Roaring Kitty sparks Gen-T trading boom: Marcus Ashworth

“Roaring Kitty” (Keith Gill) epitomizes Generation-T, a new wave of younger, meme-obsessed traders who have revolutionised the investing landscape post-pandemic. Unlike their predecessors, Gen-T embraces volatility, taking big risks with smaller, active trades, often inspired by social media trends. With platforms offering low-cost, 24/7 access to a diverse array of investment options, these traders prioritize speculative opportunities, from cryptocurrencies to meme stocks, over traditional value analysis. This shift has driven significant changes in online trading, challenging traditional asset managers to adapt or risk obsolescence.

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By Marcus Ashworth

After a long period of calm, all it took to reignite the meme stock flames was a cryptic post last week from “Roaring Kitty” showing a character leaning forward in a chair. That’s the moniker used by Keith Gill, who shot to fame in 2021 as he rallied traders on the social media site Reddit around GameStop Corp.  He’s the poster child for Generation-T, a new cohort of younger traders with a markedly different approach to investing than their elders.

That GameStop’s stock price has already erased all of its 100% Tuesday gain isn’t relevant; volatility, and the excitement it brings, has become a post-pandemic market feature. Regardless of lagging regulatory attempts to curb speculation, the fervor behind wild swings in recent years of cryptocurrencies and randomly selected micro stocks — which often have large short positions, making them vulnerable to squeezes —  can’t be un-invented. The boom in US sports betting, along with spread betting and contracts-for-difference trading in the UK, are all symptomatic of the new world of finance.

The surge in trading by bored retail investors working from home during lockdowns may have sparked the meme stock and crypto pile-ons, but it’s been accompanied by an underlying shift in the style of personal portfolio trading. Insane volatility has had the reverse effect on Gen-Z and Millennials by encouraging them to take bigger risks, rather than fleeing from price swings like their parents. The younger gang favors more active trading in smaller sizes and across a wider set of products. Bitcoin’s price more than doubling since October is just the latest fuel driving younger investors. Back off boomers: Gen-T is doing things its own way.

While I must confess at times to covering my face in horror, some of this is good news as a new generation invests with an eye to its future rather than just splurging on consuming. A 2022 Bayes Business School study highlighted that turning long-term investing into a game has beneficial effects, with video game techniques potentially teaching healthy financial habits. My Bloomberg Opinion colleague Merryn Somerset Webb has pointed out that maybe traditional asset managers might learn a thing or three from Gen-T.

Brokerage firm Charles Schwab Corp. issued a report last week on the UK online trading market, showing it increasingly mirrors the US. Gen-Z and Millennials are pursuing trader-like strategies substantially more than the buy-and-hold tactics favored by either Gen-X or Boomers.

Younger investors are more open to investing using futures and in fractional shares, the research shows, and are 50% more active than their older counterparts, with nearly 60% making adjustments monthly.  However, the UK is relatively less sophisticated, with fewer adopting the more complex derivatives trading seen widely in the US, particularly in same-day expiry options. One intriguing development is in “copy trading” — a style where followers mimic ‘leaders’ portfolios and track performance via a leaderboard. This is predominantly on the investment platform provider eToro Group Ltd. It’s attracted the interest of the UK’s Financial Conduct Authority

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Imagine if the first telephone you picked up was a 5G smartphone; you’d assume all handsets had similar capabilities. Similarly, if your first “investment” was a fractional stake in newly resurgent bitcoin or a soaring Magnificent Seven stock, your mindset is bound to be influenced. And your ultra low-cost 24/7 online platform provider also offers derivatives, leverage and a raft of trading techniques that don’t involve classic value analysis — it truly is a different world than 93-year-old Warren Buffett’s.

There’s a flipside to this youthful experimentation. Instead of applying value filters like generations of chartered financial analysts, there’s a much higher propensity to stick with whatever’s hot on social media. But doesn’t mean staying at home; youthful traders are comfortable trading US tech or meme stocks, regardless of currency or time zone, rather than sticking with storied domestic bellwethers. 

Research consultancy Investment Trends highlights that new, younger investors have notably different needs since the pandemic. There’s been a near doubling in online account openings since 2020; many of which are still active although the pace of expansion has tailed off. Retail investing is a huge market with in excess of $20 trillion invested and over 100 million accounts globally. But it’s the online business where the biggest changes are happening, with more than 11 million US-based accounts trading online at least once a year.

he picture is mirrored in Europe, with the UK and Germany the most active online marketplaces. The top reason cited in Investment Trends research for opening  an online account is the ability to speculate with small amounts of money.  Numbers two and four are more familiar: managing pension savings, and finding higher returns than from cash savings. But reasons three and five are driven by Gen-T; the desire to learn new skills, and the availability of commission-free trading. 

Roaring Kitty hasn’t had its last roar. The new age of investing was accelerated by the pandemic and social media, and will likely be further propelled by artificial intelligence. Adapt or die might prove to be a good maxim for long-only fund managers and older generations of investors alike. 

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