Should You Be Buying What Robinhood Is Selling? | Sidnaz Blog


In rare cases, such pitches have paid off big time. More often, you’d have done yourself a favor by taking roughly half your money and lighting it on fire instead.

Just as Robinhood isn’t the first brokerage to offer commission-free trading, it isn’t the first to seek to “democratize” investing or to sell a piece of itself to its own customers.

On June 23, 1971, Merrill Lynch, Pierce, Fenner & Smith Inc. became the first New York Stock Exchange firm catering to individual investors to offer its shares to the public.

Thirsty for fresh capital in a struggling stock market, Merrill flogged its shares to its own customers, tapping the firm’s “awesome recognition among that vast segment of the population,” reported The Wall Street Journal the next day. “Primarily small investors, the type long championed by Merrill Lynch, quickly purchased the entire amount.”

Nearly 400 insiders at the firm unloaded a total of 2 million shares in the offering. From its initial $28 per share, the stock shot to about $42—a 50% pop—then closed around $39. That valued Merrill at 30.5 times its prior-year earnings, much higher than the overall stock market’s price/earnings ratio of 18.7.

Less than three weeks later, Merrill announced that its net earnings had fallen nearly 50% from the prior quarter.

For the rest of 1971, Merrill’s stock lost 9.4%; the S&P 500 gained 4%, counting dividends.

In 1972, when the S&P 500 rose nearly 19%, Merrill sank 7.7%. And in 1973-74, when the S&P 500 lost 37%, Merrill’s stock slumped by 61%. In its first three full years, Merrill’s stock lost three-quarters of its value; the S&P 500 fell only 5%.

Here in 2021, Robinhood’s offering is one of several trading and investing IPOs:

Coinbase Global Inc.,

the cryptocurrency exchange, went public in April, and

Acorns Grow Inc.,

which helps users invest in tiny increments, said in May that it expects to go public later in the year. Since its Apr. 14 debut, Coinbase is down about 27%. Robinhood fell 8% on its first day of trading Thursday.

One of Wall Street’s oldest and frankest sayings is “When the ducks quack, feed ‘em”—meaning that whenever investors are eager to buy something, brokers will sell it like mad.

Back in 1971, that was the brokers’ own shares. Roughly half a dozen major firms sold stock to the public soon after Merrill, including Bache & Co. and Dean Witter & Co. By 1974, according to data from the Center for Research in Security Prices LLC, several of them had dealt losses at least as devastating as Merrill’s.

In 1987, Jane and Joe Investor got invited to join in on the fun of Charles Schwab Corp.’s IPO, when roughly three million of the offering’s eight million shares were reserved for employees and customers of the firm.

Unlike Merrill, which was rescued from the brink of failure in 2008 when

Bank of America Corp.

bought the firm, Schwab went on to generate spectacular long-term performance. Over the full sweep of time since its 1987 IPO, Schwab is up more than 26,500%, or 17.9% annualized. The S&P 500 gained less than 3,500%, or an average of 11.3% annually.

However, Schwab went public in late September 1987. Only 18 trading days later, on Oct. 19, the U.S. stock market took its biggest one-day fall in history, plunging more than 20%.

Schwab’s stock got brutalized. In their first year, Schwab’s shares fell 59.1%. After three years, the market as a whole had gained 0.6% annually; Schwab’s stock lost an annualized average of 6.9%, according to CRSP.

How many of the original buyers in 1987 stuck around long enough to reap the giant rewards that came much later? That’s impossible to know, but the likeliest answer has to be: very few.

Every once in a while, outside investors in a brokerage IPO do well.

Goldman Sachs Group Inc.

began trading on May 4, 1999. If you’d bought Goldman stock in the IPO and held it ever since, you’d have earned 9.1% a year, versus 7.6% in the S&P 500, according to FactSet.

Yet Goldman was a giant then, as it is now; it was late to the IPO party because it had held on to its partnership structure for so many years. Most brokerage IPOs, like Robinhood’s, occur when the firms are younger and smaller.

That makes them typical. Companies selling shares to the public for the first time tend to be small, with minimal profits; they also require additional invested capital to sustain their rapid growth.

