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The Stock Market Is Getting Hella Frothy – And It’s All Millennials’ Fault

Last Updated September 23, 2020 1:59 PM
Francois Aure
Last Updated September 23, 2020 1:59 PM
  • The stock market looks as expensive as it has in two decades.
  • With old school investors on the sidelines, Robinhood’s perceived army of “dumb money millenials” is on a buying spree.
  • Can this possibly end well when the most popular stocks are all desperately cash-poor?

With the Wall Street sharks sitting on the sidelines, Robinhood trading activity suggests that millennial investors continue to dive into a corner of the stock market where even billionaires don’t dare to swim.

The waves may appear deceptively calm, but a rip current can strike at any time. And history shows us that these waters are dangerous for investing guppies.

Billionaires Hide in the Bunker as Robinhood Investors Rush the Field

As the stock market recovery enters its third month, it’s not hard to see why many experienced investors are still hiding behind a pile of cash.

Warren Buffett is sitting like a wizened dragon on Berkshire Hathaway’s vast hoard of wealth. It’s clear the Oracle of Omaha doesn’t see any opportunity anywhere, and he’s not the only one.

But perhaps encouraged by a stimulus check, reduced personal expenditure, or the rants of Barstool boss Dave Portnoy, millennials continue to pile into the stock market.

And more than that, their favorite targets appear to be the very stocks that billionaires like Buffett and Carl Icahn are avoiding like the plague. Cheap airlines, defunct car rentals, and gaming stocks increasingly clutter their portfolios.

Take Hertz, for example. Carl Ichan lost $1.8 billion after dumping his shares in the company that just filed for Chapter 11 bankruptcy. 

But millennials still wanted more of it, even as the company pulled its cars from auctions and practically admitted the game was over, days before the weekend announcement.

Stock Market, Hertz, Robinhood
Robinhood users continue to feast on bankrupt Hertz. | Source: Robintrack 

It’s astonishing to see this incredible demand spike for a stock whose value that could disappear after reorganization. That is not hyperbole.

Bankruptcy can often see shareholder value reduced to practically zero , not that many of those rolling the dice on Robinhood seem to care.

The simple fact is that they probably just don’t know.

It seems to be all about buying stocks near their lows, and that’s about it.

The Dumb Reason Younger Investors Are Fascinated with Airline Stocks

That’s also true about younger investors’ fascination with airline stocks .

The industry is somewhat optimistic about a future rebound, but executives are pretty resigned to the fact that travel will be subdued for some time .

Robinhood bulls like them because, to paraphrase their quality of analysis: “line goes down far.”

airline stocks, airline etf, jets ETF
Robinhood users are piling into the “Airline ETF” – and the individual stocks it holds. | Source: Robintrack 

Assumptions can be dangerous things, but I also might be being unkind. This isn’t investing, it’s gambling at its purest.

So perhaps it makes sense that millennials are placing big bets on stocks connected to the U.S. gambling industry.

Of Course Millennials Are Making Bets on Gambling Stocks

Over the past month, only two stocks have been more popular on Robinhood than DraftKings.

Millennials love it because they use it, but its revenue has been smashed  by the sudden suspension of sports leagues across the world.

To put the size of the DraftKings bubble in context, Wynn Resorts (who owns all those big casinos, and – shocker – a bunch of tangible assets) is worth $9 billion, while DraftKings is valued at a whopping $12 billion.

Wynn, Draftkings
Wynn stock (light) has plenty of exposure to the future of gambling in the U.S., but DraftKings (dark) has left it in the dust. | Source: Yahoo Finance 

So if you are going to take the plunge into this frothy stock market that has value investors shaking in their boots, please understand one thing.

The closest comparison to this kind of activity is probably the dotcom bubble:

Stock Market, Millenials
Valuations are off the charts, but millenials are diving into the stock market anyway. | Source: Sven Henrich via Twitter 

Maybe this time is different.

But history hasn’t been kind to that line of thinking.

Disclaimer: This article represents the author’s opinion and should not be considered investment or trading advice from CCN.com. Unless otherwise noted, the author has no position in any of the stocks mentioned.