Hey Bow Tie Nation, Joseph Hogue here with one of the most important themes of the last two years and the stocks to watch. Nation, retail investors are driving this market. That’s the Main Street investors like you and me versus the institutional side of the industry, the portfolio managers and hedge funds investing client money. The growth in regular investors has been explosive with Deloitte estimating more than 10 million new investing accounts were opened in 2020 alone.
That same survey found the share of off-exchange trading, an estimate for stock investing from retail investors, grew to 47% of total U.S. stock trading volume by January of last year…that’s a thirty-percent increase from 37% of volume just two years earlier.
So whereas the saying used to be, ‘follow the smart money’ or invest in the stocks most followed by those big money managers, we are now in a different era…one where you need to be following retail investor sentiment and investing WITH the crowd.
In this video, I’ll show you how the retail investor is changing the stock market and how that affects your investing strategy. I’ll then reveal the five top stocks among Main Street investors along with the two stocks they’re avoding.
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How to See What Other Investors are Buying
I’ll be using the Public platform to find those top stocks as well as the least popular. The platform is a solid investing app with some great features and no cost investing. You can invest in stocks, ETFs and crypto. The app lets you buy fractional shares which means you invest any amount you want, no matter how much a stock costs, and the platform will give you a fraction of a share in that stock.
What I really like about Public though is the social aspect. Public is built around shared portfolios so you can see what others are investing in when you’re deciding on stocks. Users show their portfolio of stocks and crypto and share updates through a social feed. It’s a fun way to follow your favorite investors and their portfolio. You can create group chats with friends, family and other investors. Basically, it’s like if Facebook and ETrade had a baby!
For this video, I’ll be using the stock trends tab. A page ranking the most popular stocks held by investors on the app.
Most Popular Stocks Investors are Buying
I want to get started on that list of top stocks so I’ll show you how to analyze these and how retail investors are changing the market later in the video. I’ll be counting down the top five then reveal those two least popular and one I actually like as a contrarian investor. Be sure to check out the video above for the full analysis into each stock!
Popular Stock #5 AMC
If you scroll down on any stock page on Public, you’ll see updated news, analyst price targets and earnings for the stock. Keeping with the platform’s social feel, scroll down further and you can see what investors are saying about the stock so it’s a great way to get a feel for sentiment and what others are watching.
Popular Stock #4 Disney
How Retail Investors are Changing Wall Street
We’ve still got three more top stocks to highlight but I want to share how that retail investor phenomenon is changing the market and more importantly, how it might affect your portfolio.
We’ve got some great data from recent surveys of new investors and how they invest. First, it’s a much younger demographic. A survey by Charles Schwab found the median age of investors starting in 2020 was just 35 years old. That’s more than a decade younger than the 48 year old median for investors starting before the pandemic.
Retail investors also tend to be more bullish, more optimistic, than institutional investors. Whereas hedge funds and money managers might put bets on the short-side, retail investors are almost totally long investors, buying stocks they like . With Main Street investors in control, that’s supportive of stock prices and an upward momentum.
Retail investors are also more socially-guided in their investments. This new group of investors grew up in the social era and they’re comfortable getting stock advice from their network rather than the analysts or ‘experts’ on TV. That means, you need to be tuned-in to social sentiment around a stock.
Popular Stock #3 Apple
Popular Stock #2 Tesla
How to Pick Which Stocks to Buy
Now just scrolling through these top stocks investors are buying, I don’t want you to think you should buy these blindly. You still need to do a little analysis and understand how they fit with your portfolio.
Most of these are those ginormous mega-cap stocks, the hundred-billion dollar companies so it’s going to be a cross between growth and value. They don’t have the growth of your smaller, penny stock upstarts but they also might not have the discount of those best value stocks.
One way I like to look at these then is to adjust the price-to-earnings ratio by the company’s growth rate in earnings. For example, Disney is trading at a price of 38.9-times its earnings which is really high but it’s also growing those earnings by about 31% annually. So if we take that PE ratio, the 38.9-times, divided by earnings growth of 31, then we get 1.25 on a price-to-earnings to growth measure. Now that’s still pretty expensive…I like to see even growth stocks at a PEG of 1.0 or less, but we’d have to compare that against other stocks.
Those of you in the Nation know, I’m a big believer in checking the balance sheet of a company, looking at how much cash and debt it holds as a sign of financial stability. For most of these companies, with the exception of AMC, that’s not really an issue though. These are multi-hundred billion dollar companies and some in the trillions so they aren’t going to face the cash flow problems or financing issues you might see in smaller companies. Instead, I’ll usually place a greater emphasis on the return-on-equity or ROE measure. That’s the net income or earnings of the company divided by shareholder’s equity, so it’s how much profit the company is generating compared to the equity invested by shareholders. Using Disney as an example, we see on the balance sheet that investors have equity of $88.5 billion, that’s the value of the company’s assets minus the debt it owes. Then from the income statement, the company made a net income of $2.0 billion over the last year so that profit divided by equity is 2.25%.
Now again, we can’t say if that 2.2% return on equity is high or low until we compare it to similar companies but it’s saying that management is only able to generate a 2% return on shareholder investment.
Popular Stock #1 Amazon
If we look at the rest of the top 10 stocks held on the platform, we see a mix of those mega-cap companies like Alphabet, Microsoft and Facebook but we also see some of the smaller, upstart companies like Shopify and Coinbase…so it’s really interesting that investors aren’t just going for the biggest companies.
Now I want to reveal the least favorite stocks and it brings up an important investing strategy, playing the contrarian. That’s when you look at what the crowd is doing and say…nope, I don’t think so. I think the crowd is wrong on this one and I’m going to invest differently.
And this can go either way. Maybe you buy a stock that investors don’t seem to like or you avoid the most popular stocks on the idea that they may be overvalued. But it’s important to point out, you’re not just doing this to be a pain. You still have to research the stock but you’re using your own judgment rather than just following the crowd.
And if we look at the least popular stocks on the Public platform, we see the First Trust Clean Energy ETF, ticker QCLN, and HubSpot, ticker HUBS.
Now these aren’t necessarily THE least popular stocks across the entire market, just the least widely held of the 500 ranked on Public, so the still have some investor interest just not nearly as much as those top stocks.And I actually like the Clean Energy ETF, which is a fund holding shares in 60 companies within that clean energy, renewables theme. Within those companies, you get a good mix of industries in the theme like auto, semiconductor, renewable energy. So it’s a solid, one-stop for diversification and exposure to the growth in the green revolution.
Don't miss the other videos on the Let's Talk Money channel on YouTube and be sure to check out Public to see what other investors are buying!