Millions of amateur investors entered the stock market during the pandemic, some cautiously, some aggressively, some determined to teach Wall Street bigwigs a lesson, and almost couldn’t help but make money, riding a bull market for most of the year. two years old .
Now they may have to fight a bear.
“It’s definitely not that easy to trade this market,” said Shelley Hellmann, a 47-year-old former optometrist from Texas who began actively investing in April 2020 while isolating herself from her family.
Following stock movements on an iPad Mini in his bedroom, he made big gains as the market soared. Within a couple of months, he was considering turning day trading into a full-time job. But since the S&P 500 peaked on Jan. 3, gains have been harder to come by.
“Sometimes I’m glad I’m not red for the year,” she said.
Five months of jagged declines have put the S&P 500 on the brink of a bear market — a drop of 20 percent or more from its most recent peak — seen as a psychological marker of investors’ dimmed view of the economy. . Including a 4 percent drop on Wednesday, the index is down more than 18 percent from its Jan. 3 high.
In response, many of the roughly 20 million fans who started trading in the past two years, whether they’re bored sports bettors or meme stock buffs who piled into GameStop, slammed on the brakes, or rushed to switch their portfolios to more defensive positions.
S&P Global Market Intelligence, which analyzed April data from Charles Schwab and Interactive Brokers, said retail trading activity was down 20 percent compared to the meme-stock frenzy of January and February 2021. Popular retail brokers report fewer active users: Robinhood, the choice of many hobbyists who jumped in early in the pandemic, said last month that it had 15.9 million active users in March, down 10 percent from a year earlier and down 8 percent than at the end of last year.
The recent drop, the company said, was tied to “users with lower balances, who are becoming less involved in the current market environment.”
The mood has even cooled on Reddit forums like WallStreetBets. In the heat of the rising market, invincible traders congregated there to joke that stocks were only going up. But the irrational exuberance has given way to darker humor: A recent post included an image of the angel of death killing low interest rates and stock market bulls.
Jonathan Colón got out as the market began to retreat. He put $3,000 into a Robinhood account last June and sold it all earlier this year when the stock fell in January. He cashed out at a loss of $100.
“It was like when you get hit on the hand a couple of times as a kid and you learn not to go back and forth,” he said.
Mr. Colón, 33, who will graduate from Brooklyn College this month with a finance degree, was inspired to invest in a stock market competition that one of his professors offered as extra credit in March of last year. Managing and trading a simulated $1 million portfolio, he sought out companies that appeared to have been sold too aggressively, making them cheap buys, or those that were trading above their usual range, making them candidates for a short sale.
A few months later, he started investing his own money, but had trouble replicating the returns on his simulated portfolio. Certain stocks weren’t available for short sale, for example, and trading that often was expensive. Although there were no commissions to pay, the bid-ask spread (the small difference between the highest price a buyer is willing to pay and the lowest a seller is willing to accept) still cost him fractions that added up.
By January, some of her classes had resumed in person, and with them her onerous commute from the Bronx. Instead of trading for an hour every morning, she cut it down to twice a week. The market was also becoming much choppier and it was becoming more and more difficult to hold their positions. He had always used stop-loss orders (instructions to sell when a stock fell to a certain price) to avoid disastrous declines. But with constant drops, he kept getting pushed out of his operations.
“Just when you think it wouldn’t go down any more, it would go down,” he said. With less time on hand and more volatility in the market, she sold everything “for safety reasons,” she said.
Although the stampede to open new brokerage accounts has subsided, retail trading activity remains well above pre-pandemic levels, a testament to the sheer number of people who started trading stocks when the coronavirus upended normal life. . Retail brokerages saw two to three times as many account openings in 2020 compared to a year earlier, a pace that accelerated during the first half of 2021, according to estimates from JMP Securities.
Thomas Mason, senior research analyst at S&P Global Market Intelligence, said that despite recent market declines, retail traders aren’t necessarily panicking. “It appears they are reallocating from high-risk growth stocks to less risky investments,” he said.
Even if their tastes have changed, they are a slice of the trading population that still show an appetite: In late April, TD Ameritrade, part of Charles Schwab, said its retail clients were still buying more shares than they were selling. based on its Investor Movement Index, which measures the behavior and sentiment of retail investors, based on a sample of accounts that completed transactions in the past month. Their interests have shifted to less volatile names and more stable holdings, such as short-dated bonds, the firm said.
Ms Hellmann, who began trading actively in the early days of the pandemic, said she would stick with it, learning more and refining her approach as she went.
She often wakes up at 3 a.m. and turns on CNBC to begin mapping out her strategy for the day, which involves studying stock price movements, a process she likened to learning to catch a baseball: watching its arc. and then try to figure out the physics of where it will land. “That’s what I’m doing with price and volume,” she said.
A longtime buy-and-hold investor, he started with about $50,000, money that came from ConocoPhillips stock that he inherited in 2014 after the death of his grandfather, who had been a propane salesman. His approach has grown increasingly complex over the past two years: Last fall, he took a big position in an exchange-traded fund betting against the price of natural gas, which has risen as the Russian invasion of Ukraine rocked the energy markets.
“The war that caused natural gas to skyrocket at a time when it’s seasonally reduced didn’t help me much,” he said.
Still, he has more than quintupled his money since the start of 2020, riding the strength of a rally that has seen the S&P 500 rise nearly 80 percent since bottoming in March 2020, even with its recent drop.
Experiencing losses after a period of gains can be instructive, said Dan Egan, vice president of behavioral finance and investments at Betterment, which creates and manages diversified portfolios of low-cost funds and provides financial planning services.
“If you have a good initial experience with investing, see that this is part of it, you’ll be fine,” he said. “We have bumps and bruises that you need to learn what pain feels like,” she said.
Eric Lipchus, 40, has felt a lot of pain in his nearly two decades of full-time day trading: He owned options on Lehman Brothers, the investment bank that collapsed during the 2008-9 financial crisis. Before that, he had watched his older brother and father dabble in the markets during the dot-com boom and bust.
“I’ve been on a roller coaster,” he said. “I’m making good money this year, but it’s been up and down. It seems that it could be a difficult year, without as many advantages as in previous years.
Challenging conditions like the ones investors are now facing can quickly become stressful, Lipchus said. Right now he keeps half his wallet in cash and is going fishing in the Thousand Islands in a couple of weeks to clear his head.