That’s what Savina Rizova, global head of research at Dimensional Fund Advisors, an asset manager in Austin, Texas, calls “a toxic combination of characteristics that points to low expected returns.”

On average, IPOs have severely underperformed seasoned stocks in the long run. And, history suggests, brokerages doing IPOs are better at timing the market for themselves than for you.

Write to Jason Zweig at [email protected]

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The brokerage app Robinhood has transformed retail trading. WSJ explains its rise amid a series of legal investigations and regulatory challenges. Photo illustration: Jacob Reynolds/WSJ

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Don’t Believe the Inflated Yields on Inflation-Protected Bond | Sidnaz Blog


Mutual funds and exchange-traded funds that buy TIPS, or Treasury inflation-protected securities, are boasting yields of 8% or more in a bond market where even 4% looks outlandish. Such funds took in an estimated $36.3 billion in new money in the first half of 2021, according to Morningstar—a record for any six-month period since TIPS funds were born in the late 1990s.

If an 8% yield tempts you to join them, listen up. These funds that purport to fight inflation are, ironically, inflating their own reported yields.

I’ve written about this problem before, but it’s never been worse. This week, every single inflation-protected security was trading at a negative yield to maturity before inflation. Yet more than two dozen mutual funds and ETFs that own these bonds are reporting yields of 6%, 7%, even 8% or more.

These Yields Are TIPSy

The reported yields on mutual funds and exchange-traded funds investing in inflation-protected government bonds vary wildly, depending on how they calculate their income.



















Vanguard Inflation-Protected Securities (Admiral)

iShares TIPS Bond ETF




PIMCO Real Return Institutional

Fidelity Inflation-Protected Bond Index



FlexShares iBoxx 3-Year Target Duration TIPS ETF

Invesco Short Duration Inflation Protected (R5)

Fund, Net assets (billions)

Vanguard Inflation-Protected Securities (Admiral), $36.99

iShares TIPS Bond ETF, $28.85


Schwab US TIPS ETF, $18.43


PIMCO Real Return Institutional, $12.38

Fidelity Inflation-Protected Bond Index, $9.67

SPDR Portfolio TIPS ETF, $2.62


FlexShares iBoxx 3-Year Target Duration TIPS ETF, $1.48

Invesco Short Duration Inflation Protected (R5), $0.58

Fund, Net assets (billions)

Vanguard Inflation-Protected Securities (Admiral), $36.99

iShares TIPS Bond ETF, $28.85


Schwab US TIPS ETF, $18.43


PIMCO Real Return Institutional, $12.38

Fidelity Inflation-Protected Bond Index, $9.67

SPDR Portfolio TIPS ETF, $2.62


FlexShares iBoxx 3-Year Target Duration TIPS ETF, $1.48

Invesco Short Duration Inflation Protected (R5), $0.58

How the heck can that be? Are investors expecting double-digit rises in the cost of living? Or are fund companies exploiting a regulatory loophole for marketing purposes?

TIPS are notes and bonds, issued by the U.S. Treasury, whose value varies with changes in the monthly Consumer Price Index. When that measure of inflation rises, the principal value of each of these securities goes up; so does its interest payment. When inflation declines, the TIPS’ value and interest fall with it.

TIPS pay interest, albeit not much these days—a 5-year note sold in April has a coupon of 0.125%. A big chunk of the return instead comes from the inflation adjustment to the principal.

On websites and in other marketing, funds display what’s commonly known as SEC yield. That number is sky-high right now.

Under rules from the Securities and Exchange Commission, funds take “dividends and interest” earned per share during the prior 30 days, deduct expenses and annualize it. The resulting SEC yield tends to be roughly what you’d get if you multiplied the previous month’s net income by 10 or 12.

The SEC’s rules for calculating its yield, however, don’t say whether to include the inflation adjustment or leave it out.

And that gives fund companies a lot of leeway.

As the economy roared back, the Consumer Price Index came in at unusually high levels of 0.8% in May and 0.9% in June. Those are monthly numbers, so funds that annualize them and include the inflation adjustment to principal in their income have been reporting monster SEC yields. To believe in that yield is to imagine that such fluky numbers are sustainable.

