You may have read commentary that the share market isn’t reflecting reality at the moment. For example, the share market can rise by 3% on the same day that we receive bad news in respect to the spread of the virus. Spectators are left thinking how can market values rise when global economic expectations are so negative? That is a fair question.
Then there’s stocks like Tesla in the US and Afterpay in Australia.
Electronic car manufacture, Tesla's share price has risen by 50% over the past couple of weeks. Its market value is now equal to the total value of Australia’s big 4 banks plus BHP combined. The difference is that the banks and BHP make total profit of $12 billion p.a. whereas Tesla loses money (and has never made money)!
These exuberant valuations are happening here too. Towards the end of March, Australian listed FinTech company Afterpay was trading just above $8 per share. Today, it is trading at circa $70 per share and is worth over $20 billion. It also doesn’t make a profit.
So, how do you navigate a market that doesn’t make a lot of sense?
The Robinhood effect
One of the contributors to this irrational exuberance is the influx of amateur investors – often first-time investors. Back in May, Australian regulator
ASIC noted there had been a 340% increase in the opening of new share trading accounts. The US has also reported a record number of new account openings this year.
The theory is that people are becoming bored being locked in their homes. Sports betting and casinos are closed. So, people have turned their attention to “gambling” on the share market.
FinTec companies, particularly in the US have jumped onto this trend. US provider,
Robinhood is best known for gamifying share trading. It offers free stock to anyone that opens a new account – and additional free stock if you refer friends. The screen turns green if your trade is in profit (and red if its not), sends you confetti when you buy and gives you your money straight away after you sell, so you can trade again (it takes 3 days in Australia). Many brokerages in the US now don’t charge commis
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