Retail investors have become more self educated than ever before because they have been forced to adapt to a system that disadvantages those without the capital resources and influence of HNW individuals and institutions. They have been excluded from the private capital markets and exploited by institutional money in the public markets, but through the rise of social media, alternative investing platforms, exchanges, and self education they have become fully equipped to rally together in sync and move markets like never before. This can create fortunes for some, but for many the downside is potentially earth shattering. There must be a way to re-orient the development of this trend to create secure, high growth, and low risk wealth generation opportunities for all investors.
By now most have become quite familiar with the recent WallStreetBets / GameStop phenomenon, but for those who are not familiar here is the gist. Redditors from all over the world following the WallStreetBets forum rallied behind a call to action to stomp out the massive short positions held by Melvin Capital. The stock soared making retail investors billions of dollars and costing Melvin Capital billions of dollars in losses. This was the inevitable outcome of the modern age which is characterized by technology enabled global communication, immediate access to public markets via platforms such as Robinhood, and the general feeling of resentment held by many retail investors that are excluded from outsized wealth creation opportunities.
This sensational event, however, was just the most recent and most public example of a long series of similar occurrences. There are two primary problems: one which caused the enormous rally in stock price in the first place and one which resulted in the subsequent and again inevitable crash shortly thereafter.
Problem 1 – Accessibility
The first problem is accessibility. For decades retail investors have craved easy and liquid access to both private and public markets so that they, too, could participate in the market growth that continues to turn millionaires into billionaires. Between new regulations, exemptions, and platforms such as Robinhood, their dream has come true. Retail investors can now invest freely in the public markets, and combined with a surge in self-education and access to various digital social mediums such as Reddit and Twitter, clusters and masses of retail investors can literally create artificial market sentiment and coordinate their strategies to pump stocks and cryptocurrencies to their benefit. This leads us to our second problem: risk.
Problem 2 – Risk
All the self-education in the world will do nothing for investors if they enter a “get rich quick” mindset, and many have in our modern society. One can self educate all he or she wants, but once sucked into the WallStreetBets or StockTwits vortex, fundamentals go out the window and blinders come on. For those retail investors who fed into the hype at the wrong time and for the wrong reasons, the losses were crushing.
This is not to say that there are not many out there who thrive due to volatile markets and excel at timing these “pump and dump” events, but most do not and for most this is not a strategy that will suit them in the long run.
There needs to be a system in place that provides the same sort of access to high yielding investment opportunities without the hype and enormous risk. For the demographic of retail investors that continue to practice self education and disciplined diligence, the private capital markets can provide that opportunity.
Recent studies conducted by Visual Capitalist and Bain conclude that between debt, equity, and real estate there is nearly $900 Trillion in the global public and private markets with the vast majority in the latter.
Moreover, according to McKinsey’s most recent 2020 Private Markets Annual Review, total global private market assets currently under management stands at ~$6.5 Trillion with an additional $5.0+ Trillion flowing through the ETF market.
That’s well under 2% of total global market value.
How Are We Helping?
To responsibly tap into this enormous market, platforms such as MetaVest work with issuers, broker dealers, transfer agents, and various other investment side stakeholders in the capital markets to aggregate these investment opportunities and make them accessible while also promising a minimum level of transparency and availability of diligence material to ensure retail investors are fully equipped to use the tools and knowledge they have accumulated through self education over the years to thoughtfully invest.
This approach solves both of the problems featured prominently in the symbolic WallStreetBets / GME case study and will provide retail investors with the opportunity to realize the outsized returns offered via the private capital markets without the downside risk of today’s volatile public marketplace.