Buy The Dip

From Reddit to Twitter (+0.30%), and apps like Clubhouse, a social, conversational podcast app, almost anyone can profess to be a “stock guru” these days, or at the very least sound like one.

And the lexicon from the cryptocurrency markets (that most speculative of sectors) has trickled into the language of the traditionally more laced-up financial markets, with terms like “buy the dip” and “hodl” (a cryptocurrency slang that means to “hold” the cryptocurrency for further price appreciation), more commonly seen on cryptocurrency forums making their way into discussions on stocks.

Which is why despite Apple (+1.07%) slumping some 15% since late January and Tesla (-3.78%)losing over US$250 billion in market cap in just three weeks, retail investors are still hungry for more stocks (or “stonks” in internet message board parlance).

Since markets peaked a few weeks ago, retail traders have plowed cash into U.S. stocks at a pace 40% higher than they did in 2020, which was already a record year, “buying the dip.”

Instead of searching out “value” gems as followers of Warren Buffett are wont to do, these retail investors (speculators) have opted to shop for stocks in parts of the market that have suffered the most, doubling down on highly leveraged tech funds, (ARK Innovation ETF (-1.15%) anyone?) and bullish call options.

And retail traders are now the elephant in the room, becoming far too big to ignore and making up an estimated one quarter of U.S. trading volume on any given day.

Yet despite that some of the favored speculative bets, from electric vehicle companies and Special Purpose Acquisition Companies have buckled because of rising U.S. Treasury yields, retail investors continue to buy into these sectors, hence the term “diamond hands.”

Retail traders, many using their stimulus checks (not to worry if you burned through the last one, Uncle Joe is sending you another, and US$1,400 at that!) have consistently held strong, buying virtually every dip during what’s been the best start to a bull market in almost 90 years! Professional investors have been left scratching their heads wondering what it’ll take for retail investors to call it a day, especially after 2020 proved that retail investors were right (and in a big way) more often than they were wrong.

The guess is that it won’t be anytime soon – there should still be at least one more rally since the Biden administration looks almost certain to get its US$1.9 trillion stimulus bill passed and you can bet your GameStop buck that some of that money will almost certainly make its way into the markets.

As stocks fell over the last three weeks, data from VandaTrack, an arm of Vanda Research that monitors retail flows in the U.S. market, revealed that retail investors snapped up an average of US$6.6 billion in U.S. stocks, up from the average US$4.7 billion in net weekly  purchases in 2020.

Retail investors are “buying the dip” so to speak and have doubled down on stocks that have been hit the hardest, including Apple, electric vehicle maker NIO Inc. (-2.98%) and ETFs tied to the Nasdaq 100 (a sort of America’s Top 100 tech stocks).