Signals #28 – Gen Z Investing

Overview

With the rise of zero commission trading apps like Robinhood, Public, and Webull, it’s never been easier to buy and sell stocks. What used to be the domain of the rich and prosperous has now been “democratized” to all. New traders mean new paradigms in trading. That’s why meteoric rises in Gamestop, AMC, and other “meme” stocks have caught most institutional traders by surprise. The new traders have also pushed for increased visibility in trading actions of public CEOs, congressmen, and even hedge funds. Further, they’ve been a part of one of the largest bull markets in history. The Nasdaq has grown nearly 5x in the past decade. The Dow Jones around 3x and S&P 500 around 4x compared to 2011.

This insane bull market has led to more and more investors and education around stocks. Robinhood grew from 500k users in 2015 to over 18 million today with over $100 billion assets under management. Subreddits like r/stocks and r/wallstretbets have exploded in popularity. Heck, even TikTok influencers are teaching trading strategies now.

These new developments have been the result of an explosion of untapped opportunities in the investor market. In this issue, I’ll be touching on these opportunities and hopefully bringing some clarity to recent market actions.

Opportunities

In the old days, trading used to be fundamentals focused where the short-term results determine stock price. Then, over time, trading became technicals focused with price action as the primary motivator. Technical trading developed with the help of people like Charles Dow and Robert D. Edwards. Today, trading knowledge is scattered between books, investment advisors, hedge funds, and everything in between.

  • Machine Learning – Machine learning in stock picking has been around for almost as soon as the technology developed. However, these AI stock picks have been limited to the most sophisticated investors due to computing costs. There’s a huge opportunity to “democratize” AI through developing and training a model before opening access with a monthly subscription.
  • Data – The basis of every trade is data. The most obvious use of data is insider trading where having access to confidential information gives investors a leg up on the competition (it’s also illegal now). But plenty of alternative data approaches have come out. For example, you can probably approximate Walmart earnings through the number of cars in their parking lots. Find a niche and build a brand!

How to Launch

Building new products in the financial market is never easy. But if you start by building an audience, everything else comes easier. The best place to start is on forums like Reddit where you can make a name for yourself and

  • Start with a niche. Figure out what kind of opportunity you want to pursue and what resources are necessary. For example, if you’re building influencer products, building an audience of gen z investors is useful but not necessary. Rather, you’d want to build relationships with current influencers that would be receptive to your product.
  • Solve a core problem. Building a product that people actually want is incredibly hard. Make it slightly easier by tackling a product where there’s known demand. Check out the Opportunities section for these problems (and consider pro with 150% more opportunities).

Cases

Platforms

  • Quiver Quant – Cutting-edge alternative data
  • r/Wallstreetbetsr/superstonkr/GMEJungle – Subreddits that have played huge parts in retail investing
  • Tiktok and Youtube are top platforms for finfluencers (influencers who focus on financial advice)
  • Robinhood – Zero fees trading service, worth $32 billion
  • Public – Investing app with social networking features such as portfolio advice from friends
  • Webull – Another zero fees trading app that came into prominence with the Gamestop short squeeze
  • Charles Schwab – While not as well known as Robinhood among younger investors, Schwab boasts of $6.7 trillion AUM, miles above the $100 billion AUM by Robinhood
  • Trading View – Clean, easy to use tool to understand technical and fundamentals about companies

Forecast

  • The trend of Gen Zs looking to start investing isn’t going to slow down anytime soon. They’ll be coming into an environment that has a wealth of financial information online. The products that will win are going to be the ones that have strong brand images like Robinhood.
  • Data will be a core product in investing but even the best data needs a distribution channel. For example, even if you built out a product that counts cars in Walmart parking lots, you still need to put it in front of users. Influencers that have built large audiences will be crucial.

Resources