Elite investors driving stock boom and raking in big money


Easy access to trading platforms has made retail investing more popular among the common man and led to a boom. Robinhood and Coinbase are two of the most visible beneficiaries of this hyped interest in stocks and cryptocurrencies. 

Transaction revenue at Robinhood has gone up fourfold in the first quarter. And Coinbase has seen a trade volume hike of nearly ten-fold with an increase in revenue to $1.6bn. 

The increased interest has been partly driven by a digital frenzy based on peer sharing of investment bonanzas. In addition, cryptocurrencies are seeing a gradual acceptance among the tech-savvy and the institutional acceptance has further driven its reach.

“We are in [the] midst of [the] strongest macro data of our lives,” analysts at BofA wrote. UK brokerage Hargreaves Lansdown also revealed that it had seen “elevated volumes of share dealing since the end of January with an increased proportion of these directed towards international equities, driven by an interest in US stocks from existing clients.”

There are people who are both enthused and appaled by the investment volumes that are being generated. Either way, it is not small-time investors who are making a killing from the trading volumes ignited by their own enthusiasm. 

Despite being propagated as channels of access for the layman and the millennials, it is still the big investors who have raked in the big mullah.

By the time the average punter got a chance to buy stock in Coinbase when it went public earlier this year, the crypto exchange was already valued at around $76bn. Robinhood, afer its GameStop frenzy and losses, is still standing tall. Robinhood has filed for an IPO and its backers are looking at a $40bn valuation from its upcoming initial public offering. 

But experts are cautioning individual investors not to go overboard. Coinbase’s stock is trading 40 per cent below from where it started.

In this story, the only winners are the big investors and the other private investors who got into the game early. Big names like Andreessen Horowitz alone owned a stake worth more than $11bn when trading in Coinbase started. 

Certain big investment funds and individuals have dominated the tech start-up market while financing their growth curve.

As investment returns have soared, the small circle of really big winners has profited disproportionately. Individual investors have made a killing in this journey, replacing venture capital and public market investors.

Traditionally, the venture capitalists raked in the benefits of the rise in tech company performances, while the rest of the market investors routinely underperformed the indexes.

That has changed. The average venture fund set up between 2009-2017 has been generating returns of 10 percentage points a year above the S&P 500, according to Steven Kaplan, a professor at the University of Chicago’s Booth business school. 

But one thing to be noted is that if these funds are doing well, the outsized gains are still being shared among a small group of really big winners. “Funds in the top quartile still make around 15-20 per cent a year more than those in the second quartile,” Kaplan says.

It is the same group of small investors fronting the funds are continuously performing well year after year.

Along with venture funds and capital, what they bring to the table is their vast network of clients and cronies.

Once a startup has big name investors such as Sequoia Capital or Accel or even SoftBank, then it ensures a smooth path for other big names to come along for the ride. For most, it saves them the risk, and they can easily put in money on the deal.

But the question is how far along this journey will last. Analysts say such booms are cyclical. As more capital is drawn in, the return will be affected in time.

As Coinbase and Robinhood show, individual investing may be running rampant but it is still the big names behind the scenes that are running the show.

The post Elite investors driving stock boom and raking in big money appeared first on Industry Leaders Magazine.


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