The Retail Revolution (Part 1) | Podcast Episode #484

0:00
Hey everybody, this is Ryan Mallory with shareplanner.com’s Swing Trading the Stock Market, in today’s episode. It’s probably going to be a two-part series depends on how much of it I can get through of it today, but I I have a feeling it’s going to be at least two-part series. And that’s really the phenomenon of the retail trader, the rise of the retail trader.

0:17
They have made such a huge impact. That’s people like you, that’s mom and dad, that’s Joe next door, that’s everybody that has a smartphone or a desktop computer and they’re able to place trades. I personally make my trades on desktop.

0:32
Rarely do I make it on my phone, but that’s what we’re dealing with. That’s the retail trader and the impact that they are having on the stock market today. Now, the stock market has undergone A dramatic transformation in recent years as millions of everyday investors. They’re armed with Commission free apps and social media coordination, and they’ve become a force that Wall Street can no longer ignore.

0:54
From the mean stocks to the crypto frenzies, the retail trader is now a key player in the stock market and the dynamics that you see on a day-to-day basis. There was a time when the stock market was primarily the domain of institutional investors and wealthy individuals, professional traders, hedge funds and large institutions.

1:13
They dominated the landscape, setting the prices and controlling the flows. But a perfect storm of technology advancement, regulatory changes and social factors have fundamentally altered this dynamic, giving rise to what many call the retail trading revolution.

1:31
Now I remember over 20 years ago, I hardly knew anybody that traded stocks. Now I knew people that had four O 1 KS and Iras to speak of, but I didn’t really know a lot of people that actually traded stocks. I remember when I was in the workforce, I would trade stocks and I was really the only person that did it.

1:49
If if I was telling people that I was day trading stocks, which a lot of people do in the workforce. But if I was doing it back then, people were looking at me like I was playing video games and I was supposed to be working. Now everybody’s trading stocks. They they’re pressing buttons on their phones, whether it’s through the Robin Hood or they’re doing it on their desktop.

2:05
And people really don’t even blink an eye at it now, unless it just becomes an absolute gambling addiction, which I guess for some that’s the case too. So now it’s like the, the new form of sports. Sports betting companies are the new teams. CE OS are like their favorite football player.

2:20
I mean, you see that with NVIDIA, you see it with Tesla, you see it with Apple, you see it with all the big tech stocks. I mean, they’re the CE OS are like your football favorite football player, right? The ship has had a profound implication for all market participants.

2:35
Whether you’re a swing trader, a long term investor or market professional, understanding how retail traders behave and influence markets is now essential knowledge. So what I want to do is explore the rise of retail trading, examine the key events like the meme stock phenomenon and didn’t just really try to share some practical strategies for navigating this new landscape that we’re dealing with and understanding how influential the retail trader has become.

3:03
So First off, let’s talk about the retail trading revolution, the Commission free chain trading that changed everything, and now the retail revolution. It didn’t just happen overnight, but a few watershed moments accelerated the trend dramatically, and perhaps none was more significant than the elimination of trading commissions.

3:22
So prior to 2019, most brokerages charge 5 to $10 a trade. I remember at times when it was over $20 a trade, it was a significant barrier for small investors like myself who might only be trading a few $100 at a time to be able to get any kind of real gains in the stock market.

3:38
It just wasn’t happening. But on October 1st, 2019, Charles Schwab announced that it would be cutting online trading fees to 0. At this point, you could probably get free, sometimes free trades depending on the platform, but most of your platforms were like down to four or $5.00.

3:54
But it forced your big brokers like TD Ameritrade and E*Trade to quickly follow suit. This pricing war sparked a competition from apps like Robin Hood that were startups, and they suddenly made free trading the industry standard. For retail traders like myself, it was like a starter’s pistol and the race into the market began in earnest.

4:16
Millions and millions of people were flooding the stock market and now simultaneously mobile trading apps were exploding in popularity. Robin Hood’s intuitive interface attracted a new generation of investors with its zero Commission model and no account minimums. The growth was staggering, as Robin Hood’s funded accounts jumped from 9.8 million in early 2020 to 22.5 million by mid 2021.

4:39
Other brokerages also reported surges in new accounts. Schwab added 1.4 million new accounts in just the second quarter of 2022, more than the previous six quarters combined. And by 2021, retail investors made-up roughly 25% of all U.S. stock trading volume, nearly double their share from a decade prior.

5:00
These apps didn’t just make trading accessible, they made it fun. You had confetti animations for first trades, simple swipe interfaces like it was a tender, and that fractional shares allowing users to buy small slices of expensive stocks like Amazon or Tesla, which were trading at crazy prices back in those days because they hadn’t undergone their splits yet.

5:21
And they all contributed to the gamification of investing. The stock market was becoming a circus show and the brokers were attracting a bunch of clowns. And now I’m not saying everybody that started trading back in that time were a bunch of clowns, but it took a lot of people that had no idea of what they were doing and gave them access to the stock market from a day trading mindset.

