RUTH SUNDERLAND: The financial system is changing, accelerated by Covid, which has sped up dismantling of old-style banking and use of fintech
- The WallStreetBets is problematic for all regulators because it isn’t clear whether the mass-trading amounts to market manipulation
- To a young generation of day traders, anything seems possible
- Beneath the anarchic behaviour, WallStreetBets is a compelling demonstration of the power of shareholder activism
Safe to say, the Reddit forum WallStreetBets is not what Margaret Thatcher meant when she spoke of a shareholder democracy.
It’s a version of it for the social media age, though. The only surprise is that it took so long for a new generation of digitally-native traders to cotton on to the possibility of flash-mobbing stock markets from their back bedrooms.
One major motivation appears to be resentment against the Wall Street establishment for its role in the financial crisis, coupled with generational anger against the supposedly asset-rich ‘boomers’.
New order?: The Reddit forum WallStreetBets is not what Margaret Thatcher meant when she spoke of a shareholder democracy
There is a distasteful strand of vindictiveness in some of the social media posts along with rage against hedge funds. The latter are not best-loved in the market. They stand accused of feasting on the misery of others and using companies as pawns in their game of self-enrichment.
This is something the WallStreetBets gang has in common with the hedge funds they so despise. Does the swarm of traders have any interest in the reality of the companies they are buying into? Do they care about the jobs, the role they play in communities, whether they might be making breakthroughs to help mankind?
No, I don’t think so either. In their eyes, businesses are not living organisms that matter to lives and pension plans but vehicles for making a point – rather as for hedge funds, companies are objects for making money. It’s all a big game.
The WallStreetBets is problematic for all regulators because it isn’t clear whether the mass-trading amounts to market manipulation, or whether there are smart minds looking to profit from naive hangers-on.
The phenomenon is probably as much a product of lockdown boredom and people having spare cash due to enforced Covid savings, as it is genuine animus against the financial establishment. Certainly, it’s a reflection of the strangeness of the times.
Social media share pile-ons look almost normal in the context of wild gyrations in bitcoin, the Tesla share price (and the antics of founder Elon Musk) or the group of Essex traders who made nearly £500million in a day when oil prices went below zero.
That’s without delving into wacky official policies such as negative interest rates.
The backdrop on the US markets is one of extravagant gains on tech stocks. To a young generation of day traders, anything seems possible.
Saving looks hopelessly old fashioned, even foolish in an era of derisory deposit returns. The chance of life-changing gains, as some of the WallStreetBets crew claim, seems irresistible. It looks like the madness of crowds and will bring tears for some.
The financial system is changing and this is being accelerated by Covid, which has sped up the dismantling of old-style banking and the use of fintech.
Beneath the anarchic behaviour, WallStreetBets is a compelling demonstration of the power of shareholder activism.
Small investors are often disregarded by company boards as irrelevant, but this shows how they can have enormous muscle. I’m not encouraging British private savers to become online share anarchists, but there is huge scope on social media to encourage investors to engage with companies and to vote at annual meetings.
Large institutional investors have a record of rolling over on issues such as obscene executive pay and poor governance.
As a consequence, stock market-listed companies, in a memorable phrase coined by Lord Myners, too often behave as though they are ‘ownerless corporations’. Private shareholders could change all that.