The rebound in stock market prices since the February “Covid crash” has confounded professional fund managers.
Goldman Sachs looked at what was driving this growth and concluded that amateur investors – many of them surprisingly young – were in part responsible. Millions of new broking accounts were opened during the crash to take advantage of share prices that had tanked 50% and even 80%.
A basket of the most popular stocks chosen among retail investors outperformed hedge funds by 61% to 45% by mid-June.
It’s a similar story at low-cost trading platform Mexem Africa, where up to 20% of clients are aged below 30. Natalie Gants, head of marketing and sales at Mexem, says the firm is enjoying record new client sign-ups in recent months and attributes this to the sharp drop in stock and commodity prices since February.
“The crash in market prices, instead of frightening investors away, has attracted record numbers of new investors to our platform,” she says. “There seems to be a general sense that the drop in prices was an opportunity to buy rather than a cause for panic.”
Mexem is proving to be a disruptive force in the broking and trading environment by charging just one US cent per US share or ETF and takes a minimum commission of only $1 per trade. This compares with competitors’ commissions of about 0.35% of the trade amount. In practical terms, this means competitors are charging two to six times Mexem’s trading fees. They also load a $15-$20 minimum commission on trades – Mexem’s minimum is $1.
Research has shown that the millions of new investors entering the markets in the last few months are trade followers – meaning they emulate the trades recommended by more experienced investors who share their views on social media platforms. Some of them are brash and take repeated digs at the professional fund managers, and it seems to be working. These pundits create communities of outsiders and mavericks, though it’s questionable whether this run of luck will last forever. As economist Milton Keynes remarked in the 1930s: “Markets can stay irrational longer than you can stay solvent.”
Gants says one of the reasons Mexem has built such a strong profile among newer investors is that it is prepared to go through an extensive “hand-holding” exercise: first, to get new investors to open and fund an account, then to teach them the basics of trading using its online trading platform. There’s a variety of educational tools on how to evaluate stocks, but for those with less time, there are pre-selected risk strategies that new investors can mimic – for an additional monthly fee. These strategies were developed by a team of analysts at sister company Rimar Capital and have been tested under real-life market conditions.
Mexem offers South Africans an easy route to more than 120 markets worldwide, through its New York-based broking partner Interactive Brokers, one of the largest trading platforms in the US. That exposes clients to tens of thousands of investment opportunities globally, including commodities, forex and bonds, versus little more than 400 companies on the JSE. It also allows clients to benefit from Interactive Brokers’ global scale and reach, which means lower trading costs.
Unlike many competitors, anyone can open an account with no minimum deposit required. “Even if someone has just R500 to start, we encourage them to get going and learn to become independently successful as investors – and we provide a lot of tools to get them there, including our team of support staff,” says Gants. “We want to make sure our clients win at investing, and we see it as a life-long journey rather than a way to get rich overnight.”
Since the Covid lockdown, businesses all over the world have had to adapt to online delivery. It helps that Mexem was already there, but has realised that it had to gear up for a new generation of investors who want a fully online capability to monitor investment opportunities and execute trades online. The trading platform is customisable, allowing traders to monitor graphs of their preferred stocks and commodities while receiving updated news articles and real-time reports on their trading activities.
“Young people today want to be involved in creating their own wealth,” says Gants. “They also want to learn about the investment opportunities that are available to them, and they want to understand risk. That’s what Mexem is here for.”
You can find out more here.
Brought to you by Mexem Africa.