Among the many examples this week were the $9.7 billion Fidelity Inflation-Protected Bond Index Fund (SEC yield: 7.11%), the $12.4 billion Pimco Real Return Institutional Fund (8.2%) and the $29.2 billion

iShares TIPS Bond ETF


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“To help our clients make fully informed investment decisions,” says a Fidelity spokesman, “we [also] disclose the distribution yield for our bond funds, which is a better reflection of the shareholder experience.”

Distribution yield measures a fund’s income payouts, which also can include cost-of-living adjustments to principal.

Steve Rodosky, co-portfolio manager of Pimco’s inflation-protected bond funds, says the firm calculates and displays the yield “in accordance with the SEC rules.” Pimco’s disclosures also present distribution yield and estimated yield to maturity. As of July 14, for instance, at Pimco’s 1-5 Year U.S. TIPS Index ETF, the SEC yield was 8.79%; distribution yield, 6.89%; and the yield to maturity, 0.55%.

The U.S. inflation rate reached a 13-year high recently, triggering a debate about whether the country is entering an inflationary period similar to the 1970s. WSJ’s Jon Hilsenrath looks at what consumers can expect next.

“From a market-expectation perspective, the estimated yield to maturity is a more stable indicator” than SEC yield, says Daniel He, another co-manager of Pimco’s TIPS funds.

In addition to SEC yield, says Karen Schenone, a fixed-income strategist for iShares, “investors should also look at yield to maturity and real yield” (or TIPS income adjusted for the inflation rate). Those measures are also displayed on iShares’ website and in other marketing materials.

Earlier this year, iShares added a pop-up disclaimer to its website: “An exceptionally high 30-day SEC yield may be attributable to a rise in the inflation rate, which might not be repeated.”


How are you hedging against inflation in your portfolio? Join the conversation below.

At least $109 billion is invested in TIPS funds with SEC yields of 6% or more, according to Morningstar—roughly half the category’s total assets.

Not all have chosen to report inflated yields, though.

State Street Global Advisors is reporting negative SEC yields on several funds, including SPDR Bloomberg Barclays 1-10 Year TIPS ETF and SPDR Portfolio TIPS ETF. Vanguard Group also shows negative reported SEC yields on its TIPS funds.

“In my view, including the inflationary adjustment to the principal [in] the SEC yield is incredibly misleading,” says

Matthew Bartolini,

head of ETF research at State Street Global Advisors. “It assumes that, on a go-forward basis, the inflation reading in the prior months will be persistent” even though the Consumer Price Index can vary wildly from month-to-month. “And many are unaware of this.”

Right now, “the market is experiencing very high month-over-month inflation, and a calculation that annualizes inflation accretion may reflect an overstated view of expected yield,” says a Vanguard spokesman. “Our practice has been to avoid that adjustment, which results in SEC yields on Vanguard funds with TIPS exposure appearing lower than other firms. Conversely, during periods where monthly inflation is negative, our SEC yield may look higher.” The firm feels this approach represents its TIPS funds’ real yield consistently and accurately, he says.

In short, you can’t earn 8% income in a 2% bond market. And funds that claim to be protecting against inflation should protect their investors against inflated expectations, too.

Write to Jason Zweig at [email protected]

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Why You Shouldn’t Buy Bitcoin When You’re Hungry | Sidnaz Blog


You aren’t an investor. You contain multitudes of investors.

You aren’t the same when you lose money as you are when you make money; just ask some of the folks who took a beating on bitcoin this week. Nor do you invest the same when you’re calm, rested, well-fed and alert as you do if you’re upset or tired or hungry or bored. You may even make different investing decisions in the evening than in the morning.

An important new book, “Noise: A Flaw in Human Judgment,” by

Daniel Kahneman,

Olivier Sibony and Cass Sunstein, shows that decisions by people and organizations are far less consistent and more variable than we think. Every investor needs to take account of that; otherwise, your long-term results will always be hostage to short-term whims and circumstances.

How does the book define noise? It’s deviations in judgments that should be identical. Noise exists mainly across people; you and I can look at the same facts and interpret them in divergent ways. It also exists within each of us; a stock you considered risky on Thursday can feel safe on Friday, even if the price didn’t change.

