Not all of our early morning sea swim chats are consumed by Love Island analysis. We occasionally venture into divisive territory without even mentioning the Orange Toddler or the Irish rugby out-half position. In fact, the subject of most debate these days is our revolutionary ‘pivot’ away from a weekly Euromillions draw syndicate to a miniscule pooled fund primed to take on the stock and event prediction markets. The use of ‘revolutionary’ in the previous sentence is instructive; this was ultimately a revolt by the younger swimmers seeking newer markets and more fun. The miserable Euromillions returns over the last 3 years didn’t exactly bolster the ‘old guard’ resistance either. Anyway, on to risk pastures new and an investing world which is shifting rapidly. Indeed, this week alone, I have had three pension-type conversations where individuals confessed to being ‘very confused’. Confusion is not necessarily a bad starting point. In fact, in my experience, certainty is a guaranteed wealth destroyer. So, let’s start with certainty.
The term ‘margin’ used in stock market trading accounts is the use of leverage. In effect, this means investors borrowing money to fund stock market purchases. This margin debt can often be multiples of the investor’s own capital. In other words, the investor is employing leverage to ‘juice’ the returns in his/her investment. However, the juice squeeze works in the other direction too. We recently flagged that 300,000 investor accounts (using margin leverage) in South Korea were wiped out after a double-digit percentage dive by the Seoul stock market(KOSPI). Currently, the latest figures from the US reveal a whopping $1.4 trillion of margin loans have been extended to US investors against the value of their shares. That figure is a 54% increase on the previous year. Clearly, more leverage means more confidence and implies a ‘certainty’ that could end up being illusory. However, for now, retail investors are flocking to invest in the stock market. Many are new to the market….
US investing platform, Charles Schwab, reported better than expected Q2 earnings this week. Of course, SpaceX’s IPO helped (now trading below its IPO price and 50% off the highs) but it was still incredible to read that Schwab opened 1.4 million new brokerage accounts in the quarter. And, trading activity was frenzied with average daily trades hitting 11.9….million. Drivers of massive trading activity growth include meme-stocks, AI, Covid, tokenised equities and zero commission charges. Schwab is not an outlier. Interactive Brokers reported 34% year-on-year growth in new customer accounts. What happens next? Who knows, but then again, event predictions are the latest play-thing of the next generation investor. Dare we say that prediction contracts are a game changer?
Check out Kalshi the events prediction trading platform. It had a FIFA World Cup bonanza. World football’s “Sycofantino” CEO and his grifting buddies put on a show which attracted 3 million new trading accounts to Kalshi’s platform. A huge $1.2 billion was traded on contracts predicting the winner alone, with an estimated total of $40 billion traded on Kalshi in sports bets during the World Cup (Source: Ticker Tracker). There is no doubt younger generations are deploying capital in a different way to their parents. Astonishingly, the percentage of US household wealth tied up in equities now exceeds the percentage held in real estate. However, if housing has become unaffordable to many, why be surprised? In fact, the shift to investment in stock markets in the US shows how much Europe needs to catch up. In the 1950s just 4% of US households owned stocks. In the 1980s it was less than 20%, but now it’s above 60% (Source: Barclays/Bloomberg). The number in Europe is below 20% in many countries, including Ireland.
It feels like “putting your house on it” has an entirely new meaning for the next generation…..