What compelled hundreds of thousands of people around the world to invest in the initial public offering of Elon Musk’s SpaceX this summer? It certainly wasn’t the company’s financial metrics. Despite the success of its core rocket business, the company is burning through a prodigious amount of money.
Yet SpaceX still managed to pull off a record-breaking IPO, transforming Musk into the world’s first trillionaire. Although an outlier, the SpaceX IPO is not unique. It is merely an extreme manifestation of two remarkable trends that have become increasingly hard to ignore in financial markets: ordinary investors are a huge and growing force, and their feelings can often trump fundamentals.
This is becoming apparent around the world, but nowhere more so than in the U.S., where ordinary people have embraced speculation both as a way to get rich and as a reflection of their own beliefs with perhaps greater zeal than anyone else on the planet. The first point is easy to quantify. Ordinary retail investors now account for over 20% of U.S. stock market activity, according to estimates by Jefferies, an investment bank.
That is roughly twice the level of a decade ago and means that they now account for almost as much trading volume as mutual funds, hedge funds, and banks combined. The impact on markets is apparent everywhere. The latter point is harder to prove with hard numbers, but the anecdotal evidence is heaping up.
To the consternation of many traditional investors, what securities you buy have become almost like an extension of one’s identity—whether that is the stock of a dowdy utility or racy computer games maker, cryptocurrencies, or even dabbling in the newfangled prediction markets. Finance has long shaped America. But today, I would argue, this shape has become deformed.
When did investing stop being merely financial and become an expression of identity? Why do individual Americans see investing as a chance to prove who they are and what they are worth? And what does this pressure say about who America is as a country, collectively?
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