“Markets are conversations” is the central theme of the 1999 book, The Cluetrain Manifesto, which predicted that the internet was about to unleash new ways for people to communicate with each other.
This Cambrian explosion of conversations would inevitably allow businesses to be a part of them creating a new dynamic of brand and customer interaction.
The book says as the internet proliferated throughout the world, new channels such as websites, forums, chat groups and email would revolutionise how consumers and businesses interact.
Noticeably the authors failed to predict the rise of blogs, podcasts, online video and social media platforms, as well as the smartphone revolution and its accompanying apps.
They also failed to predict the major cultural and political impact social media would have (and is still having) on society too.
Predicting the future is hard and anything beyond five years is just a guess.
The world was a different place in 1999 yet The Cluetrain Manifesto provided (an underestimated) glimpse into the changing paradigm that was heading our way.
Financial markets are conversations too
Another trend on the horizon is the coming together of mobile, social media and the financial markets.
A perfect storm is brewing between smartphone apps that provide easy access to the markets and the formation of communities and influencers who can collectively manipulate the price of a financial asset like a stock or crypto.
These apps are giving people around the world access to high profile stocks, ETFs and commodities on well-known indexes like the Nasdaq, S&P and FTSE.
You don’t have to be rich to use them either. You can buy a fractional share of a stock meaning you don’t have to buy a whole one but instead a fraction of one.
For example, a 19-year-old in Europe can invest in Tesla by buying a fraction of a Tesla stock. All within seconds and from the comfort of her home even though Tesla is an US company listed on a US exchange.
What’s more, most of these apps don’t charge a fee to buy and sell stocks so our budding investor can buy as little as £1’s worth without having to pay a charge.
She can then brag to her friends about which ‘super brand’ stocks she owns such as Nike, Visa, Apple, Amazon and now Tesla, all for as much or as little investment she can afford.
The app that’s received the most coverage in recent months is Robinhood. With 13 million users it’s had a dramatic rise during the coronavirus pandemic as furloughed Americans invest their hard-earned money in the attempt to make more of it.
The app is not without controversy, of course, but Robinhood has given Americans access to the stock markets that was previously reserved for only a few. The video below outlines the story behind the app and why the founders created it.
Financial apps in other countries are providing a similar service too. Trading 212 in the UK, Stake in Australia and INDmoney in India to name a few illustrate this is not just a US phenomenon but a growing global one too.
The proliferation of these apps come with risk and the occasional story in the media about an amateur trader who lost their life savings make the point. But it’s the democratisation of the markets that seem the most interesting to me.
What does it mean when anyone anywhere can trade and invest in the same financial instruments as professionals do on Wall Street and in the City of London?
Unless there is some government ban there is not going back from here. The technological infrastructure is in place and communities of amateur investors are growing at a rapid rate.
This is more than just a passing but rather there is something more fundamental and long term taking place.
While we’re still in the early days we’re seeing a growing number of examples of where online communities and influencers are moving asset prices.
r/wallstreetbets – the day trading community for the bros
The Reddit community wallstreetbets describes itself as “like 4chan found a Bloomberg Terminal’ and it’s not hard to see why.
The 1.4 million (and growing) member community is made up of the generation who grew up on movies such as The Wolf of Wall Street, The Big Short and Rogue Trader.
This community now have access to the big boys’ toys of the financial markets and get to play out their high risk / high reward trading strategies all from their mobile phones.
Losing is a rite of passage on wallstreetbets and while it’s not to everyone’s tastes and it often faces criticism for the community’s encouragement of less-than-prudent approach to investing, its million and a half members have a proven impact on stocks mentioned there.
Dave Portney AKA Davey Day Trader Global
Since lockdown, founder of Barstool Sports, Dave Portney has been day trading the stock market and broadcasting his wins and losses live on Twitter.
Portney and his alter ego, Davey Day Trader Global, has been blowing up in the news and on social media in recent months. So too has his bank balance despite his initial lack of knowledge and experience in trading stocks.
Why? Because in his words, “stocks always go up” which, as broad a statement it may be, is technically true.
Portnoy claims (or trolls) he’s a better investor than Warren Buffett which has caught the attention of the professional finance crowd – or “the suits” as he calls them – many of whom openly despise his brazen mocking of their industry.
TikTok pumps Dogecoin
In July 2020, a relatively unknown TikTok user made a video appeal to pump the ‘joke’ cryptocurrency Dogecoin. His thesis went, if everyone on TikTok bought into the cryptocurrency they would all get rich.
“Let’s all get rich. Dogecoin is practically worthless. There are 800 million users on TikTok. Invest just $25 and once the stock hits $1 you’ll have ten grand. Tell everyone you know.”
The video is succinct but the impact was big. The viral nature of TikTok caused it to spread across the platform while simultaneously catching the attention of influencers like Dave Portnoy and the wider trading community.
This caused the trade volume of Dogecoin to spike by 1000% and it went from a price of 0.0023 to a peak of 0.0046 and has since settled to 0.0032.
While the TikTok community didn’t get rich, the experiment proved that assets can inflate not because they are worth anything or have intrinsic value but because the network effects of social media can make them regardless of their value. Yes, fascinating and worrying at the same time.
The democratisation of investing and the end of Wall Street?
To predict the future you have to try and live in it. It’s about understanding where we’re headed rather than where we currently are.
Twitter was once thought of as a place to share what you had for lunch, YouTube was considered a place to watch grainy cat videos and in its early days Facebook was just a site for Harvard students.
No one could have predicted the impact these platforms would have on the world. Likewise no one can predict the impact on financial markets when millions of people around the world connected to them from their smartphones.
What happens when some bedroom based Robinhood trader has a provably better record than some guru on Wall Street? Or when a worthless stock becomes a meme and millions of people inflate its price? Or when some amateur investor with a YouTube channel out performs the stock market by 3X?
These are all hypotheticals of course but when these types of signals start occurring, as they already are, then expect great change in the markets. After all, markets are conversations.