You also might never even notice it.

“Noise is a statistical phenomenon,” Prof. Kahneman tells me. “To see it, you have to make multiple decisions about the same case with the same information, and those situations are very rare.”


How often doctors request cancer screening, and how likely patients are to follow up, depends on what time of day it is.

Breast cancer screenings*

Doctors are 15 percentage points more likely to order breast-cancer screening for patients they see first thing in the morning than they are right before lunch.

Shown matching descriptions of hypothetical offenses, 208 federal judges differed by an average of more than 3.5 years in the length of the prison sentences they recommended.

These professionals rarely realize how noisy their decisions are unless someone measures them. Investing is equally rife with unwanted and undetected variation.

In a recent survey in South Africa, 200 financial planners saw descriptions of hypothetical clients. Different advisers recommended either “very low” or “very high” levels of risk for the identical person, with exposure to stocks ranging all the way from 0% to 100%.

Earlier studiesalso found embarrassingly wide variations in financial advice for the same client. Even professionals who claim to follow stock-picking rules may have no idea how far and often they deviate from their own guidelines.

The idea that judgments of identical information vary among individuals, over time and across situations isn’t new. It was documented by psychologists in dozens of studies as far back as the 1960s—and underlies such venerable folk wisdom as “in the eye of the beholder,” “measure twice, cut once,” and “sleep on it.”

What is new here is a deeper discussion of where noise comes from.

By temperament, training or both, some analysts and investors are more optimistic; others, more pessimistic. They will draw drastically different conclusions. That’s what the authors call “level” noise, or persistent deviation from the average opinion across many people.

Individuals can also differ from their own typical view. You might tend to be more bullish than average—but have a pattern of becoming especially enthusiastic whenever a company introduces a new product or whenever Elon Musk tweets. That’s what Prof. Kahneman and his colleagues call “pattern” noise.

Finally comes “occasion” noise, driven by random variations in moods, situations and whatever happens to grab your attention. Reading about a natural disaster could make you momentarily more risk averse. Being angry might prod you into buying even more of a falling asset, as many holders of

GameStop Corp.

stock or dogecoin could tell you.

Prof. Kahneman, a psychologist, won a Nobel Prize in economics in 2002. (Before I joined The Wall Street Journal, I spent two years helping him research, write and edit his previous book, “Thinking, Fast and Slow,” although I don’t earn royalties from it.) Mr. Sibony is a former management consultant who teaches at HEC Paris business school. Mr. Sunstein is a professor at Harvard Law School.

A new book co-authored by psychologist Daniel Kahneman shows that decisions by people and organizations are far less consistent and more variable than we think.


Benedict Evans for The Wall Street Journal

When I ask Prof. Kahneman if the opposite of noise is quiet, he says no: “The opposite of noise is discipline. It’s just doing things in a reasoned way, organizing your thinking so it is as intentional as possible.”

Here’s how.

First impressions are dangerous. You’ll interpret later information in ways consistent with whatever you happened to learn first, skewing your final judgment. To counteract that, use a checklist to structure your questions, and the evidence you will seek to answer them, in the same order each time.


What processes do you employ to improve your decision-making? Join the conversation below.

Break decisions into their components. Let’s say you evaluate stocks based on innovation, financial strength, customer loyalty and quality of management. Rank each dimension independently of the others, using a numerical scale, say from 0 to 5. Wherever possible, compare it to industry averages and long-term historical data. That will help keep one good quality from casting a halo over all the others.

Get multiple opinions. Ask different people the same question, or even ask yourself the same question at different times. The average of the responses is sure to reduce noise, says Prof. Kahneman.

Don’t tell anyone giving you a second opinion what the first opinion was; just present the facts. Sleeping on it? Then wait as long as you can—weeks if possible—and follow your checklist again, without looking at your original answers.

In a world full of noise, discipline is your greatest asset.

