Retail Traders Lose $350 Billion in Brutal Year for Taking Risks
Individual investors have had an outsize influence on the market since the start of pandemic lockdowns.
December 09, 2022 at 01:41 PM
4 minute read
Investment portfolios belonging to retail traders suffered a $350 billion blow this year as big bets on risky stocks and former high-fliers such as Tesla Inc. backfired for the mom-and-pop set.
The average active amateur investor's portfolio is down about 30% in 2022, according to data compiled by Vanda Research, which studies self-directed retail traders globally. By contrast, the S&P 500 Index has lost 17%.
Of course, this group isn't about the boring S&P 500. It tends to be concentrated in high-profile stocks such as Elon Musk's electric-vehicle company, which wiped out about $78 billion for retail traders alone as its shares plunged, according to Vanda.
Individual investors have had an outsize influence on the market since the start of pandemic lockdowns, when cooped-up 20- and 30-somethings flocked to no-cost trading to relieve boredom and make an easy buck buying almost any stock during a bull-market boom. Now, as equities head toward their worst year since the 2008 financial crisis, retail traders have suffered even sharper drops and their share of U.S. equity market volume has slipped since the start of 2021.
"The losses this year were unprecedented, especially for the younger generation of investors," said Giacomo Pierantoni, the head of data at Vanda in Singapore. Whether they keep plowing money into the market — buying the dip, as they say — or lose faith in investing and give up altogether could help determine their ability to retire in the coming decades.
Another sharp sell-off for Tesla, which accounts for about 10% of the average self-directed global retail trader's portfolio, or Apple Inc. could determine sentiment, according to Pierantoni.
Retail-trader portfolios have also seen big losses from chipmakers Advanced Micro Devices Inc. and Nvidia Corp., each of which are down more than 40% this year. Those who concentrated investments in index-tracking exchange-traded funds like the SPDR S&P 500 ETF Trust and the tech-heavy Invesco QQQ Trust Series 1, which follows the Nasdaq 100 Index, suffered too as major averages head to their worst years in more than a decade.
That said, there are signs that some retail investors took fairly defensive positions that paid off this year. Their portfolios were overweight energy companies like Chevron Corp. and Enphase Energy Inc. and drugmakers including AbbVie Inc., which broadly outperformed the broader markets.
"Investors have learned to be a little more nimble in this environment," said Callie Cox, an investment analyst at eToro Group Ltd. "When everything isn't going up, you need to be more strategic."
Of course, that 30% average drop estimated by Vanda speaks to how difficult it actually is to be nimble in a collapsing market. JPMorgan Chase & Co. is even more pessimistic about the performance of retail traders, estimating they suffered losses of 38% this year.
For individuals who also dabbled in the cryptocurrency market or digital assets like non-fungible tokens, the losses are likely even uglier. Bitcoin is down 64% this year, while the Bloomberg Galaxy Crypto Index, a basket of different tokens, has erased two-thirds of its value.
One of the strangest phenomenons to emerge from the retail trader frenzy during the most severe pandemic lockdowns were so-called meme stocks that became popular on internet chat boards. A group of 37 meme stocks tracked by Bloomberg has tumbled 38% this year.
Of those stocks, 11 have crashed more than 70%, with companies like Newegg Commerce Inc. and Bed Bath & Beyond Inc. seeing some of the worst drops, data compiled by Bloomberg show. GameStop Corp., which helped spark the meme movement, has erased one-third of its value in 2022, while AMC Entertainment Holdings Inc., another meme poster-child, is down 64%.
"Going forward, investors will take this year as a lesson learned and will become more sophisticated," Cox said. "Retail traders will probably stick in this longer than people expected because the traders that have been hit really, really hard this year are younger investors with higher risk tolerance."
Bailey Lipschultz reports for Bloomberg News.
NOT FOR REPRINT
© 2024 ALM Global, LLC, All Rights Reserved. Request academic re-use from www.copyright.com. All other uses, submit a request to [email protected]. For more information visit Asset & Logo Licensing.
You Might Like
View AllTrump Mulls Big Changes to Banking Regulation, Unsettling the Industry
CFPB Orders Big Banks to Limit Overdraft Fees to $5. But Will Its Edict Stick?
