The writer is a bond portfolio manager at Barksdale Investment Management and co-author of ‘Undiversified: The Big Gender Short in Investment Management’
“What’s a day trader?” My godson calls to ask me this just after his 18th birthday, newly in possession of a Schwab brokerage account flush with high school graduation cash.
When I define the term, he confesses to me that, yep, he has become a day trader with a $1,000 paper profit in his first week as a legal adult. I say “confesses” because he has done what I recommended against doing: perusing Reddit forums and gambling on stocks that dominate them such as retailer GameStop.
My godson is not going to the poorhouse if he bets wrong. I doubt most day traders are. And I am sure he is learning a lot from his experience.
But as someone who makes a living out of managing investments, I worry about the broader impact of the hype around day trading in so-called meme stocks.
It perpetuates a number of myths about the very different, “real job” of investment management which, in turn, perpetuates the lack of gender diversity in the industry. The breathless coverage of meme stocks signals that investing is the purview of high-testosterone, risk-taking, fence-swinging “bros” who yell in online forums and go to war with rich hedge fund managers. It suggests successful investors rely primarily on instinct, not analysis.
The reality, of course, is very different. As a portfolio manager, I can personally attest to the fact that the majority of us, male and female, are by and large analytical, stodgy, nerdy folks who would not consider buying a stock or bond without having deeply researched the company. It would be reckless otherwise, not to mention a violation of fiduciary duty to clients.
The concentrated bets on very few stocks by meme stock traders defies Investing 101’s principle of diversification. The day trading approach requires tremendous risk appetite and acceptance of daily, unpredictable fluctuations in your life savings.
Research shows that women typically have a different approach to risk from that. That is not to say they are incapable of taking it — just that they tend to have a more balanced view of risk-reward.
I worry a young woman reading the meme stock coverage could conclude either that she is no match for the hyped traders and/or that she has no interest in working in an industry dominated by this personality type.
Women are already being deterred from entering fund management in vast numbers. The industry gender imbalance is severe.
To cite a few numbers, only 10 per cent of US portfolio managers (the people investing your money if you own a mutual fund or ETF) are women, according to a Morningstar research report. And only 16 per cent of financial advisers (the people recommending the mutual funds and ETFs for you) are women.
Investment management interviews often lionise actual investing experience, which is a troubling way to screen candidates. In addition to the obvious baseline of investable wealth required, which eliminates people who grew up in modest homes, how do you verify this prerequisite?
Let’s say a woman enrols in an MBA programme, the traditional pipeline into the investment manager career path. Her interest in an investment job might be piqued. Yet she might be derailed by a recruiting process that almost always asks candidates about their investing experience. She could be interviewing alongside the earnest young man who tells the story of his “ten-bagger” — an investment that goes up 10 times in value — on a stock beloved by the meme crowd such as movie chain AMC Entertainment.
And then the hype over what it takes to be a day trader crops up again. A well-known Harvard Business Review study suggests that women only apply for a job if they have 100 per cent of the qualifications, versus men who apply with 60 per cent. That may suggest that a job for which a “killer instinct” is touted as a qualification will necessarily attract fewer women.
Much more attention needs to be paid to the tremendous gender and racial inequities in the ranks of portfolio managers and investment analysts than putting out the umpteenth meme stock piece. Taken as a whole, this meme coverage likely contributes to these inequities by discouraging women and people of colour from joining the investment industry.
My latest call from my godson was another update about his paper profits (up 45 per cent or $4,500 now). He was with one of his classmates who’s also a self-styled day trader. On a whim, I asked them if they knew any female day traders. They replied: “Um, no.”
Unhedged — Markets, finance and strong opinion
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