Register For Our Mailing List

Register to receive our free weekly newsletter including editorials.

Home / 396

Gains of a lifetime reward new retail investors

Despite the major players being mostly anonymous Reddit users, the GameStop frenzy in late January 2021 caught the attention of news outlets and commentators. The challenge of a new breed of retail investors has been discussed in broadsheets, online and among regulators not just in the US, but across the globe. Added to the strange Davey Day Trader-Robinhood excitement of 2020, the modern equivalent of column inches given to new investors has been far from glowing.

They may be new but they have done well so far

Despite this, or in concert with it, hundreds of thousands of novice Australian investors chose close to the perfect time to start their portfolios in 2020.

At nabtrade, total accounts increased over 30% following the collapse of the market in March 2020, as new investors flocked to share investing. When the S&P/ASX200 fell 30% in just three weeks, investors rushed to open accounts at five times the usual rate. As the year progressed, new accounts were continuing at two to three times the usual number. Other online brokers had similar experiences.

The big fear of regulators and commentators was that this influx would be mostly driven by newly-minted day traders and novices buying speculative investments.

Instead, the top 10 stocks bought included the big four banks, well known travel companies, an ETF and two high-flyers from the Buy Now Pay Later sector.

nabtrade analysis has revealed that all of the top 10 stocks bought by new investors have generated a positive return since they were purchased. Not surprisingly, Afterpay was the most profitable trade, returning an average of 173% for new investors in 2020[1]. NAB shares generated the next best return, with 38%, and NAB was bought by 25% more accounts than the next most popular, Qantas.

NAB

Qantas

CBA

Westpac

Flight Centre

Zip Co

ANZ

Webjet

Afterpay

VAS

38%

30%

32%

19%

23%

1%

33%

33%

173%

20%

New investors generated returns of over 30% for three of the big four banks, and greater than 20% for the most popular travel stocks. With the exception of Zip Co, the minimum average return was 19%. This analysis does not include any gains since 31 December 2020.

Fortune favours the brave

To be frank, new investors had an astonishing year in 2020. The S&P/ASX200 returned over 50% from its lows, and new investors have captured, on average, more than half of that return, meaning most of them bought in before it started to flatten out in June. Buying in a pandemic shows a great deal of confidence for inexperienced investors.

It’s very difficult to pick the bottom of any market, and most investors didn’t pick the absolute bottom when they bought. Many have also sold into rallies, which has reduced their return as the market has continued to recover. Over half, however, have not sold any of their investments during the period.

Overall, the average new investor has done far better than the average expected annual return for the S&P/ASX200 of 8-10% (including dividends), and remember that the benchmark was almost flat over the whole of 2020.

This was not simply a punt into tech stocks commonly portrayed in the media. Investors chose to go with well-established companies, such as the banks, and recovery businesses, like the travel sector, believing that they were oversold, and would rally strongly as the world recovered from the pandemic.

Holding onto good buys was key to maximising gains in 2020. Young investors, known as Gen Z, showed the strongest tendency to buy and hold, and have therefore generated a stronger average return than older investors. Ironically, this group, often deemed as takers of the riskiest positions, was the least likely to actively trade their new investments.

Investors who bought outside the most popular stocks were less successful on average. This was particularly true of the Buy Now Pay Later sector. Although Afterpay was one of the best-performing companies of the year, investors were down an average 32% on Openpay, 25% on Laybuy, 19% on SplitIt and 13% on Sezzle. Three times more accounts bought Afterpay than SplitIt and Openpay, and five times more bought Afterpay than Sezzle. Laybuy was bought by just 69 accounts of 10,000 analysed. New investors showed a strong tendency to stick to strong brands, even in hot sectors.

Hoping this is the start of good experiences

The returns most new investors have generated in 2020 are rare for new and even experienced investors and are unlikely to be repeated in a more normal market. Far from punting away their life savings or speculating with stimulus cheques as has been hypothesised in the US, most new investors have bought wisely and held on. May we all have such good fortune in the market in 2021!

 

[1] Even casual followers would be aware that Afterpay fell to a low of $8, and currently sits at over $150, so 173% probably seems a modest return. It should be noted that the vast majority of investors fail to buy at the absolute lowest point, some have taken profits, while others have added to their holdings at higher prices. The average buy price for Afterpay on nabtrade in 2020 was $40. Most investors are still holding at least some of their APT investment so their overall return would be much higher than when this analysis was produced in late 2020.

