in fashion
Matt Damon and Gisele Bündchen have been widely mocked for defending cryptocurrency exchanges. (Stephen Curry appears to have escaped the same fate, perhaps because the video of him is comical.) Consumers acknowledge that celebrities don’t know any better than their Uncle Jack, who shouldn’t be using a stapler unsupervised, but they relinquish their cynicism when luminaries endorse drinks or eyeliner. Celebrities aren’t experts on the subject, but who is?
However, investment platforms are something else. We may want to be popular like Matt or glamorous like Gisele, but that doesn’t mean we want to invest like them, any more than we want their help when taking a stat test.
That was my initial vision. Then I realized that cryptocurrency advertisers don’t care about skeptics. Instead, they sell to those who dream big and want a change. Matt Damon celebrates bravery. For him, investing in cryptocurrencies is like discovering the New World, climbing Everest, flying Kitty Hawk and landing on the moon. Meanwhile, Gisele Bündchen hopes to improve the planet. “There is real potential for good,” she says, “an opportunity to foster positive change and create a level playing field. Our current system has not worked very well for everyone.”
This represents a new vision of investment. For their clients, cryptocurrency exchanges offer more than just the opportunity to make a profit. They are lifestyle decisions. As with shoes, liquor or cars, buying crypto shows the personality of the consumer. He or (less likely) she has become part of the revolution.
this time is different
There have been, of course, previous investment lifts. A long time ago, Charlie Merrill brought the stock market to Main Street. Two generations later, another Charles, surnamed Schwab, undermined Merrill Lynch’s once-subversive business model by making trading so cheap. At the same time, Vanguard not only introduced index investing, but also transformed mutual fund pricing.
Today’s rebellions, however, are different. Admittedly, I can’t speak to how the Charlie Merrill hit was received, as it predates even the recollection of my email friend Taylor Larimore, who turned 98 this January. But I’m old enough to remember how Schwab and Vanguard were sold. His pitches were impersonal. They sold mainly on price, accompanied by the promise of competitive services.
Not so for cryptocurrency exchanges. Nor, for that matter, for the Robinhood brokerage platform. To be sure, Robinhood’s marketing outwardly resembles that of Schwab and Vanguard, emphasizing cost. However, none of Robinhood’s rivals carry such an overtly rebellious name, nor have they tried to make investing fun. Schwab and Vanguard have pursued painlessness, not fun. Rather, the Robinhood website, with its apps and contests, has mimicked those of sports bettors.
A third revolution has been incited by those who buy “meme shares.” While that habit sometimes coincides with having a Robinhood account, the two elements are separate and distinct. The former means selecting a brokerage platform that claims to differentiate itself from Wall Street, while the latter strategy not only involves dodging the street, but often aims to harm its constituents by squeezing the portfolios of hedge funds that have reduced prices. meme actions.
Something for nothing?
The advertising of cryptocurrency exchanges, the branding campaign for Robinhood, and the social media communities creating meme shares share two attributes: 1) the implication that they possess investment virtue (bravery, charity, fair play, punishing the wrongdoers). guilty) and 2) the intent to entertain. That is, the participants expect to have their cake and eat it too. In his opinion, investing should no longer be a boring activity, facilitated by morally dubious people. In fact, investing can be enjoyable, while also making the world a better place.
Well maybe. Whether cryptocurrency trading, the launch of Robinhood, or the creation of meme stocks ends up benefiting humanity, others must decide. (Each has its share of critics.) I can’t comment convincingly on its pleasures, either, since for me a Las Vegas casino floor occupies one of the nine circles of hell. Therefore, I will not comment on whether lifestyle investing is beneficial or entertaining.
a risky path
What I can say, though, is that it certainly is volatile. I do not need to reiterate the twists of cryptocurrencies. You also don’t need to expose the dangers of only investing in a handful of stocks, as Robinhood clients often do. And after enjoying a spectacular start to 2021, most meme stocks have lost at least half their value, and sometimes much more.
That amount of volatility doesn’t strike me as a formula for long-term success. Along with the importance of cost, the biggest lesson from the mutual fund industry has been the damage caused by volatility. Too often, investors say they are prepared to take the risk, but then fail when their resolve is tested. As a result, the funds that made the most money for shareholders were not the ones that earned the highest returns, but the funds that avoided unpleasant surprises and generated competitive (if not necessarily outstanding) returns.
We will see if lifestyle investment options behave similarly, with investors arriving late to a bull market, absorbing losses during the inevitable downturn, and then bailing out before the next bull market begins. That evidence has yet to be compiled, though it should be noted that between the first quarter of 2021 and the first quarter of 2022, Robinhood’s revenue fell 43%.
I understand the power of appealing to customers’ hearts instead of their heads. Clearly, this approach has attracted millions of new investors to the financial markets. That’s a good thing. However, for the outcome to remain positive, those investors need to stay the course. Whether they will do so remains to be seen.
Endnote: ESG
It may be objected that I have missed the mother of all lifestyle trends, investing based on environmental, social and governance criteria. It is true that ESG advocates want an investment revolution. But there are two key differences between ESG practices and those mentioned in this column. First, at least to my knowledge, ESG investing is not meant to be fun. Second, ESG portfolios tend to be highly diversified. Therefore, their performances are relatively subdued.
John Rekenthaler ([email protected]) has been researching the fund industry since 1988. He is now a columnist for Morningstar.com and a member of Morningstar’s investment research department. John is quick to point out that while Morningstar generally agrees with the Rekenthaler Report’s views, his views are his own.
Source: www.morningstar.com