5:40
And people were blowing up their accounts and they were doing it in very short order. But then let’s throw some gasoline on the fire. And so while the groundwork was laid in 2019 with the Commission free trading, it was COVID-19 pandemic that truly supercharged the retail trading activity.

5:59
You had the the lockdowns that started hitting. And when the pandemic hit in early 2020, several factors converged to create a perfect environment for the retail trading revolution to really flourish. People were stuck at homes with extra time on their hands, traditional entertainment options like sports and casinos, they were shut down.

6:17
The government sent STEMI checks directly to to Americans. The market crashed in 2020, creating a new buy the dip opportunity. So you have these near 0 interest rates making saving their cash and banks very appealing. So what are people going to do?

6:32
They’re going to take their money from their savings and they’re going to put it into the stock market. They have the apps, they have the brokers, they have Commission free trading. Why not, right? That’s what they’re thinking now. The influx of stimulus money directly boosted the retail trade trading. In fact, one study showed that after the first stim checks in April 2020 came out, households in the 35,000, the $75,000 income range, increased their stock trading by 90% the following week.

7:00
OK, even the higher income households showed an 82% jump in trading right after receiving stimulus funds. So you have the 2020 COVID rally with 0 commissions and lots of free time. New retail traders aggressively buying the dip back in March of 2020 when the market crashed.

7:18
This wave of dip buying helped fuel a ferocious rebound. I mean, I remember my neighbors coming out and telling me that they had bought Royal Caribbean. Royal Caribbean couldn’t even sail. You had people buying them. You had people buying like very high volatile stocks. You had them buying the airliners and people weren’t really flying.

7:34
But by mid 2020, stocks were hitting new highs, new all time highs, even as the economy was still reeling. A disconnect that left me professionals scratching their heads. I know they made me. I don’t know, I guess at times I felt clueless.

7:52
Retail traders tended to pile into the big winners of the pandemic, the high growth tech names that stay at home economy stocks at Goldman Sachs index tracking 58 stocks popular with retail traders surged over 80% in 2020, far outpacing the S&P 5 hundreds 14 1/2 percent gain that year.

8:10
In other words, the basket of retail favorites. Think Tesla, Amazon, Zoom. Remember Zoom or what was the other one the the Viking company? Gosh, it’s going to kill me. I’m trying to think of this while I’m doing the the podcast. Oh man, that’s going to kill me.

8:28
Anyways, It’s that that stupid bike, you know where you people get on there and they would they would get on there and and have the little tablet in front of them. That thing, it starts with AP OK, I, I’m not totally clueless, but it’s just I’m having a brain fart right now. I can’t remember it, but a popular mantra emerged among this new class of traders because they they bought the dip in March 2020 and the market just ripped higher.

8:50
Very similar to like what we’re seeing here in April and May of 2025. And and it was the whole phrase stocks only go up, which was a phrase and still is. Championed by Dave Portnoy as he live streamed his day trading exploits during the lockdown. Such was the euphoria among the new retail trading army.

9:09
But we didn’t stop there. The mean stock revolution then went on to GameStop and beyond. The new found power of retail traders truly made global headlines in January of 2021 with a GameStop saga, which was a watershed moment that demonstrated that retail traders could shake the foundations of Wall Street itself.

9:32
GameStop, a struggling video game retailer, was heavily shorted by hedge funds at the time when members of Reddit like Wall Street bets identified an opportunity inspired by discussions on the forum in a sense of sticking it to the hedge funds and and this guy that everybody was was following behind named worrying Kitty.

9:52
And, and some of the nicknames were just absolutely crazy. Some of them I can’t even mention on this podcast. But any case, swarms of retail traders started buying GME and mass especially call options, forcing hedge funds that were short to cover their positions.

10:10
Now, the result was explosive. In less than a month, GameStop shares price rose over 1600%, from under $20 to a peak of around $347 by late January 2021.

10:21
At one point in intraday trading, GME even touched 500 plus per share. This spectacular spike was almost entirely driven by individual investors banding together, fueled by a mix of greed, stupidity, and Internet memes.

10:35
Now, GameStop wasn’t an isolated case. It was just the flagship of what became known as the meme stocks, or as some people call it, meme stocks.

10:44
Other heavily shorted companies with loyal online followings like AMC Entertainment. BlackBerry, yes, BlackBerry. That was one that like totally blew me away because nobody was using Blackberries back then anymore. I mean, that was like something that, you know, early 2000s where people were using Blackberries and then when you had the smartphone, people pretty much threw away the Blackberries.

11:03
But lo and behold, BlackBerry became a thing again. Yeah. Beth Bath and Beyond, which now looking back, that was that’s pretty much a defunct company. I mean, I know the ones around here have all shut down, so.

11:19
But they all skyrocketed in sympathy. AMC, the movie theater chain, it jumped 200%. And the same week GME went parabolic. And The funny thing was they weren’t even really open at the time. They couldn’t show movies at all because they were on lockdown as well. I mean, yes, there was some gradual reopening and stuff, but there wasn’t a lot of people going to the movie theaters.

