Coronavirus gives birth to new generation of first-time investors

It has become commonplace to try to find “silver linings” in the COVID-19 pandemic — to see opportunities in the context of unprecedented challenges. But is this the mindset investors are embracing amid instability in the markets?

Indeed, according to new data from Investing.com and online visibility management platform SEMrush, the coronavirus crisis is giving birth to a new generation of first-time investors.

Thanks to data from SEMrush, we documented that Google (NASDAQ:GOOGL) searches in Australia for the term “how to invest in the stock market” rose approximately 179 percent (780 searches to 2,180) from January and February to March and April of 2020 as well as 240 percent year over year since 2019. Additionally, searches for the term “stocks to buy” skyrocketed 237 percent from January and February to March and April, and 419 percent year over year. Both terms are commonly associated with first-time investing, in addition to other variations which also saw increases over this time.

“Searches related to first-time investing have risen since 2019 with a sharp spike during the peak of the coronavirus crisis,” said Evgeny Fetisov, CFO at SEMrush. “The rise in search volume can be attributed to the country’s economic downturn as new investors saw more opportunity within the market at a potentially cheaper access point. We anticipate this trend to continue as the market rebounds, and first-time investors begin to see a positive return.”

In a separate analysis of traffic on our own website, we found that the number of Australia-based users on Investing.com jumped from 420,000 in January and February 2020 to 824,200 in March and April, an increase of more than 96 percent, and then a further 84% in May and June (855,000 users). Interesting enough, this shows that the substantial increase in new investors isn’t confined to the stock market crash back in March, but is in fact still occurring. This was a trend not only confined to Australia either, with a 60% increase in users seen over March and April, across Investing.com’s 44 international editions around the globe.

“Essentially bored sports bettors shifted their focus to day-trading when the coronavirus pandemic brought sporting events to a halt earlier this year,” said Jesse Cohen, senior analyst at Investing.com. “Barstool Sports founder Dave Portnoy has become the poster child of this day-trading craze that has taken Wall Street by storm. The big question is how many of these first-time day-traders will stay in the market once sports are back on.”

Which stocks are attracting the greatest surges in interest during these times? From December 2019 to May 2020, the group of companies which saw the largest percentage increases in pageviews on Investing.com include multiple airlines, cruise lines, and oil companies. In these instances, investors are likely perceiving buying opportunities for plummeting stocks in hard-hit industries. Simultaneously, rising interest in the Zoom videoconference platform and pharmaceutical companies reflects how investors are betting on the companies that are providing solutions to the pandemic’s challenges.

“While market participants are still struggling to understand the true extent of the damage from the fast-spreading virus outbreak, many first-time traders chose to ignore the risk and buy the dip in some of the hardest-hit names in the market,” continued Cohen. “In retrospect, that wasn’t such a bad move.”

These findings on the rise of first-time investors and the overall surging interest in investing are supported by recent reports that online brokerages are seeing record increases in new accounts and trading activity due not only to COVID-19, but also last year’s move to zero-commission trading. At the same time, new investors have acknowledged a hesitancy to take risks, reinforced by the tragic story of first-time investor Alexander E. Kearns, a 20-year-old University of Nebraska student who committed suicide in the aftermath of seeing an apparent negative cash balance of more than $730,000 in his account.

It was reported that the suicide note found by Kearns’ computer had stated, “How was a 20 year old with no income able to get assigned almost a million dollars worth of leverage?” Kearns had signed up with the Millennial-focused brokerage firm Robinhood, which offers commission-free trading and added a record 3 million new accounts to its platform during the early stages of the pandemic in the first quarter of 2020.

Kearns may have misunderstood the negative cash balance as an actual loss when in fact, it could have been a temporary balance before changes in his account’s stock options took hold. 

“When he saw that $730,000 number as a negative, he thought that he had blown up his entire future,” Bill Brewster, Kearns’ cousin-in-law and a research analyst at the Chicago-based Sullimar Capital Group, told Forbes. “I mean this is a kid that when he was younger was so conscious about savings.”

Following Kearns’ suicide, Robinhood’s co-founders said they were “personally devastated by this tragedy” and pledged to improve the platform’s “customer experience,” including around option flows involving multi-leg exercise and assignment. The episode underscores how despite the promising trend of first-time investors entering the market, there’s a crucial need to educate them about what they’re investing in and precisely how their accounts work.

“First-time investors need to get a better understanding of complex financial instruments, such as options, before trading them,” Cohen explained. “In addition, more of an effort needs to be made by trading platforms to provide educational material to novice traders. One potential solution can be to introduce eligibility requirements for individuals who wish to use exotic financial instruments typically used by sophisticated investors.”

As the pandemic progresses, Investing.com anticipates a continued surge of interest in our platform’s real-time financial markets data. We are committed to providing our users not only with that data, but with the other news and information that will comprehensively educate them about the markets and empower them to make informed decisions.