Millennials are piling into stock trading to beat the market. Here's what you need to know
Stock markets have taken a battering as the ongoing coronavirus pandemic continues to rattle global economies. But some young people are taking it as an opportunity to kick-start their investing careers.
Online stock trading platforms have seen a surge in demand in recent months as investors seek to take advantage of undervalued equities.
Investing app Robinhood saw "record" deposits in the first quarter of 2020, with daily trades up 300% compared to late-2019. Elsewhere, eToro and Raging Bull Trading saw demand surge 220% and 158%, respectively, over the same period.
Even as the severity of the outbreak and its implications for markets began to unfold in March, another online platform Wealthsimple Trade recorded a 54% surge in new users and a 43% uptick in total trades. So far in April, the trading site has added new users at a weekly rate of 7,000.
Many of those new users are young or even first-time investors. Over half (55%) of Wealthsimple's new users are aged 34 or below. That is unsurprising, according to Raging Bull Trading's founder, Jeff Bishop, who said many millennials are now looking for new opportunities to make some extra cash — or recover earlier losses.
"A lot of people are at home and have got more time on their hands. And many, unfortunately, have lost their jobs and are looking for new opportunities," Bishop told CNBC Make It.
"Younger investors are looking for ways to recoup their money," he continued. "They're really interested in low, beat-up stocks."
Stock picking
The advent of online investment platforms has made it easier than ever for people to buy stocks in individual companies.
That can be a risky business. Generally, financial advisors recommend opting for diversified vehicles, such as passively-managed index funds or ETFs, which provide access to a full range of stocks. "Investors should always factor in balancing their investments between different regions, sectors and asset classes," noted Joel Carpenter, divisional director of marketing at St James' Place Wealth Management.
However, the shock nature of the current downturn — which has wiped out the market value of many companies — has some suggesting that now could be a good time to get a foothold in otherwise strong companies.
"Typically, when you see a decline like this one, the expected return of stocks goes up," Ben Reeves, chief investment officer at Wealthsimple told CNBC Make It. "We're seeing dramatic swings in the prices of some of the most popular stocks, and investors are trying to capitalize on that."
In particular, investors are interested in stocks that are thriving under the new environment — such as telecoms, pharmaceuticals and entertainment, as well as those they believe have been "oversold," like travel, dining and bank stocks.
The most traded companies across Robinhood, Raging Bull Trading, eToro and Wealthsimple last month included Apple, Disney, Microsoft, American Airlines, Boeing, Carnival, Tesla, Air Canada, Aurora Cannabis, Netflix, Amazon and Toronto Dominion Bank.
CNBC investment expert Jim Cramer recently described the list as "not perfect, but very good for speculation."
Getting started
Choosing the right bets is no easy feat, however. "Especially now, the market is very volatile, you can make a lot of mistakes," noted Raging Bull Trading investor Kyle Dennis.
Anyone thinking of trying stock picking for the first time should do so only once they have set aside an emergency cash fund, agreed the investors CNBC Make It spoke to. And even then, individual stocks should only represent a small portion of an overall investment strategy, they said.
But, with a small pot on disposable income, it can provide a good opportunity to "learn" for the long term, said Raging Bull's Bishop.
"People should be trying to establish an amount they want to make each month. Find a way to do that and get a routine in place," he said.
"For some investors, a little 'fun money' to play around with can help remove the temptation to try to get fancy with the money you should be leaving in something boring — like your retirement fund," added Reeves.
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