Another up and down week of oscillating valuations in US capital markets, possibly somewhat due to fluctuating position values in cryptocurrency, the newest, new thing and inflation concerns.

Having said that, capital markets are ever-changing these days while the participation of large, small, and beginning investors continues to increase.

Amazingly, the small retail investor’s ability to fully participate in investment markets is now decades old – with participation since Covid increasing due to new entrants, estimated at 20 to 25 per cent of market trading volume. According to the Cato Institute, “Retail Investors are Revolutionising the Stock Market”.

And there many more choices in investments and trading platforms.

Investor beginnings

Capital market structures are a long, long way ahead of the “good old days” when “runners” (literally) were employed on the New York Stock Exchange. Conceived in 1792, formally structured in the later 1800s, the NYSE today is still the largest security exchange in the world, hosting 82 per cent of the S&P 500, as well as 70 of the biggest corporations in the world. It is a publicly-traded company that provides a platform for buying and selling over nine million corporate stocks and securities a day.

Back then, investing activity was limited to strictly male traders and their client participants: the wealthy, those who could afford it in elite industries and related leaders. Anyone wanting to run trade orders for clients had to purchase an expensive “seat” on the NYSE.

It was not until more than 100 years later, in 1967, that the first female trader, Muriel Siebert – a college dropout – was allowed to participate through the purchase of a seat.

Nine of the ten investors she asked for sponsorship turned her down while she was also required – in a newly imposed condition – to obtain a bank guarantee. Ms Siebert was a highly successful financier, an undeterred advocate for women and minorities in the industry, for more than 50 years. She has passed, but her firm Siebert lives on.

Almost everyone following finance and investments on television – will remember the familiar scene of the NYSE trading floor buzzing with noise emanating from interviews with media, hundreds of traders bidding with hand signals, vocally, waving ticket submissions, and lots and lots of manual paperwork at the end of each day.

Today, the NYSE is digital, certainly more quiet physically with fewer people left on the trading floor, almost everything transacted electronically.

Retail investor interest

In that time frame, investors have seen and personally experienced major, major changes, just to name a few:

•Switch to a decimal pricing system,

•Reduction in trading fees to zero,

•Mathematical algorithm traders,

•Multiple increases in mutual and hedge fund offerings

•Increased usage of margin accounts, leverage, options, shorting, and other derivatives

•ETFs offerings – to an almost dominate position today

•Robo-adviser type accounts

•Non-bank accounts,

•Fractional shares,

•Lower account minimums,

•Social media investing collaboration,

•Ability to open a trading/investment account as easy as sitting in your pyjamas in front of your computer,

•And probably the biggest changes of all – digital forms of mediums of exchange, such as cryptocurrencies and digital coins, and underlying blockchain technology

According to Bloomberg, trade processing is evolving again, adapting to blockchain efficiency – from current trade settlement time of an estimated two days, to almost instantaneous or same day.

Detrimentally, increased cybersecurity hacks have increased along with these new trading and investing methodologies.

Global interchange

The role of global trading partners is vacillating, too. The US dollar as the world currency leader is facing increased competition from other countries’ currencies and finance management.

Social media commentary has become the new market teacher and disrupter.

Social investing media chatter along with commentary from hugely influential luminaries, is transparently influencing markets and investors. One only need to read the excerpt below from Bloomberg end of day commentary last week.

Crypto is getting hammered. Bitcoin fell as much as 5.1 per cent to $42,547 in New York after the People’s Bank of China reiterated that the digital tokens cannot be used as a form of payment. Doge and ether also fell. Bitcoin’s weeklong dive was sparked by Elon Musk’s comments on Tesla’s holdings of the coin, and his criticism of the environmental impact of crypto-mining.

Bitcoin is now at its lowest level since early February and was yesterday trading below $37,000.

Some things have not changed: applying some common sense to investing

What is, or may be obsolete are the old mantras of researching a stock, the company it is derived from, what kind of product, service they provide, how much free cash do they have, manageable debt, imparting the usual ratios that investors have used since time immemorial, no longer seem to matter.

How could they when watching the social media collaboration that drove values up, down, up, and down in Gamestop and some related entity stocks? It defies conventional common practices, and aside from those enjoying the euphoria of the moment, must seem to the rest of us, just completely bewildering.

All of the above paragraph also applies to the rapid escalation and vacillation of bitcoin, ethereum, even dogecoin (which started as a joke).

Through it all runs the lure of buying in on the way up and becoming rich, very rich – provided you lock in those profits, turning the investment to cash.

Watching your investment values climb on a stock market website in real time is meaningless. Those valuations could dive in seconds after a say, a random tweet by some influential person with – or even without – a personal bias.

Yes, I know it is hard to watch, read, and hear about people insanely giddy about becoming millionaires due to a bitcoin, Gamestop or other high-flying completely out-of-reality investments.

What is never dwelled on anywhere near as often – are all those investors who have incurred significant losses.

Financial investment literacy is key. There is nothing wrong with an orderly, conservative approach to investing. It used to be called “get rich slowly”.

It still can be.

Resources

https://www.cato.org/commentary/retail-investors-are-revolutionizing-stock-market-so-stop-calling-them-dumb-money

https://en.wikipedia.org/wiki/Muriel_Siebert

https://www.bloomberg.com/news/articles/2021-05-17/bank-of-america-joins-paxos-blockchain-stock-settlement-network?sref=70aFFrqe

• Martha Harris Myron CPA JSM is a native Bermudian Pondstraddler, author of The Bermuda Islander Financial Planning Primers now hosted on The Royal Gazette website, and financial journalist to The Royal Gazette since 2000. All proceeds from these articles are donated to the Salvation Army, Bermuda. Contact: martha@pondstraddler.com