By Wim Ritz
With more company information available online, individual investors are increasingly doing their own legwork when it comes to active investing.
As a result, amateur investors have effectively been going head-to-head with hedge funds, most notably in the case of GameStop, where hedge funds shorted on the company’s stocks just as hundreds of individual investors invested, sending share prices up, rather than down.
The result was far-reaching and complicated questions now have to be addressed:
- Do individual investors really understand the financial risks they personally take as well as they should?
- Should there be more tools available for the Financial Markets Supervisors / Stock Exchange Authority to react when prices of companies are artificially inflated?
- Should fund managers be protected against individual investors or do we allow the market to play its course with winners-losers on both sides of the spectrum?
- Are individual investors that organise themselves and act in groups with a common investment-strategy in fact not acting as an unregulated “Alternative Investment Fund (“AIF”) and hence are submitted to the rules applicable to such AIF ?
Whatever’s next, it is likely that regulators will assess if there’s a need for new rules which safeguard the reputation of the stock-markets and investor protection.
With the ever further digitalisation of society, access to the chance of creating wealth and fortune on stock-markets (keeping the related risks in mind) should be open to all.
The main goal of virtually every publicly-owned company has always been to maximize shareholder value by generating as much profit as possible. However, many companies have begun to balance this primary objective with other social and environmental goals that help appease stakeholders and help produce those profits.
Longer-term, the recent actions could well be the start of a new era of investment: with individual investors better able to understand investing through online research, forums, discussions and groups, more active individual investing could well become more mainstream.