Good news: youngsters are flocking to the stockmarket

Lockdown has turned our lives upside down in the strangest of ways. We no longer buy alarm clocks because most of us don’t need to get up so early yet sales of sleep sprays have rocketed because we can’t get to sleep.

We have bought more egg cups and toast tongs because having a long, lazy breakfast is our consolation for missing out on the long, lazy office lunch. Instead of going out to restaurants we have invested in patio heaters and outdoor pizza ovens while those missing the gym have bought exercise bikes.

Sales of computer monitors and the latest hi-tech TVs have soared as we have watched even more films while eating meals delivered to our homes via delivery platforms such as Deliveroo. In contrast, the John Lewis Partnership tells us shopping for cameras is down by a third while suitcases – remember them – have collapsed by a whopping 69 per cent as dreams of travel have faded into the past.

Yet one of the most fascinating changes in our behaviour is that so many people – particularly the young and female – have found other routes to explore their wanderlust for risk and find a home for their pandemic savings: buying shares and other investments.

Nutmeg, the online investment management service, found that 60 per cent of 25-34-year-old investors have put more money in investments over the last year compared to 38 per cent of the population. In a recent survey of 2,000 people, Nutmeg says the findings back up its own data which shows that last year 42 per cent of all new investors joining the platform were from the 25-34 category, rising nearly 60 per cent year on year. 

What’s more positive is the survey also showed that 25-34-year-olds felt most confident about personal finances and investment, and have a particularly strong appetite for ethical investing in light of the pandemic.

This supports recent research carried out by Boscobel & Partners with pollsters, FindOutNow. They report that 400,000 new retail investors came into the public markets over the last year, buying shares worth some £20 billion.

The average age of the new investor is 37 – compared to the established investor average age of 48 – while the proportion of new female investors is 41 per cent, compared to 30 per cent among established investors. Many of them were on furlough schemes while investing and many were living at home with their parents. There were other intriguing findings: 35 per cent buy shares in individual companies, compared to 28 per cent of established investors. 

Their timing was good too: on 23 March last year the FTSE 100 fell to a low of 4,999 but then rose by 1500 points by December, a £440 billion rise in shareholder value. (Today it’s hovering around 6,699). 

Many of these new investors have gone the traditional route of seeking advice from firms like Hargreaves Lansdown, AJ Bell, IG and Interactive Investors. But many are also being attracted to investing via the latest share-buying apps – such as MoneyFarm, RobinHood and Freetrade – chat rooms and following so-called “meme investing” on social media sites such as Reddit, which gained a certain notoriety after the GameStop saga. Over the last year, Freetrade estimates it has attracted 500,000 new customers in the UK alone for its commission-free trading app. 

It’s this new “activist” craze which has prompted the Financial Conduct Authority to warn new investors this week to be careful about getting involved in high-risk “wild-west” style investments such as cryptocurrencies and foreign exchange trading.

According to new research, the FCA says too many new investors were willing to “have a go” because they had been tempted by investment apps, were following their gut and the “thrill” rather than the long-term purpose of saving for the future. (If only I had followed my gut, I would have bought Apple shares when I tipped them seven years ago.)

Is the FCA right to be such a kill-joy, warning youngsters and other new investors to stay away from investments being recommended by social media influencers? After all, the FCA does not have the greatest reputation itself for spotting dodgy companies, having missed the problems at London Capital and Finance, the Woodford investment funds and more recently, Greensill, despite many red flags.

It’s a tricky one. On the one hand, it’s good that consumers are looking for alternative ways to invest their money and, if they can find worthwhile investments, this can only be good for them as well as the economy at such a fragile time in our recovery. 

However, the FCA has a duty to warn newcomers that they should be careful not to follow the herd mentality, diving into any new tip that is being recommended by apps or influencers for short-term gains. The regulator plans to go further, posting a new alert system on social media sites if it spots stocks or cryptos going wild.  

As Nutmeg’s James McManus says: “In truth, the meme stocks saga and the extreme volatility in crypto-assets are timely examples of the perils of a short-term approach to investing driven by hype.

“These moments should act as a clear warning that market noise is often just that, and if something sounds too good to be true, it probably is.”

He’s right, if there is too much of a buzz about a stock – remember Aston Martin – it usually is too good to be true. 

Yet surely these newcomers – brought up on social media – are well-versed in risk and more than capable of making their own judgements? Investing in companies always carries a risk – even the most outwardly stable of corporates face unforeseen events as we have seen over the last year. 

What is interesting to see is that many of the new investors tracked by FindOutNow do appear to take what they do seriously: most were active, taking part in 57 capital raises in the last year and were particularly keen on healthcare and life science companies. 

In the March to April period last year, ShareSoc claims that 20 per cent of the trading volume in the FTSE All Share index came from retail shareholders – of which 60 per cent were buy orders. 

Rather than pile into hot stocks such as GameStop, the evidence suggests that most of the new investment has gone into the big US tech stocks such as Amazon and Apple that had most to benefit from lockdown. Tesla has been another favourite. These were not daft decisions and, so long as people can be as clever about the timing of selling of shares as they are about the buying, most should come out ahead.  

Whether retail investors should take a punt on Deliveroo which makes its debut on the London Stock Exchange next week in the biggest float for seven years is another matter entirely. That depends on whether Amazon’s Jeff Bezos is right in his forecast that we will eat more at home in the future but that the food will be prepared by someone else, which is why he invested so heavily in Deliveroo. 

But Bezos – who has been right about many things – made his prediction before Covid forced us to stay at home. When we emerge from lockdown, will we still want our meals delivered to the door? I don’t think so, but new investors can make up their own minds. Deliveroo is being valued upwards of £8 billion but has yet to make a profit.