3 minute readUS Judge Throws Out Sale of Infowars to The Onion. But That's Not the End of the Road for Sandy Hook Families
4 minute readGreenberg Traurig Initiates String of Suits Following JPMorgan Chase's 'Infinite Money Glitch'
Law Firms Mentioned
Trending Stories
- 1Legal Tech's Predictions for Artificial Intelligence in 2025
- 2A&O Shearman, Hogan Lovells and the Stories That Shaped Africa This Year
- 3Borden Ladner Gervais Cyber Expert Warns of AI-Boosted Ransomware Attacks
- 4Phila. Judge Upholds $68.5M Verdict Over Construction Worker's Death
- 5Biden Vetoes Bill to Create More Federal Judgeships
Who Got The Work
Michael G. Bongiorno, Andrew Scott Dulberg and Elizabeth E. Driscoll from Wilmer Cutler Pickering Hale and Dorr have stepped in to represent Symbotic Inc., an A.I.-enabled technology platform that focuses on increasing supply chain efficiency, and other defendants in a pending shareholder derivative lawsuit. The case, filed Oct. 2 in Massachusetts District Court by the Brown Law Firm on behalf of Stephen Austen, accuses certain officers and directors of misleading investors in regard to Symbotic's potential for margin growth by failing to disclose that the company was not equipped to timely deploy its systems or manage expenses through project delays. The case, assigned to U.S. District Judge Nathaniel M. Gorton, is 1:24-cv-12522, Austen v. Cohen et al.
Who Got The Work
Edmund Polubinski and Marie Killmond of Davis Polk & Wardwell have entered appearances for data platform software development company MongoDB and other defendants in a pending shareholder derivative lawsuit. The action, filed Oct. 7 in New York Southern District Court by the Brown Law Firm, accuses the company's directors and/or officers of falsely expressing confidence in the company’s restructuring of its sales incentive plan and downplaying the severity of decreases in its upfront commitments. The case is 1:24-cv-07594, Roy v. Ittycheria et al.
Who Got The Work
Amy O. Bruchs and Kurt F. Ellison of Michael Best & Friedrich have entered appearances for Epic Systems Corp. in a pending employment discrimination lawsuit. The suit was filed Sept. 7 in Wisconsin Western District Court by Levine Eisberner LLC and Siri & Glimstad on behalf of a project manager who claims that he was wrongfully terminated after applying for a religious exemption to the defendant's COVID-19 vaccine mandate. The case, assigned to U.S. Magistrate Judge Anita Marie Boor, is 3:24-cv-00630, Secker, Nathan v. Epic Systems Corporation.
Who Got The Work
David X. Sullivan, Thomas J. Finn and Gregory A. Hall from McCarter & English have entered appearances for Sunrun Installation Services in a pending civil rights lawsuit. The complaint was filed Sept. 4 in Connecticut District Court by attorney Robert M. Berke on behalf of former employee George Edward Steins, who was arrested and charged with employing an unregistered home improvement salesperson. The complaint alleges that had Sunrun informed the Connecticut Department of Consumer Protection that the plaintiff's employment had ended in 2017 and that he no longer held Sunrun's home improvement contractor license, he would not have been hit with charges, which were dismissed in May 2024. The case, assigned to U.S. District Judge Jeffrey A. Meyer, is 3:24-cv-01423, Steins v. Sunrun, Inc. et al.
Who Got The Work
Greenberg Traurig shareholder Joshua L. Raskin has entered an appearance for boohoo.com UK Ltd. in a pending patent infringement lawsuit. The suit, filed Sept. 3 in Texas Eastern District Court by Rozier Hardt McDonough on behalf of Alto Dynamics, asserts five patents related to an online shopping platform. The case, assigned to U.S. District Judge Rodney Gilstrap, is 2:24-cv-00719, Alto Dynamics, LLC v. boohoo.com UK Limited.
Featured Firms
Law Offices of Gary Martin Hays & Associates, P.C.
(470) 294-1674
Law Offices of Mark E. Salomone
(857) 444-6468
Smith & Hassler
(713) 739-1250