11:38
I know this because my daughter was working at the movie theaters and nobody was going to him. But yet AMC just launched Higher and the Minstock phenomenon showcase retail traders can see no style risk as a result.

11:52
When when you can’t really tie the two together. The logic behind buying AMC when no one’s going to see movies and it’s going up like 200%, sometimes going up over 100% in just a day.

12:05
So many were buying call options are pouring their life savings into single volatile stocks. Stories emerged as small investors turning a few $1000 into hundreds of $1000 and then losing it all.

12:14
Some even took out loans. They use their student loans and they took out second mortgages and lost that money as well. People were ruining their life.

12:22
There was even some people that were killing themselves. So for a while there, it felt like a populist uprising in the stock market, Main Street versus Wall Street now.

12:30
While the meme stock bubble eventually deflated, the episode of that time had a lasting impact. It proved that coordinated retail trading could overwhelm institutional investors, triggered real losses for hedge funds.

12:42
One prominent fund lost over 50% shorting GME and then created new paradigms of market risk.

12:50
Now before I go any further, I want to remind you check out swingtradingthestockmarket.com. Now that’s going to take you to my SharePlanner side and let you see all the different features that I have also have a brand new course that I’ve released called the self-made Trader. You can go there as well when you go to the swingtradingthestockmarket.com and you can get a access to one of my incredible training courses where you’re going to learn everything that I know I’ve I’ve poured my heart and soul into that course.

13:09
Highly encourage you to check that out. swingtradingthestockmarket.com are coming in the process. You’re obviously supporting this show as well. So to navigate the the market influences by retail traders, it’s crucial to understand their typical behavioral patterns. While every individual is different, and the aggregate retail crowd has shown some very distinct traits, 1 is FOMO.

13:32
FOMO trading. Fear of missing out. You’ve heard it probably many times. You’ve heard it from me as well. I’ve talked about it quite a bit at length. But this is perhaps the hallmark of retail behavior in recent years. When prices are rising, retail traders often rush in because they don’t want to miss the next big win. FOMO can drive parabolic moves.

13:49
A stock that’s already at 50% in a week might attract more buyers simply because it’s going up. Remember Dave Portnoy stock? Stocks only go up. The danger, of course, is that FOMO buyers are often late to the party and end up buying at the top. But that fear of missing out and missing out on those huge gains has led many to chase rallies well beyond traditional valuation and what they would justify as a good buy.

14:12
AJP Morgan study found that investors who started trading during the 2020-2021 bull market took on much greater risk in their portfolios than prior cohorts, and although they dialed back after 2021, their risk levels remain elevated into 2023.

14:29
Now, today’s retail traders are conditioned to buy the dip aggressively. After witnessing the V shaped recovery in 2020 and many rapid bounces been bounced back since then, retail investors tend to view almost any pullback as an opportunity. This mentality has provided continual support to market.

14:47
It’s the one reason why sell offs were often shallow or short lived in 20 and 2021. Retail dip buying has been so persistent that it created self fulfilling prophecies. However, as some have learned in 2022 when we had a much more extended sell off, the strategy can fail in a true bear market.

15:04
Now AJP Morgan study found that investors who started during 2020 and 2021 bull market took on much, much greater risk in their portfolios than prior cohorts. And although they dialed it back after 2021, their risk levels remained elevated into 2023.

15:20
Now that’s where I’m going to wrap it up here because I don’t want to drag this on for too long, but we’re up to about the 2023 time period here where we, we’ve talked about 2020, We’ve talked about even before that with 2019 becoming the, the, the moment where the market went to free trading commissions, the COVID shut down and then the, the, the meme stock rallies.

15:43
We’ve, we’ve talked a loud a lot and I want to leave it right there. Gave you some background. Now we’re going to extend it and next week’s episode into 2023-2024, 2025 and really start to dissect a lot of what it means for the stock market going forward.

15:58
So if you enjoyed this episode, I would encourage you to like and subscribe. If you’re listening to me on YouTube, that means a lot to me. Or if you’re listening to me on Spotify or Apple, make sure to leave me a five star review and and give me some feedback. Let me know what you guys think of this episode. But highly encourage those five star reviews.

16:14
They do mean a lot to me and help support this podcast as well. plus send me your questions, ryan@sharelanner.com Love to hear from you guys and I’ve answered probably 4 or 500 questions from you guys almost over the years and I’d love to hear more so I can get more episodes out to you guys addressing your questions and concerns.

16:32
And check out swingtradingthestockmarket.com. Thank you guys. God bless. Thanks for listening to my podcast, Swing Trading the Stock Market. I’d like to encourage you to join me in the SharePlanner Trading Block where I navigate the stock market each day with traders from around the world.

16:49
With your membership, you will get a seven day trial and access to my trading room including alerts via text, e-mail and WhatsApp. So go ahead, sign up by going to shareplanner.com/trading Block. That’s www.shareplanner.com/trading-block and follow me on SharePlanners Twitter, Instagram and Facebook where I provide unique market and trading information every day.

17:11
You have any questions, please feel free to e-mail me at ryan@shareplanner.com. All the best to you and I look forward to trading with you soon.