my tech knowledge and ability to read patents to get an idea of whether a company actually had something or not to do other investments. Everything that could go into ISAs went into ISAs, everything else unwrapped, SIPPs maxed, and now retired and slowly feeding unwrapped into ISAs over the next decade.
No-one can say an SAYE or other investment will do this well, ever, but you need to fill 'yer boots when these opportunities come along as worst case you get your money back. I'll take that bet every day of the week.
For the record, I'm now close to 100% passive with just 5% managed actively by me for a bit of fun.
@Richard
> the money would have worked harder in the market
Yes, but that’s in hindsight. A bet with no downside and who knows what upside is one you need to always take. If that means you have less money for “maybe up, maybe down” bets then so be it.
@gadgetmind –Indeed, I know Imagination Technologies well! First as a gamer in the 1990s, and later as an on/off investor (/would-be investor). Another company that ultimately boomed and was bust by the mixed blessing of huge orders from Apple IIRC.