The Future of Investing: Community Based

Being a student at Columbia Business School, it is impossible to ignore the rich history and tradition of value investing since the approach was developed at this very institution. Most notably, Warren Buffet received an A+ on campus from Ben Graham in 1951 and he believes that his most formative investing lessons were on campus. Buffet says “the best lessons are the ones I learned at Columbia. I went there because Ben Graham taught there and I think his advice was timeless…. The lessons are simple but powerful….What I learned at 19 or 20 from him, I applied ever since.”

Fast forward to 2021 and while being cast as both a hero and a villain, some of these lessons have debatably been expounded upon and applied by Keith Gill, a Redditor on the WallStreetBets forum who goes by Deep****ingValue, in his quest to profit from GameStop stock.

The GameStop saga is one that is well documented and had me glued to R/WallStreetBets until the wee hours of the morning to understand the motivations behind individuals who were willing to risk it all. Now that the dust has settled and Robinhood believes the controversy has subsided enough to file an S-1, I believe the central theme which has emerged from the backdrop is the future of community-based individual investing.

The democratization of retail investing was instituted by Robinhood through no fees trading and has revolutionized retail trading as we know it. The video game-like user interface, the ease of access, and the frictionless experience have been tailormade for Millenials and Gen-Z who have been drawn towards investing with the belief that they can actively beat the market. At the institutional level, passive investing has been the mantra of the last decade with a consistent outflow of funds from active management strategies. However, most recently, there has similarly been a tectonic shift in the way active management is being conducted by institutions and that is best represented by Cathie Wood who has combined an active management approach to innovative ETFs.

What is common to ARK and the entire FinTwit ecosystem is that despite operating at the different levels of the institution and the individual, both ARK and FinTwit have essentially broken down the barrier of information sharing while embracing the socialization of it. This has lead to the creation of completely transparent ecosystems which have empowered individuals to control their investment decisions with autonomy and knowledge they did not have before.

As we look to the future, the further socialization of financial information will lead to community-based investing. In my view, individual investors will form pools of capital to pursue thesis-driven outcomes in an extremely transparent manner. Similar to how R/WallStreetBets amalgamated information sharing and the opinion of individual investors, there will be centralized platforms that do so in a more cohesive manner. M1 Finance already offers specific investment pies that individuals can enter into. This has partly been the factor behind its resounding growth over the last year. It is only a matter of time before a platform amasses enough scale from individual capital to operate as an asset manager with institutional market movement capabilities. While financial technology is being decentralized, the centralization of socialized individual investing will take place.

With the knowledge-sharing capabilities that have emerged and the overall increase in the interest and participation of individuals, the skepticism which has surrounded online communities and investors will slowly dissipate. What SumZero has done for the investment management community by charging hefty fees, FinTwit is doing for the individual investor for free. The socialization of this experience has led to successful investors gaining large followings who are judged by millions of unknown individuals on their daily returns.

While one can skeptically attribute the success of such investors to the current bull market, there are underlying structural changes that have demonstrated that at the core, individual investors have been empowered by transparency and the socialization of information. This empowerment will eventually give rise to stronger communities of investors who might similarly hold deep conviction in the hidden value of the next GameStop.