China’s recent warning on cryptocurrency sent the market in a tailspin. WSJ’s Aaron Back explains why the recent shake-ups in the value of bitcoin, dogecoin, ether and other cryptocurrencies may point to obstacles in mainstream acceptance. Photo: Dado Ruvic/Reuters

Write to Jason Zweig at [email protected]

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The Hidden Cost of Cheap Fashion Could Catch Up to Investors | Sidnaz Blog


Cheap, disposable fashion is damaging the planet. If consumers don’t seem to care, should investors?

Clothing has never been less expensive. Globalization helped fashion chains like


Primark and Old Navy to move manufacturing to low-cost countries and offer bargains to shoppers back at home. Between 1990 and 2018, the latest annual data available, real prices of footwear and clothing halved in the U.S., an analysis by Cambridge Econometrics shows. In the U.K., where consumers can’t get enough of cheap fashion brands, prices fell by three quarters.

This trend has a benefit: Wardrobes take a much smaller share of the household purse than they used to. U.S. consumers spend just 3% of their disposable income on clothing, down from 10% in the 1960s, according to Bureau of Labor Statistics data. The downside is that readier access to inexpensive garments encourages shoppers to buy in greater quantities.


How have you changed your apparel buying habits in recent years? Join the conversation below.

The flood of cheap fashion is taking a toll on the environment. Clothing production requires a lot of water and chemicals. Finished garments are shipped long distances by sea—and increasingly by air as online shoppers demand a continuous stream of new designs. The product churn necessary for so-called fast fashion brands to continue to grow generates great waste. Of the roughly 100 billion items of clothing produced each year, more than 50 billion are thrown away and subsequently burned or landfilled within 12 months of being made, according to a recent UBS report.

The situation seems unsustainable, yet investors in fashion stocks face a conundrum: Consumers don’t seem to care. The amount of clothing and footwear sold globally fell 10% in 2020, Euromonitor data shows, but that is easily explained by the pandemic-related lockdowns that kept shops shut. Before the Covid-19 outbreak, the amount sold globally was increasing steadily at around 3% a year.

For now, there is no direct threat of a regulatory crackdown either. The fashion sector’s long supply chain cuts across multiple countries and sectors, including petrochemicals for fibre manufacturing, making it more complex for governments to rein in. That is despite the fact that the fashion industry contributes up to 10% of global carbon emissions. By comparison, commercial aviation generates just 2% to 3%, according to Citi analysts.

Shareholders would still be wise to handle fashion stocks carefully. Environmental, social, and governance risks don’t appear to be priced into the share prices of publicly traded fashion companies, even as analysts report that investors are asking more questions about sustainability. That might help explain isolated examples of extreme share-price volatility. Last year, a scandal about labor conditions at British fast-fashion company

Boohoo Group

wiped 40% off its market value in three trading days.

A couple carry bags from clothing retailer Zara along Oxford Street in London.


David Cliff/NurPhoto/Getty Images

It is possible that shoppers aren’t yet aware of the climate impact of their sartorial choices. It may be easier for consumers to understand how long-haul flights boost their carbon footprint than the multi-step process that goes into making a Saturday-night outfit. But that could easily change. More sustainable business models like Rent the Runway—a service for hiring outfits—and used clothing marketplaces such as thredUP are already gaining in popularity.

If the environmental cost of fast fashion does become a hot-button consumer topic, the impact on sales could be sudden. Take Sweden, where “flygskam,” or flight shaming, became a trend in 2018. That led to a 3% fall in domestic passenger travel that year, followed by an 9% drop in 2019, official data shows.

Big clothing chains are well aware of the risk. Zara’s owner


the biggest fashion retailer in the world by revenue, is one of many players to offer ranges made from more sustainable fabrics. H&M has offered a garment collection and recycling service in its stores since 2013. While these initiatives are good public relations, they don’t fix brands’ overproduction problem. Zara releases new designs every two weeks to keep shoppers constantly coming back for more.

Reducing the amount of clothing sold globally will become an even bigger challenge as consumers in emerging countries develop a taste for fast fashion. In 2006, Chinese shoppers bought 14 items of apparel every year, but this number had more than doubled by 2019, according to UBS. Americans’ purchases also increased over the period, but not by as much—from 48 to 54 items a year.