 

Gemma Dale is Director of SMSF and Investor Behaviour at nabtrade, a sponsor of Firstlinks. This material has been prepared as general information only, without reference to your objectives, financial situation or needs.

For more articles and papers from nabtrade, please click here.

 

RELATED ARTICLES

Changing times as share investors settle in for the long haul

Five strategies popular with active share traders

Easy money: download Robinhood, buy stonks, bro down

banner

Most viewed in recent weeks

Lessons when a fund manager of the year is down 25%

Every successful fund manager suffers periods of underperformance, and investors who jump from fund to fund chasing results are likely to do badly. Selecting a manager is a long-term decision but what else?

2022 election survey results: disillusion and disappointment

In almost 1,000 responses, our readers differ in voting intentions versus polling of the general population, but they have little doubt who will win and there is widespread disappointment with our politics.

Welcome to Firstlinks Election Edition 458

At around 10.30pm on Saturday night, Scott Morrison called Anthony Albanese to concede defeat in the 2022 election. As voting continued the next day, it became likely that Labor would reach the magic number of 76 seats to form a majority government.   

  • 19 May 2022

Betting markets as election predictors

Believe it or not, betting agencies are in the business of making money, not predicting outcomes. Is there anything we can learn from the current odds on the election results?

Keep mandatory super pension drawdowns halved

The Transfer Balance Cap limits the tax concessions available in super pension funds, removing the need for large, compulsory drawdowns. Plus there are no requirements to draw money out of an accumulation fund.

Welcome to Firstlinks Edition 455 with weekend update

The resolve of many investors to focus on the long term with their share portfolios is increasingly tested as the list of negatives lengthens. There is a lack of visionary policies during an election campaign and stimulatory spending is contradicting the aims of tighter monetary policy.

  • 28 April 2022

Latest Updates

In praise of our unique democracy and its sausage

For all the shortcomings of our political campaigns, our election process is the best. We are blessed with honest administrators and procedures that we all trust to hand over power peacefully, with a big snag. 

Investment strategies

Is the investing landscape really different this time?

Many market analysts argue that the pandemic has changed everything but we must judge whether the circumstances are as drastic as billed. A quick review of four major events helps decide if this time is different.

Economy

Comparing generations and the nine dimensions of our well-being

Using the nine dimensions of well-being used by the OECD, and dividing Australians into Baby Boomers, Generation Xers or Millennials, it is surprisingly easy to identify the winners and losers for most dimensions.

Retirement

When will I retire? Economic impact of an ageing population

About 39% of the labour force is aged over 45. Intergenerational reports highlight the challenges of an ageing population and the impacts on consumption patterns, dependencies, public finances and economic growth.

The real story behind the crypto crash

The recent sell-off in the crypto market and its trigger - the collapse of the Terra UST coin - has affected many institutions either holding or trading crypto assets, including crypto fund managers.

Investment strategies

Cash is the nightingale, the bird in the hand

The bird in the hand is worth two in the bush, and it's an apt metaphor for investment choices. In 2021, as investors hunted in the bush for decent returns, demand overwhelmed supply. Cash is the bird in the hand.

Strategy

Book review of 'Putin’s People' and his motivation for war

Author Catherine Belton argues Putin’s sole ambition is to hold onto power. Her book seeks to understand why Putin invaded Ukraine after he became isolated and out of touch with reality during the pandemic.

Sponsors

Alliances

© 2022 Morningstar, Inc. All rights reserved.

Disclaimer
The data, research and opinions provided here are for information purposes; are not an offer to buy or sell a security; and are not warranted to be correct, complete or accurate. Morningstar, its affiliates, and third-party content providers are not responsible for any investment decisions, damages or losses resulting from, or related to, the data and analyses or their use. Any general advice or ‘regulated financial advice’ under New Zealand law has been prepared by Morningstar Australasia Pty Ltd (ABN: 95 090 665 544, AFSL: 240892) and/or Morningstar Research Ltd, subsidiaries of Morningstar, Inc, without reference to your objectives, financial situation or needs. For more information refer to our Financial Services Guide (AU) and Financial Advice Provider Disclosure Statement (NZ). You should consider the advice in light of these matters and if applicable, the relevant Product Disclosure Statement before making any decision to invest. Past performance does not necessarily indicate a financial product’s future performance. To obtain advice tailored to your situation, contact a professional financial adviser. Articles are current as at date of publication.
This website contains information and opinions provided by third parties. Inclusion of this information does not necessarily represent Morningstar’s positions, strategies or opinions and should not be considered an endorsement by Morningstar.

Website Development by Master Publisher.