Retail Traders Show Signs of Recoil After Wild Market Ride

(Bloomberg) -- Kortlandt Taylor began buying stocks in January and almost immediately found herself being whipsawed by the meme stock mania, as GameStop Corp. climbed 1,745% before Robinhood Markets Inc. restricted trading on its app, causing the shares to tumble. 

At first “it was going fine,” Taylor, a 27-year-old tax accountant in Atlanta, said in a telephone interview. She’d been investing through Robinhood, but “didn’t like the volatility of the app just around everything that involved GameStop. So I kind of took everything out.”

She’s not alone. While overall interest in investing has increased from a year ago, data shows that many do-it-yourself traders are taking a breather.

Fidelity Investments recently announced that daily trading activity in the third quarter fell 8% from the previous three-month period, and the number of new retail clients dropped 24%.

And TD Ameritrade’s Investor Movement Index, the firm’s gauge for measuring sentiment of retail traders who make at least one trade a month, shows optimism has fallen 4.6% from its June peak.

Taylor also stepped back from trading because she was completing her Certified Public Exam certifications and “didn’t really have time to learn about what I was actually invested in.” 

“My goal is to restart investing next year,” Taylor said, when she hopes to have extra time to absorb more of what’s happening in the market.

Time constraints are just one thing keeping retail traders on the sidelines. JJ Kinahan, chief market strategist at TD Ameritrade, points to the less-thrilling environment.

“It’s really about what’s the story in the market that kind of gets people excited,” Kinahan said. “And right now, for many companies, it’s business as usual. Many people are making the wise choice to wait a little bit until they have more clarity.”

Following the meme stock ruckus, Errol Coleman, a 22-year-old Tampa, Florida native and TikTok influencer, said that many of the members in his investment-focused Discord group “may not be as interested as they once were,” though he sees “a larger group of people now trying to get educated.” 

In fact, a learning period can be helpful. 

“They need to take more time than just sitting in a chat room and looking at a couple of charts,” said Tom Martin, a senior portfolio manager at GLOBALT Investments. He suggests that do-it-yourselfers look at companies on a fundamental basis and diversify their exposure by owning at least 10 stocks or mutual funds.

The end of pandemic shutdowns forced some day traders to step away from their E*Trade screens. When Biju Punnoose, a 33-year-old IT professional in California, was working from home, he said he was able to watch tickers for good entry and exit points. But after he returned to his office in May, his holdings dropped 22%. “So it was better for me to change my strategy and take a little bit more hands-off approach,” he said. 

Lauren Goodwin, New York Life economist and portfolio strategist, said that client activity has abated a bit, “not just related to the pandemic but also market direction. The ‘easy’ part of the cycle is likely to be over.”

This view was echoed by Jabari Richards, a 30-year-old financial manager from Queens, New York. He was actively trading at the beginning of the year but took a step back because “there’s not that many opportunities in the market right now.”

Down But Not Out

Some do-it-yourself investors had a change of heart after being burned. Daniel Sanabria, a 28-year-old welder from Nyack, New York, suffered losses when Robinhood restricted him from selling his AMC Entertainment Holdings Inc. shares during the stock trading frenzy. 

“I was like ‘all right, I’m losing a little too much. Let me just make sure I have a decent risk-reward trade,’” he said. “I’m not going to throw my money at random tickers.” He credits a Discord chat with getting him into less risky strategies. 

Quentin York, a 28-year-old active duty U.S. Navy serviceman who was first attracted to investing in September 2020 by Dogecoin’s rise, did pause trading for a bit to go on vacation this summer. But he’s since been back in the game. 

“The stock market is a very fickle beast and it comes with a fair share of losses to go with the wins,” the Virginia Beach-based sailor said in a message. “So some days I’m disappointed with it, but I never quit.”

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