June 29, 2020
When my friend’s younger brother lost $10 playing golf recently, I was shocked to hear him say “I’m going to have to sell some more Delta stock.” I laughed, but he wasn’t kidding! He said many of his friends have started “picking stocks” since there are no sports to bet on.
Online brokerage firms have seen a record number of new accounts opened this year. The big four (E-Trade, TD Ameritrade, Charles Schwab and Interactive Brokers) executed as many trades in March and April as in the whole first half of last year, per public disclosures. RobinHood’s easy to use investing app, backed by venture capital, has also seen a tremendous increase in new accounts. By early May three million RobinHood accounts had been opened this year, mostly by North American men aged 25-34. I was not surprised to hear that one of the top held securities in RobinHood portfolios last month was the sports betting company, DraftKings.
Could this phenomenon of gamblers turned traders partly explain the current disconnect between the economy (down) and the stock market (up)? Probably not, but they may have more of an impact than you think. Gamblers legally wagered more than $13 billion on sports last year, according to Eilers & Krejcik Gaming, a research and consulting firm, and some estimates suggest illegal wagering could be 10 times that figure. Many folks in this demographic have also put their stimulus checks into brokerage accounts rather than betting on games.
A ring leader of the movement from betting to stock trading is Barstool Sports’ President, Dave Portnoy, who has nicknamed himself “Davey Day Trader.” Barstool is wildly popular on social media and many who used to tune in for sports videos now find themselves becoming familiar with the stock market as they listen to Portnoy give his latest takes. Barstool also changed its daily gambling radio show from “Picks Central” to “Stocks Central.” Portnoy has even made several appearances on CNBC.
There is both good and bad coming from this new herd of investors. While it is great that many people are learning about investing at a young age, there seems to be a very short-term mindset among the group. Rather than trying to preserve capital and put together long-term strategies for retirement, this cohort is seeking quick spikes and trade their accounts frequently. They may well not be aware of the possible downsides of this trading activity, such as the tax rate for short-term capital gains. The most commonly held stocks in RobinHood accounts over the past few months include some very volatile names. The top ten includes GoPro, Delta, Aurora Cannabis, and Carnival.
While day trading has replaced sports betting as a form of entertainment for many Americans during the shutdown, it will be interesting to see if the enthusiasm continues once sports return and folks have less time on their hands.