A senior investment officer has expressed concerns over the volume of trading activity retail investors are performing via online platforms and has predicted if this trend continues it will result in a poor outcome.
“The amount of share trading that is now done on these platforms is quite breathtaking,” Magellan Financial Group chief investment officer Hamish Douglass said.
“If you continue to see more and more almost [a] gambling mentality at scale in asset classes that have no correlation with investment principles, and it becomes large enough, you could see some events unwinding that frenzy.
“I don’t think it’s going to end well in many of those cases for the investors.”
However, Douglass noted the situation was not serious enough to have a catastrophic effect on markets, such as triggering another global financial crisis.
“The question is are they large enough like sub-prime [mortgages] that they become systemic [and] that could cause an overall market crash effectively. I don’t think we’re there yet to be honest,” he said.
“They’re somewhat isolated, but the larger they get and the more participants, and the wider the assets that get captured in this at-scale gambling frenzy, it does worry me that if it unwinds, it could have a compounding effect and a domino effect in markets.”
To demonstrate the phenomenon he is referring to, Douglass used the valuation experience of certain specific companies that have been receiving a lot of attention recently.
“Bitcoin has got to US$1 trillion. Tesla has got to US$800 billion. We saw the GameStop activity. That wasn’t at the scale [of the other two organisations,] but you can see what happens at the crowd,” he noted.
He emphasised individuals should not consider this type of activity investing.
“It’s purely gambling and speculation at the end of the day and it’s starting to happen at a scale we haven’t seen in markets [before]. Certainly I can’t think of a scale where I’ve seen a retail frenzy like this,” he said.''