Will the new breed of retail investors cash in – or crash out?

‘Feed the ducks when they’re quacking’ sounds like advice from a foie gras farmer — but let’s leave gastronomy till last and focus first on stock market activity. The saying actually comes from Wall Street and means that if investor demand is strong, it’s best satisfied with ample supplies of new stock. What’s wrong with that? Nothing, if the investors understand risk and the offerings are sound. But is that what’s happening in the current retail investment craze on both sides of the Atlantic? Probably not.

From its low in March last year, the FTSE 100 index has risen 40 per cent. A hectic London market in new issues since the autumn has offered novelties ranging from the Dr Martens boot brand to Darktrace in cybersecurity, with most debutants outperforming the wider market and only Deliveroo an outright flop. Reasons enough to attract new investors who are bored by lockdown and have easy access to low-cost trading technology. Interactive Investor, ‘the UK’s no. 1 flat-fee investment platform’, reported a 370 per cent increase in new account openings this January compared with a year earlier. Its rival Hargreaves Lansdown said in February it was handling £121 billion of investment assets, up 16 per cent on 2020, on behalf of 1.5 million customers.

All of which is fine if it converts long-term savings into equity capital that allows good businesses to invest for growth. More tenuously, by diverting surplus cash, it may ease the current inflation spike caused by too much money chasing physical goods in short supply. But the problem, as identified by wise heads ranging from Warren Buffett and our own veteran investor Robin Andrews to the Financial Conduct Authority, is the mentality of the new market players.

‘Thrill-seeking day traders’ from the video–game generation, as the FT characterised them this week, they tend to rely on tips from social media ‘influencers’ rather than boring analysis of earnings potential and balance-sheet strength.