Stocktake: Clueless investors are headed for trouble

Ignorant investors pumping cash into meme stocks like GameStop? This won’t end well

Nouriel "Dr Doom" Roubini has little time for the populist nonsense that has infected recent coverage of meme stocks such as Gamestop.

Amateur retail investors “are being offered a new rope with which to hang themselves in the name of ‘financial democratisation’ ”, Roubini said recently. They are opening accounts on Robinhood and other investment apps where they can “leverage their scant savings and income” to speculate on “worthless stocks”.

A recent study suggests that’s a fair assessment. Price action in stocks held by Robinhood investors indicates zero-commission brokers have attracted “a new type of uninformed equity market participant”. In the 1990s, the average retail investor was aged 50, with an account balance of $47,000; Robinhood’s average investor is 31 with an average account balance of $1,000-$5,000. “What is the stock market?” is the most-visited FAQ topic on Robinhood’s website, the study notes, followed by “What is the DJIA?” and “What is the S&P 500?”

This won’t end well.