By Kassem Lahham, Co-Founder and Chief Strategy Officer of Springbox AI
Professional investors will tell anyone that will listen that the biggest part of their job is assessing and accepting risk. This is institutionalized in investing, a known variable that affects trading patterns and thought processes. Yet investors are no longer just the stereotypical tie-wearing brokers pouring over charts and trends. There is a new generation of investor, approaching investing with a much more cavalier strategy.
This younger generation (Gen-Z or younger Millennials) of investors uses easy-to-navigate apps to invest, forging ahead without truly paying attention to trends and research. While not all these investors treat the market like a gambling interface, many are. They tend to take more risks, use social media platforms to game investments by creating group-think, all affecting stock behavior.
The question then must be asked if applying gambling theories to investing is wise. The answer to that is complicated. While naturally, treating the markets like an addictive activity meant to trigger excitement can bring with it a heightened risk factor, it also can engage younger investors in a traditionally older industry.
Investing for the short-term
We have a recent example of risk as experienced by younger investors. Early in 2020, U.S. oil prices crashed, plunging the value of the United States Oil Fund. Yet, despite many stern warnings from those with the investment knowledge to back up such things, many investors hopped on their trading apps and picked up USO as it plummeted. Their patience waned thin and within the next week, many sold off their positions at a loss, prior to USO slowly rebounding.
This example, cited by many, highlights the attitude and risk of this type of investor. Yet we seem to be missing some variables in the story. These investors, while clearly acting from a point of uninformed decision making, invested blind and sold at a loss without blinking an eye. This affected the stock price almost immediately. This can either be attributed to a lack of confidence and investment awareness, or it can be attributed to a new way of thinking about investing.
This new way brings with it a heap of negatives perhaps, but it also aligns with the goals of the current younger generation of investors. In broad strokes, this generation is not like their parents, they are not saving for the future but rather living for the now. They are focused on short-term goals, which makes them adept at saving money but leaving room for improvement with investing, as it tends to take longer to mature to profit.
Embracing gamification
All this considered, should this new generation of investors that treats the markets like a slot machine in a Reno casino at 2am be regarded with disdain for its approach? There would be those that would argue as such, viewing these traders as amateur players, disrespecting a storied industry. This would be a mistake. These investors are simply seeking to engage with an industry the way they know how, the same way they approach many aspects of their lives.
There are benefits to embracing the gamification of investing, the first being obvious at this point. It is encouraging investment activity. While the industry could do more to reveal the risks as well as the rewards; perhaps creating more engaging ways for younger investors to learn about investing in a relatable way rather through technical terminology. Education through investment tools that offer a lower risk ratio could be an option.
Investors tend to adhere to the common theme that investing real money is not a game, is not meant to be fun, and comes with real consequences. This is just not how this new generation of investors see it. It is and can be a game, money isn't real, and there is fun to be had. Why not embrace that? Why not engage with that kind of mindset to create applications and processes that are tailored to that behavior? Because of risk, naturally.
Easy money is a myth
Risk still remains the biggest piece of the puzzle. How can we teach younger investors who have gamified the process that risk is real? They seem content to take losses, but that can't be sustainable in the long-term. Investing applications need to be created in a way that highlights decision tracking, rewarding good behavior and removing biases and the impatience that leads to impetuous losses.
Understanding the game then adapting business models and investing applications to this type of investor is the logical next step. This requires a mindset shift at the highest levels of institutionalized investing. There is unlimited potential here for creating investing environments that aren't games, but are modeled in a way that bridges the gap between gamifying investing and investing itself. There is a massive group of potential investors out there, ready and willing to learn, we just have to build the tools.
About Kassem:
Kassem Lahham is the Co-Founder and Chief Strategy Officer of financial intelligence application Springbox AI. His career path spans over more than three decades in the financial industry at institutions such as Deutsche Bank, with a focus on finance, wealth management, legacy planning and private banking in Germany, Switzerland, the Middle East and countries of the GCC. Besides other diploma’s in the financial sector he is a certified German Banking teacher in professional education, banking, corporate, finance and securities law. A financial architect with in-depth knowledge and experience, Kassem takes a very goal-oriented approach to passing on advice and assistance. A true polyglot, Kassem is a successful FinTech entrepreneur and regular speaker at financial conferences, and has forged a path that allows him the freedom to pass on his banking and finance knowledge to a new generation of investors.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.