SIMON LAMBERT: Buying shares is back in fashion but will the new wave of traders turn into investors once lockdown and the tech boom fade
If you wait long enough most things come back into fashion.
The moustache, UK garage and tight trousers are testament to that (although be warned that if they’ve been mentioned here, they’ll already be on the way out).
But another thing that’s bang on trend in lockdown and more relevant to a clean-shaven, drum and bass-purist, baggy-trousered This is Money reader, is buying and selling shares.
This year has seen a jump in direct share investing, as we highlight in our rise of the lockdown share trader article.
This phenomenon has been credited with driving part of the resurgent stock market in the US – with personal investors making up almost 20 per cent of trading volumes according to a Bloomberg Intelligence report – and anecdotally I’ve been hearing about it over here too.
No company epitomises the lockdown trading boom more than Tesla – its shares have been chased up (and down) and are consistently among the most popular on platforms
More people are investing directly in shares and it’s a younger generation driving a large part of the interest.
Traditionally, share-buying in the UK has skewed towards older investors who came of financial age at a time of personal stockbrokers and financial advisers, who helped them build a portfolio.
Many of these investors have continued directly hold at least some shares, while the younger generation of investors coming up through the ranks has preferred funds.
The US has long been a more stock market-orientated nation than the UK – we prefer the soap opera of the property market – but while direct share-investing over there remains popular, the mutual fund industry is huge and in latter years Exchange Traded Funds looked like the party to be at.
However, a combination of the Robinhood effect – named after the popular commission-free trading app – and some very high-profile and high-flying tech star stocks, has driven a surge in interest in buying shares directly.
That has increased by an order of magnitude in lockdown, as people found themselves at home, or not working, and traded a rapidly rising market.
Some of it has even been put down to people switching from sports betting while there was a lack of live action
It’s happening in the UK too. Figures that we pulled together from established DIY investing platforms and Britain’s fee-free share dealing apps showed a jump in share purchases and an increase in younger investors.
Between March and September, app Freetrade saw an 80% increase in UK customers, with the biggest portions being made up of those aged 18 to 25 (27 per cent) and 26 to 35 (42 per cent).
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Interactive Investor saw new accounts opened by 25 to 34 year-olds in April and May increase by a staggering 238 per cent.
Other platforms told a similar story and said that overall share trading was up by a lot across all ages
What’s interesting is the difference between the shares that are being bought on the upstart free trading apps and the established players, which still charge about £10 to buy and sell shares.
For the established DIY investing platforms, such as II, Hargreaves Lansdown, AJ Bell and Fidelity, big name UK companies dominated, ranging from Lloyds, to Shell and BA-owner IAG.
In contrast, between April and July, Tesla, Apple, Microsoft, Amazon and Boohoo were most popular at Freetrade.
The question is whether we are really seeing a rise in investing or speculative return-chasing trading?
There is a difference between an investor and a speculator and you have to wonder how many of this new breed of investors are planning on holding those Tesla shares in five years’ time.
I have friends who have been getting into buying shares in lockdown and some have made handsome returns, yet the stories I hear are about getting in and out and making a profit.
As long as you know and accept the risks of share trading that’s fair enough.
It will be interesting to see if this whets their appetite for investing and the new wave remain shareholders long-term.
One thing that will help that is if trading costs can be pushed down by the free trading apps and if we can get a better form of digital share ownership, suited to the 21st century.
Hopefully, that will be the case because having more people holding a stake in companies, making a profit from them, and taking an owner’s interest in how they are run is a good thing – whether it’s in fashion or not.