Register For Our Mailing List

Register to receive our free weekly newsletter including editorials.

Home / 381

Gemma Dale: three ways 'retail' is not the dumb money

Gemma Dale is Director of SMSF and Investor Behaviour at nabtrade, NAB’s online investing platform.

 

GH: In this extraordinary year, what have your clients been doing, especially in the hectic days of March and April, and what's happened since?

GD: Yes, it’s been a fascinating year. Volumes started low in January and February as the market was quiet. The cash accounts of our clients were at record highs so it wasn't as if people didn't have the money to invest. They were waiting to put money to work but didn’t see much to interest them.

GH: Then the reality of COVID hit and everything changed.

GD: Yes, but what was most exciting was that the common view that retail investors panic when markets fall and go to cash at the worst possible time, then miss the first 20% of the upside when the markets bottom out, that wasn’t correct. This idea that retail investors are not good at managing their own money because they have too much emotion in investing doesn’t play out with our clients. And this is not just during COVID, but over the last four or five years of market pullbacks. Although other falls were not as severe, they start buying on falls. The one that springs to mind was when Domino's was hammered in the press in 2018 and 2019 and fell below $40, and it’s now nearly $90.

GH: And this is genuine ‘retail’, not institutional money?

GD: Yes, nabtrade clients, we don’t serve institutions. Obviously, a stock like Domino’s was one they wanted to buy. They jump into stocks considered either core of their portfolios like banks or opportunistically exciting.

GH: So what happened in March and April?

GD: Two major things. One, clients started buying like mad. Our buy/sell ratio is usually around 50/50, or slightly more buys than sells because people are building portfolios, although there are pension funds expected to run down their portfolios over time. But we saw the buyers swing up to 70 to 80% of trading activity. So the proportion of both value and number of trades that were sells dropped heavily and people were not selling at the worst time. They were buying and since it was a super-sharp correction, they moved really quickly.

And then the second thing was a huge number of new entrants to market. We saw a five-fold increase in new applications in March and a three-fold increase in April over our average numbers. And then that continued right through, in fact, our biggest trading day was in June.

GH: Was it much busier for all of February to June?

GD: March was the absolute peak of monthly trading value, April was also really strong, then there was some profit-taking in June. Some people had done unbelievably well and were taking some money off the table.

GH: And to finish the year-to-date, has it been more subdued since June?

GD: Much more like normal trading but here’s the third thing. Clients weren't just spending the cash on the sidelines from the cash product on our platform, where people keep cash ready to go. Huge amounts of cash came in from other sources and cash is still very high. We have investors not sure that markets will stay at this recovered level and if prices fall again, they have the money ready to go.

GH: That’s a strong counter argument to the prevailing view on the way retail reacts.

GD: It's such a good story. I've been saying for five years that retail investors are smarter than the market thinks they are. A lot of the behavioural research on this is historical, some of it goes back 20 years. Investing has changed. The first share I bought when I was 18, I had to find a broker in the Yellow Pages, and look for the share price in the newspaper. I had no idea what I was doing. It was difficult to find information so there was plenty of dumb money. Now, what you find on nabtrade and other platforms and media is real time data and education and quant research from Morningstar like a professional investor has. People are not in the dark and they can respond quickly.

GH: And all this activity includes SMSFs?

GD: Yes, and although SMSFs are only about 7% by number of our clients, they are about 35% by value. We do have a lot of younger investors coming through and there are now more females than in our older clients.

GH: And what have people been buying and selling in recent months?

GD: Let’s insert a table of the Top 10 by demographics.

(Note that a person must be over 18 to open an account so in theory, 2002 is the latest year in which an investor can be born. It is not known how often parents use a child's account).

It’s fascinating that the generations are almost identical, except very young people invest in twice as many ETFs as all other people, at about 12% of trades. And see Flight Centre, Qantas and Webjet. They were popular during the crisis because investors felt they would get rescued and they were great buying opportunities. And Zip and Afterpay of course.

GH: So the educational work on ETFs is reaching younger people?

GD: Young people understand diversification and they see ETFs as an easy solution. They have a strong tendency to buy and hold. This hypothesis that they're just day trading and they're just buying up tech, we just don't see it. Maybe we would not be the broker of choice for a young trader who wants super cheap execution, below the cost of providing the service, where there is a link to chats and rewards and CFDs.

GH: The overall data shows much stronger interest in global ETFs, but are you seeing much in direct equities, into global shares such as Apple, Microsoft and Amazon?

GD: Number one is Tesla in global stocks, but it never cracks the top 10 of total stocks.

GH: nabtrade’s site carries a lot of content and educational material. What do people like to read about?

GD: Stocks that are widely held with a high-conviction view on them, either positive or negative. Stories on Telstra, the banks and CSL. Afterpay and Zip. Podcasts have become popular, but a wide variety of media works, including video. People like to consume in different ways.

GH: And the podcast that you host, Your Wealth, how has that been going?

GD: We’ve had some wonderful guests and the audience has increased tenfold in 12 months, depending on the guest and the topic. We’ve found people are happy to consume lengthy content so long as they can listen to it and do something else as well.

GH: So you’re not seeing much of the ‘Robinhood’ effect here, where young people are punting the market instead of playing e-sports or because they are bored in lockdowns?

GD: We've had many conversations with the regulator about this. It's not an amusing side story for us as we watch it really closely, make sure that this is not the kind of behavior we're seeing. Neither nabtrade nor ASIC wants to see young people blowing up their money, particularly when you link it to the ability to withdraw superannuation. That would be an absolute heartbreak.

Although we may not be the broker of choice for this day trading anyway, the most telling statistic I can give you is that if anything, new investors are more conservative than existing clients. An older person with $200,000 in shares might put $5,000 into something speculative, but our young clients will not speculate with all their savings.

