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‘They’re gambling’: Canada’s rookie day traders are betting on these stocks

·6 min read
TikTok Chad is capitalizing on his newfound fame in the world of investing. (Twitter via @TikTokInvestors)
TikTok Chad is capitalizing on his newfound fame in the world of investing. (Twitter via @TikTokInvestors)

It sounds so easy.

“I see a stock going up, and I buy it. And I just watch it until it stops going up, and then I sell it. And I do that over and over, and it pays for our whole lifestyle.”

Short of the well-worn “buy low, sell high” mantra, it’s tough to sum up an investment strategy faster than the couple behind the TikTok account @chadandjenny. In a recent video about how they make money without 9-to-5 jobs, the pair claimed they parlayed less than US$1,000 into $20,000 in a month using the popular Robinhood trading app.

“If you have friends that want to make money from home, you can tag them or send them the link,” Chad (last name unknown) suggests in the video, seconds after tracing an imaginary stock chart in the air with his fingers. “If you make money this way, share it in the comments so other people know there are more people doing this now.”

While it’s unclear how firmly Chad and Jenny have their tongues planted in their cheeks, they speak to an army of rookie investors wading into equity markets in what could be the biggest explosion in average Joes trading stocks since the dot-com bubble two decades ago.

When markets sold off in the spring as COVID-19 tightened its grip on the global economy, a flood of new bargain-hunting investors flocked to low-cost trading apps. E*Trade Financial opened roughly 260,500 retail accounts in March alone, more than any full year on record. Robinhood said last May that it added a record three million users year-to-date. In Canada, a survey of retail investors by the website TradingView conducted earlier this month found 62.5 per cent of respondents said they’re trading more because of the pandemic.

There is going to be some volatility coming. Greg Taylor, chief investment officer, Purpose Investments

Greg Taylor is a Bay Street veteran who's seen bubbles from cryptocurrency to cannabis. He said homeschooled traders betting on stocks marching higher in a linear fashion when businesses struck by the pandemic reopen are gambling more than investing.

“There are a lot of expectations that the economy is going to reopen later this year, and that there is so much stimulus in the system that will push markets higher. The big risk is if something unforeseen happens,” the chief investment officer at Toronto-based Purpose Investments said in an interview.

“There is going to be some volatility coming. As much as everyone today thinks stocks only go up, they don’t. That’s what people have to make sure they’re prepared for.”

On the heels of a year nobody could have predicted, the S&P/TSX Composite Index (^GSPTSE) and the S&P 500 (^GSPC) each hit new closing highs in the first weeks of 2021. That’s done little to inspire caution among new equity investors, who have watched their app-based portfolios swell in the face of rising COVID-19 cases, new variants of the virus, and concerns about the distribution of vaccines.

These 5 stocks will ‘bounce back’ from the impact of COVID-19: survey

How are Canadian retail investors playing the “re-opening trade” that appears to be shrugging off the harsh realities of a global pandemic? TradingView asked 1,750 survey participants between Jan. 12 and Jan. 15 which Canadian companies they expect to rebound after significant stock drops in 2020.

Air Canada (AC.TO) topped the list, followed by Aurora Cannabis (ACB.TO)(ACB), Suncor (SU.TO)(SU), Enbridge (ENB.TO)(ENB), and Manulife Financial (MFC.TO)(MFC).

“It looks like from this list that a lot of retail investors have taken to day-trading the market. These are higher beta parts of the market that they are gravitating to,” said Taylor “They’re gambling more than anything else.”

Notably, Air Canada also appeared third on the list of companies expected to struggle. The airline ranked behind Cineplex (CGX.TO) and Bombardier (BBD-B.TO), and ahead of Transat (TRZ.TO) and Corus Entertainment (CJR-B.TO).

Peter Hodson, founder and head of research at 5i Research, said Air Canada may have ranked on both lists because investors recognize the company is financially strong enough to weather the pandemic, but the timing of normalized air travel is unknown.

“The stock has lots of leverage under the right scenario. It’s a good trader and a recognized brand,” he wrote in an email. “It used to be $50, so investors see a potential double, while it’s low is 'only' $9.26 from the panicked days of March 2020. Investors see it as a good risk/reward scenario.”

Taylor notes the U.S. Global Jets ETF (JETS), which counts Air Canada among its holdings, has been a strong performer recently, climbing nearly 40 per cent in the past six months. Shares of the Canadian carrier itself have climbed about 35 per cent in that time.

Pot stocks like Aurora have benefitted from recent shifts in U.S. politics that increase the likelihood of federal cannabis legalization. Energy names like Suncor are obviously highly correlated to rebounding transportation.

Responding to online commenters, TikTok Chad said some of his recent picks include BlackBerry (BB.TO)(BB), Tilray (TLRY), Infosys (INFY), and Vale (VALE).

“As long as people realize this is trading, not investing, I think it’s fine,” Taylor said. “But there is a lot of uncertainty. You’ve had two years of markets going up in the face of negative earnings, and that means a lot of positive expectations are built into valuation levels.”

Taylor said it’s tough to peg how much of the daily trading volume is coming from retail investors these days, but estimates are anywhere from 30 to 40 per cent.

Perhaps it’s also telling that Taylor said he’s noticed more people talking about their stock picks in the same way many Canadians homeowners tend to boast about the rising value of their real estate. Add a recent uptick in hyped-up SPAC offerings and IPOs, and the warning signs become even clearer, he said.

“This is something that you see closer to the top of the market than the bottom,” Taylor added. “It feels like, from a trading point of view, that we’re back to what we had in the dot-com boom in 1999.”

Meanwhile, Chad is capitalizing on his newfound fame in the investing world. He’s vowed to offer more stock advice to his followers under the handle @crappywallstreetadvice despite widespread criticism of his previous video. Those who don’t like it can “suck a butt,” he said in a recent post.

Jeff Lagerquist is a senior reporter at Yahoo Finance Canada. Follow him on Twitter @jefflagerquist.

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