Motley Fool Australia

Millennials be warned! Signs of dangerous ASX share trading grow

Banknotes floating in front of a graphic representation of the share market
Image source: Getty Images

It’s a tale as old as time. Good times breed great times that bring exuberance, followed by pain. It’s your classic asset bubble that we’ve witnessed through the centuries. No asset, be it shares in 1999, bitcoin in 2017, or tulips in 1636, are exempt.

Now, just to be clear, I don’t think the S&P/ASX 200 Index (ASX: XJO) or, indeed, the US markets like the Dow Jones are anything close to true ‘bubble’ territory.

But I do think we are starting to see signs of what former Federal Reserve chair, Alan Greenspan would call “irrational exuberance”.

According to reporting in the Australian Financial Review (AFR), ASX share trading surged on investment platforms like Commonwealth Bank of Australia (ASX: CBA)’s CommSec over the past few months. Millennials also displayed the highest activity on the platform. And it’s not just Aussies getting amongst it. The AFR reports that American users of the popular-with-millennials US brokerage company, Robinhood surged by 70% in March.

It’s an interesting phenomenon to see. Conventional wisdom dictates that market crashes translate into a rise in despondency towards stocks as an asset class – with investors burnt by falling prices reluctant to jump back in.

ASX shares in a bubble

Why is this? Well, in my opinion, it’s the nature of the market swings we have seen this year. The bear market we saw between 20 February and 23 March was almost perfect in the way it was consistent and steep. The bull market that has been in play ever since 23 March has been equally perfect in that share prices have gone up in almost a straight line.

This, in turn, has made it relatively easy to jump back into shares at any time over the past 2 months and make money.

The AFR reports that the top shares traded on CommSec over 9-10 June were Flight Centre Travel Group Ltd (ASX: FLT) and Zip Co Ltd (ASX: Z1P). Forget about the ASX blue chips. Apparently these businesses are the companies investors want in their long-term portfolios. Any coincidence that Flight Centre shares were up more than 100% between April and 10 June? Or that Zip Co shares were up more than 470% between March and 10 June? Probably not.

In the US we have seen far worse signs of exuberant, ‘bubbly’ behaviour. For example, shares of US car rental company, Hertz Global Holdings Inc (NYSE: HTZ) have ballooned more than 800% between 26 May and 8 June – despite Hertz filing for bankruptcy in between. There’s a similar story going on with Nikola Corporation (NASDAQ: NKLA), a potential rival to the electric car maker, Tesla Inc (NASDAQ: TSLA). Nikola shares shot up more than 400% between 1 May and 10 June for no solid reason.

This data tells us that these ‘new traders’ entering the market are looking for easy money, which has been delivered to them in spades so far. Making 470% in 2 months is enough to give anyone a healthy dose of irrational exuberance, in my view. 

Foolish takeaway

Yes, market crashes do give investors a phenomenal opportunity to pick up shares at great prices. But the wise words of Warren Buffett come to mind in this situation: “don’t even think about owning a stock for 10 minutes if you don’t plan on holding it for 10 years”.

So, I would caution any investor out there to avoid these ‘hype-train’ stocks and keep a long-term investing mindset present at all times.

History shows us that bubbles and irrational exuberance always ends in tears – and I’m seeing signs of some very irrational behaviour right now. 

Man who said buy Kogan shares at $3.63 says buy these 3 ASX stocks now

When investing expert Scott Phillips has a stock tip, it can pay to listen. After all, the flagship Motley Fool Share Advisor newsletter he has run for more than eight years has provided thousands of paying members with stock picks that have doubled, tripled or even more.*

In this FREE STOCK REPORT, Scott just revealed what he believes are the 3 ASX stocks for the post COVID world that investors should buy right now while they still can. These stocks are trading at dirt-cheap prices and Scott thinks these could really go gangbusters as we move into ‘the new normal’.

*Returns as of 6/8/2020

Sebastian Bowen has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns shares of ZIPCOLTD FPO. The Motley Fool Australia has recommended Flight Centre Travel Group Limited. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

Related Articles...

Latest posts by Sebastian Bowen (see all)