Anyone who wants to trade options must take an assessment and sign an agreement, but there’s little of it with us. It's confined to experienced and wealthier investors for downside protection or income rather than by new investors. At certain times, the 'bear' ETFs have also been popular. And on shares generally, people need to have the cash in their account in order to trade. We’re a ‘cash up front’ business.

GH: Last question. Many of your clients who have done really well in recent months and maybe now feel like they know how the stock market works. Are you worried about them?

GD: Perhaps it was a once-in-a-lifetime buying opportunity where it fell so quickly and then recovered, unlike in the GFC which took 12 years to grind back and picking the right stocks was difficult. So if this was a first experience, some people may think it’s normal. My biggest fear is a slow grind of losing money say if we don't get a vaccine for some time. How will people cope with losing money day after day as a new experience? That will be a bigger test than what happened in March when we had an obvious catalyst.

 

Gemma Dale is Director of SMSF and Investor Behaviour at nabtrade, a sponsor of Firstlinks. Gemma is host of the Your Wealth podcast. Any advice contained in this information does not take account of your objectives, financial situation or needs.

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

 

4 Comments
Neville
November 07, 2020

Nifty.
And perhaps bottom selling is just a handy construct of the funds management industry. They don't like loosing the fees on punters funds.

Martin
October 29, 2020

Very interesting article. Great to get some 'inside' data on this.

I would suggest that 'retail is dumb' is based on out-dated historical data. The penetration of digital media over the last ten years has been nothing short of revolutionary in terms of providing access to education, and in some cases training. Add to that the ease of opening and using online broking accounts, and stockmarket participation is becoming increasingly easier and more accessible, and the number of participants is only going to increase.

In 2008, there were fewer retail investors, and less access to real-time data, with many trades being placed over the phone (or using even more antiquated methods). The GFC was an event that was unprecedented for most people, and most would have had no idea what to do, with panic selling and mistrust of the market being inevitable for a certain percentage.

Since then, we've been pretty well bombarded with information illustrating the opportunity that such a market crash can bring. So, is it a surprise that investors 'piled in' in March? Not in the slightest!

Judith
October 28, 2020

We might not have the same Robinhood effect but we sure have lots of people jumping on BNPL making losses and little chance of every justifying current valuations.

George
October 28, 2020

Although we call them retail investors, they may still be acting on the input from a financial adviser or other professional.

 

Leave a Comment:

RELATED ARTICLES

It pays to look under the hood of ETFs

Five strategies to match your investing to your behaviour

What is smart beta and why is it growing in popularity?

banner

Most viewed in recent weeks

16 ASX stocks to buy and hold forever, updated

This time last year, I highlighted 16 ASX stocks that investors could own indefinitely. One year on, I look at whether there should be any changes to the list of stocks as well as which companies are worth buying now. 

UniSuper’s boss flags a potential correction ahead

The CIO of Australia’s fourth largest super fund by assets, John Pearce, suggests the odds favour a flat year for markets, with the possibility of a correction of 10% or more. However, he’ll use any dip as a buying opportunity.

2025-26 super thresholds – key changes and implications

The ABS recently released figures which are used to determine key superannuation rates and thresholds that will apply from 1 July 2025. This outlines the rates and thresholds that are changing and those that aren’t.  

Is Gen X ready for retirement?

With the arrival of the new year, the first members of ‘Generation X’ turned 60, marking the start of the MTV generation’s collective journey towards retirement. Are Gen Xers and our retirement system ready for the transition?

Why the $5.4 trillion wealth transfer is a generational tragedy

The intergenerational wealth transfer, largely driven by a housing boom, exacerbates economic inequality, stifles productivity, and impedes social mobility. Solutions lie in addressing the housing problem, not taxing wealth.

What Warren Buffett isn’t saying speaks volumes

Warren Buffett's annual shareholder letter has been fixture for avid investors for decades. In his latest letter, Buffett is reticent on many key topics, but his actions rather than words are sending clear signals to investors.

Latest Updates

Investing

Designing a life, with money to spare

Are you living your life by default or by design? It strikes me that many people are doing the former and living according to others’ expectations of them, leading to poor choices including with their finances.

Investment strategies

A closer look at defensive assets for turbulent times

After the recent market slump, it's a good time to brush up on the defensive asset classes – what they are, why hold them, and how they can both deliver on your goals and increase the reliability of your desired outcomes.

Financial planning

Are lifetime income streams the answer or just the easy way out?

Lately, there's been a push by Government for lifetime income streams as a solution to retirement income challenges. We run the numbers on these products to see whether they deliver on what they promise.

Shares

Is it time to buy the Big Four banks?

The stellar run of the major ASX banks last year left many investors scratching their heads. After a recent share price pullback, has value emerged in these banks, or is it best to steer clear of them?

Investment strategies

The useful role that subordinated debt can play in your portfolio

If you’re struggling to replace the hybrid exposure in your portfolio, you’re not alone. Subordinated debt is an option, and here is a guide on what it is and how it can fit into your investment mix.

Shares

Europe is back and small caps there offer significant opportunities

Trump’s moves on tariffs, defence, and Ukraine, have awoken European Governments after a decade of lethargy. European small cap manager, Alantra Asset Management, says it could herald a new era for the continent.

Shares

Lessons from the rise and fall of founder-led companies

Founder-led companies often attract investors due to leaders' personal stakes and long-term vision. But founder presence alone does not guarantee success, and the challenge is to identify which ones will succeed in the long term.

Sponsors

Alliances

© 2025 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. To the extent any content is general advice, it has been prepared for clients of Morningstar Australasia Pty Ltd (ABN: 95 090 665 544, AFSL: 240892), without reference to your financial objectives, situation or needs. For more information refer to our Financial Services Guide. 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.