We no longer live in a world where institutions can determine the future of the company based on its financials and potential ROI. Being majored in quantitative finance, I, of course, believe that everything has a price and everything can be measured in currency terms. However, we all forget things that matter while chasing big ROI figures.
Have you heard about accounting term “goodwill”? If not, let me just share its definition from Investopedia to save some time: “Goodwill is a miscellaneous category for intangible assets that are harder to parse out individually or measured directly. Customer loyalty, brand reputation, and other non-quantifiable assets count as goodwill.” Why am I bringing it here? Simply because there are some intangible assets that we sometimes forget about when pricing a company and/or defining its future by submitting a buy/sell order.
A company isn’t only a technology, it’s also people, brand, resources and many other things together. Weakening enterprises in many cases suffer from poor management, lack of pivoting and understanding of how to adapt to the new market environment. Thus we know PE firms hunting for such “weak” companies to do some radical business reshapes to throw them back to the market later as a newly-rebranded lucrative investment opportunity.
Startups are always being asked about the “purpose.” Like why are you building this business? One of the main purposes that brings a lot of impact to society is actually generating jobs. The company creates jobs for people to maintain and drive the economy. When some institution decides to short a certain company they don’t see people behind, they see money on their trading account.
you cannot win the market or can you?
Market players and democratisation of investment
Traditional financial courses and professors used to always say “you cannot win the market.” But who and what is this “market?” It consists of a lot of different players: institutions (investment bank, hedge funds, corporations, etc), HNWIs, retail investors, professional traders, and “the crowd”. Investing used to be something that you cannot easily access, it used to be for people who know (or think they know) what they are doing. These days apps like Robinhood opened a completely different world and brought another category of people in — “the crowd”. Now let’s change our question a little bit: “you cannot win the market or can you?”
Gen X, Y, Z — market shifts come with generations
We need to also consider the mentality and core drivers of Generation X and Generation Y. Generation X are the people who value stability, they’re looking for ways to generate a better income, stable income as well. While Millennials are going for YOLO trades. Millennials are born with technologies and easily adapt to all new tools and trying all new apps that appearing on the market. Gen Y are the people who are also used to communicate online, having a social network and participating in communities. Millennials and growing Gen Z as well believe they can make a difference and ready to fight for it.
Gen Y and Z believe they can make a difference and ready to fight for it
Bringing YOLO Traders In as Covid Crisis Emerging
Every generation experiencing a lot of unfairness and economic failures, now it’s not an exception. Covid crisis was a game-changer in the financial industry. It boosted the fintech market and brought it to completely new levels unlocking financing, banking, saving, and, finally, investing, for the masses. Many people lost their jobs, experienced severe financial difficulties, and at the same time, they’re stuck with their laptops at home as everything else is closed because of the pandemic. People started spending more time on self-development, reading, getting into new things and one of them turned out to be “investments” with apps like Robinhood providing a very easy solution to do that. Can it be worse if I try? Many were asking themselves.
People started discussing investment strategies, talking to each other, joining different investment communities and having fun gambling with options and meme stocks. Stories, when someone earned crazy xxx%, started spreading among the web. These stories began fuelling up newcomers to get into investing (or gambling, to be precise). Every user adding $100 — $1,000 of capital is nothing on an individual level, imagine how much capital it’s when your community has 10 million people. Now imagine how tired these people are from the traditional financial system that failed to help them and how badly they want to make fun of it.
Every user adding $100 — $1,000 of capital is nothing on an individual level, imagine how much capital it’s when your community has 10 million people
The recent case with GameStop and AMC showed that “the crowd” can be more powerful than any institutions and they can be the ones determining the rules of the game. They are irrational, they’re not initially driven by the xx% ROI, they’re driven by “f*** the wall street” kind of things. The crowd doesn’t want to be dictated any rules, it wants to be the one dictating them.
I’ve been asked many times about the possible outcome of such meme trades. I always responded that people gave a chance to the company to survive and pivot. They might do it as well as they might lose such opportunity. Personally, I wanted to believe in the first case and was happy to see the news that GameStop starting an NFT platform.
Be friends with the crowd and crowd will help you
You can satisfy an average investor by giving him some good return figures, but you can’t satisfy the crowd by only doing that. You should be cool, you should generate impact, you should be a company doing something for people with revenue being a secondary factor. The crowd values your “goodwill” even if they don’t think in these terms.
People are watching
I believe digital communities are the ones reshaping corporate mindsets. You could upset one person without having any harm to your company before. Now imagine this one person shares how you upset him/her in a community with 10 million people. You get an angry crowd that goes against you. I want to think we’re moving towards more transparent, impactful and sustainable businesses as people are watching.