The Genie is Out of the Bottle; Expect Volatility To Remain Forever

Over the past few months, you have likely heard the term "millennial investor" being used, usually in a derisive fashion.

Gamestop up 10,000% in just a few months? Millennial investors.

Bitcoin soaring to the heavens? Millennial investors.

Tesla suddenly one of the world's most valuable companies? Millennial investors.

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"Millennial investors" have grown up in a different world than their parents, especially when it comes to investing.

They have spent much of their lives in the midst of a bull market.

Gone are the days of $100 commissions to buy 100 shares of Microsoft. The market, largely via zero commission brokerages and fractional share ownership, have become accessible to all. Gone are the days of saving up $10,000 to fund your brokerage account - now you can do so at a fraction of the amount.

These younger investors/traders aren't satisfied with holding a basket of stocks like Nike, Proctor & Gamble and IBM. They aren't interested in 6-8% per year returns. They certainly don't want to pay somebody 1% commissions to manage their money.

Instead, they are becoming more and more self-directed with their money. And, as a result, they are trading more and investing less.

This has resulted in increased volatility. Add in the mainstream acceptance of options trading, and you have a recipe for volatility that almost certainly be going away anytime soon.

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So what will the future look like with more and more younger people diving in the markets?

Downwards moves (like we saw in March of 2020) will be more violent and more sudden. You'll have bear markets that take place over the course of just a few weeks or months, rather than years.

There will be much more speculation in the markets as well. You'll see more 200-300-500% intraday moves.

There will be more and more calls from the "old school" to regulate the markets, though this will largely fall on deaf ears. Financial institutions, hedge funds and the rest have had their way with the markets for decades, and they will now have to contend with an investing public that is knowledgable about things like call spreads, short squeezes and gamma.

As "millennial investors" age and have kids of their own, their earning power will grow and they will have a more pronounced impact on the market. Sure, they might trade less, though they won't be afraid to throw their net worths at stocks that they feel passionate about.

These younger investors will have kids of their own that will be introduced to the market at a very young age, and the process will repeat itself.

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There seems to be an expectation that things will somehow go back to "normal" soon once younger investors lose interest in the markets.

I disagree.

I think that things have permanently changed, and the quicker you embrace this new reality, the better you will do.

Filed under: General Knowledge