“Anyone who tells you that you have to choose between [trading and investing] doesn’t live in the real world…People make decisions for reasons other than pure Vulcan logic…How do you learn the market if just by an index fund?” – Josh Brown

2020 is going to be looked back at as a watershed moment in financial markets for any number of reasons. Including the rise of individual investors or the democratization of investing. Sam Rega at CNBC writes:

The beginning of 2020 created a unique moment for retail trading: Increased market volatility, stay-at-home orders, and zero commission fees across all trading platforms created a surge in activity and an increase in first-time traders.

It’s unlikely this shift in behavior is a one-off. Surely the pandemic has played a role, but it’s hard to see how it reverses in the next few years. Venture capitalist Josh Wolfe notes:

1/ The shift from mostly INDIVIDUAL retail investors to concentrated institutional over last two generations––and the growing shift back to INDIVIDUAL retail investors

is underappreciated structural phenom of inflows/outflows

We make fun of the RobinHood, TradeRepublic…

— Josh Wolfe (@wolfejosh) October 10, 2020

There is a great deal of skepticism about the democratization of investing. In part from the media and by those parties who feel threatened by it. The fact is that most people on these platforms are not frenetic day traders. Dion Rabouin at Axios writes:

Retail traders broadly have been looked at with skepticism and scorn by much of the investment community, and Robinhood users, especially, are seen as capricious and naively bidding up trend stocks. However, the data show most of the platform’s users aren’t active traders.

Recent research contradicts the narrative that these novice investors are making huge mistakes with their money. Mark Hulbert writing at Marketwatch looks at the research and concludes:

Welch’s findings are an illustration that, while not every investor is rational, the collective wisdom of the crowd is often superior. Keep that in mind the next time you hear a Wall Street guru insist that small investors who frequent platforms such as Robinhood don’t know what they’re talking about. There’s a distinct possibility that, as a group, those small investors are doing better than the guru.

As Josh Brown noted the top, the best way to learn about investing is by doing. It certainly shouldn’t be with your whole portfolio, but don’t underestimate the power of learning by doing. Recent research shows that we learn faster when we are not told what to do. Telling someone to put their money in an index fund, while good advice, may not teach them anything.

We learn best when there is some element of fun. That is why so many of today’s products and services have some measure of gamificaion built in. Investing shouldn’t be viewed as a game. It is an important job for any adult looking to provide for themselves a better future. That doesn’t mean it has be to deadly serious. Justin Paterno notes how investing is for many people a combination of a chore and a hobby or ‘chobby.’ He writes:

Investing is also a Chobby. You need to grow your wealth so you can eventually take on more hobbies and do less chores. Most people don’t invest nearly enough, often enough, and early enough. Yet unlike reading, cycling, running, or MMA for some reason it’s a faux pas to embrace the fun, hobby side of investing. This is a huge mistake.

Most investors will likely end up paying ‘tuition’ into the market. As Josh Wolfe goes on to note that many of these novice investors will likely not fare great. Which is understandable given the challenge of beating the market. This tuition paid will provide the basis on which they can begin to make better future decisions.

Most investors don’t view investing as a hobby or even a chobby. They view it as a pure chore. Which is perfectly understandable. Not everyone, indeed most people, don’t view trading and investing as fun. But they do need to have a baseline of knowledge on the topic. Those investors who choose to outsource their portfolios to third parties need to be able to assess the claim and actions of the adviser(s).

Some seven years ago, almost to the day, I wrote about ‘investing as a hobby.’ Here’s some of what I wrote:

There is nothing necessarily wrong with spending your time learning about investing and putting those ideas to work. Just don’t expect to become the next great hedge fund manager. Like many hobbies spending time poring over charts and balance sheets will look to many outsiders like a waste of time. Just make sure you treat this “hobby” more like a business and with a big dose of humility.

The new, gamified nature of investing today doesn’t change our need for humility. You are not as good as your best trade or as bad as your worst. All we can do is try to learn some lessons along the way. The goal isn’t to become the next Warren Buffett. It’s to help fund a better life for you and your family. Our investment accounts are just a tool to help us get us there.