- There has been a surge in retail trading activity since the COVID-19 stay-at-home orders swept across the nation.
- The increase in trading activity by retail investors has in part been chalked up to sports bettors speculating on stocks due to the shut down of all professional sports leagues amid the pandemic.
- David Portnoy, aka Davey Day Trader, of Barstool Sports, has led the charge of introducing a brand new audience to stocks, with his trading videos often garnering up to one million views on Twitter.
- This group of traders has been betting on beaten-down stocks that have been abandoned by veteran billionaire investors like Warren Buffett and Carl Icahn, and they’re starting to win.
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Robinhood traders have been placing big bets against veteran billionaire investors, and now they’re starting to win.
Since the start of the COVID-19 stay-at-home orders swept across the nation, there has been a surge in retail brokerage trading. This surge has in part been fuelled by a new group of investors who are looking for excitement as professional sports leagues are temporarily shuttered.
David Portnoy of Barstool Sports, also known as Davey Day Trader on Twitter, has led the charge in introducing a new audience to investing through the videos he posts on Twitter. Portnoy often talks about the stocks he’s trading, and why he’s trading them, before going on impassioned rants about the current market and political environment.
Recently, this new group of traders has been betting against the likes of veteran billionaire investors including Warren Buffett, Carl Icahn, and Stanley Druckenmiller, and they’re starting to win.
First up is Warren Buffett and the airline stocks. In early May, Buffett revealed that Berkshire Hathaway had fully liquidated its stake in the big four airlines. Around the same time, Robinhood investors and Portnoy started to pile into airline stocks, as evidenced by a surge in assets in the US Global JETS ETF.
Since Buffett revealed that he sold his airline stocks, the JETS ETF has surged 55%. Robinhood traders: 1. Veteran billionaire investors: 0.
Next up is Carl Icahn and Hertz.
In Late May, Icahn revealed in an SEC filing that he liquidated his entire position in Hertz at an average price of 72 cents per share, representing a loss of more than $US1.8 billion. Hertz had recently filed for bankruptcy, sending its shares into a tailspin.
But retail traders, not scared of Hertz’s equity potentially being wiped out by its bankruptcy proceedings, have piled into the stock. Robinhood accounts that own Hertz nearly doubled since the start of its bankruptcy proceedings to 73,000 as of Friday.
Since Icahn liquidated his position at 72 a share, Hertz has skyrocketed more than 400%. Robinhood traders: 2. Veteran billionaire investors: 0.
Last up are Stanley Druckenmiller, David Tepper, and Chamath Palihapitiya. In mid-May, the trio said in individual interviews with CNBC and the Economic Club of New York that stocks are too high.
Druckenmiller called the market setup at the time one of the worst risk-reward profiles he’d ever seen. Tepper called the stock market the second most overvalued in history. And Palihapitiya said that the markets were “too damn high.”
Despite the comments from some high-profile billionaire investors, retail traders continued to pile into the market. According to data from Robintrack, more than 12,000 Robinhood accounts bought the S&P 500 ETF SPY since the mid-May comments, bringing the total to nearly 100,000.
Since then, the S&P 500 index has rallied 15% and Druckenmiller said on Monday that he was “humbled” by the recent rally in the stock market.
While retail traders have been on the winning side of trades against billionaire investors in the short term, what happens in the long term is still up in the air.
A recent economist survey showed that a second wave of COVID-19 infections poses the biggest threat to the US economy this year. If a second wave of COVID-19 does in fact hit the US, retail traders would be wise to book some profits after such a strong and quick rally.
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