New go-it-alone investors take a gamble
Whether you buy into the notion that the whole GameStop debacle is rooted in the virtual, activist intentions of a broad base of retail investors, or not (I don’t), there can be no doubt that there is a movement among previously dispersed and inconsequential individuals which, in their aggregation, will make them a class of investors worth taking seriously.
Beyond the obvious technology enablement, at least part of this new current is due to individuals being fed up with how much of the economic pie is being taken by intermediaries — who participate in capital and investment flows without taking any downside risk while often having ridiculously lucrative, upside-only, shortterm fees and profit shares — and big players, seen as bullies.
In any industry you will find rogues, but investment professionals have their place and perform an important role in the efficient functioning of the markets and allocation of capital, albeit that some among them charge like a wounded buffalo for their services.
For the most part, frenzies like GameStop will end in tears for the little people. Ironically, the worst affected will be those who made easy profits in the first round. If you get dealt blackjack as your first hand in the casino, you’re bound to have lost all your spending money, and some, by the end of the night. Many a promising lock forward has been ruined after scoring a try in his first match.
One thing you can bet on, though, is that there’s going to be disintermediation of the capital markets, and the banks. A vehicle that is already gaining popularity is the special purpose acquisition company (Spac) which, as it turns out, requires no special purpose at all. The amount of money already raised in Spacs is way in excess of $100bn, and despite the normal “buyer beware” warnings and the need to examine each Spac on its business case merits and quality of individuals involved, I think these vehicles have a place. At the very least they provide a less tedious route to market than the traditional initial public offering, by way of allowing existing business operations, not necessarily defined by reference to outdated valuation metrics, to invite clever insight capital to acquire them and take them out of obscurity onto the public capital stage — encouragement also for other aspirant entrepreneurs, pioneers and innovators in search of mainstream capital validation.
Of course there’ll be mistakes, rip-offs and misjudgments — but the regulators shouldn’t be surprised at the emergence of alternative investment channels in a technology-savvy world, they should just keep up. Investing is no longer the preserve of the rich, nor should it be.
Governments and their (independent) central banks have also played a role. As a result of continuous monetary stimulus across the world (to buy votes from the already invested), cash has all but been obliterated as a store of value. Saving for your old age by simply leaving your money in the bank ain’t gonna cut it. You will have to take risk and invest. There will, of course, be consequences.
Retail investors may still need quite a bit of hand-holding, even outright guidance, and the regulators still have a vital role to play in protecting the innocent, however brave they may feel in a crowd, but you can’t expect to be looked after if you pitch up to gamble as a protest against casinos.
One of the challenges for newcomers (and outsiders) is knowing what stage of play the game is at. It is not a great idea to start dancing just before the music stops — be careful, know who’s paying the DJ. The clever players (insiders who know the depth of the bet tolerance) leave the party early in this game, and they’ll happily sell you a ticket to take their place at the high table.
I think I’m going to list me a Spac. Yes, I am.
Barnes, a former SA Post Office CEO, has had more than 30 years of experience in various capacities in the financial sector.