For an industry that prides itself on having its finger on the pulse, the world’s biggest fashion companies could quickly end up on the wrong side of the biggest trend in years. And without a complete overhaul of their business model, there is little they can do about it.

Write to Carol Ryan at [email protected]

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Hydrogen Cars Failed to Deliver. Investors Hope Planes Are | Sidnaz Blog


Does the hydrogen hype that once surrounded cars have better prospects with planes? Yes, but probably not in time to meet the aviation industry’s emissions targets.

The past year has brought some vindication to those who see hydrogen as aviation’s passport to a cleaner future. Last fall, European plane maker


unveiled three hydrogen-powered aircraft concepts for 2035. More recently, U.K. startup ZeroAvia got backing from

British Airways

as part of a $24 million funding round. Likewise, Universal Hydrogen, led by former Airbus executive

Paul Eremenko,

has just raised $21 million from heavyweights such as the venture-capital subsidiaries of


and Toyota.

For decades, hydrogen was a promising future power source for passenger cars. Now most light vehicle makers favor batteries, and hydrogen is looking for a better home in trains and trucks, as championed by startups such as Nikola.

The aviation industry has set itself a target of halving emissions by 2050, which would be roughly in line with the 2016 Paris Agreement to limit climate change. Only a third of the reduction is expected to come from improvements in turbofans and airframes. Sustainable fuels can play a role, but production capacity is limited, and the most affordable ones remain pollutive.

Aviation’s initial interest in the electric-vehicle revolution faded as executives realized that carrying heavy batteries more than very small ranges through the air is unfeasible. Rechargeable lithium-ion batteries only deliver 9 megajoules per kilogram of weight, compared with 40 MJ/Kg for jet fuel.

Hydrogen, on the other hand, packs an impressive 140 MJ/Kg. Encouragingly, it is a relatively mature technology. Fuel cells, which are being used by Universal Hydrogen and ZeroAvia to convert light and regional aircraft, cost $40 per kilowatt, 68% less than in 2006, Bernstein Research estimates. That is expensive for a car but not a plane.

“We don’t need any fundamental scientific improvements: It’s an engineering problem,” said Val Miftakhov, founder and chief executive officer of ZeroAvia. He successfully tested a six-seat aircraft last year, and hopes to refit a 100-seater by the 2030s.

Val Miftakhov, the founder and chief executive officer of ZeroAvia.



Hydrogen isn’t an environmental no-brainer yet. Turning electricity into hydrogen and then back into electricity is inefficient: Only about 45% of the energy ends up being used, compared with 90% for batteries, the World Energy Council estimates. Furthermore, only 0.1% of global hydrogen production is currently carbon-free; most comes from natural gas and coal.

Still, many analysts expect “green” hydrogen to become price-competitive relative to jet fuel in the next five years, making it a commercial option for airlines.

That still leaves many engineering challenges. Not all the energy in today’s prototypes comes from hydrogen: ZeroAvia’s aircraft needs a battery to provide additional power during takeoff, at least for now. Universal Hydrogen also employs a battery, but says it would play a smaller role. Also, hydrogen is energy-efficient in terms of mass but not volume: It requires big tanks that would make planes heavier and less aerodynamic, since fuel couldn’t simply be stored in the wings as it is now.

The wider problem is that decarbonizing regional jets won’t make a big dent in the industry’s carbon footprint. They make up 29% of flights but only 7% of emissions, according to the International Council on Clean Transportation.

Demand for lithium is expected to outpace global supply as consumers switch to battery-powered vehicles. With China currently leading in processing of the vital raw material, the U.S. government is looking to boost domestic production. Photo illustration: Carlos Waters/WSJ

The reason why Universal Hydrogen is spending $100 million to get a re-engined regional aircraft certified by 2025 is not just the plane itself, but rather the need to accelerate investments in hydrogen storage, distribution and refuelling, which are big hurdles to the technology’s wider adoption. The company has devised pill-shaped pods that can be easily stacked and transported, and serve both as storage containers and gas tanks.

Showing this infrastructure in action with regional airlines could convince Airbus and


to develop hydrogen-fueled replacements for the 160-seat A320neo and 737 MAX, which are the backbone of the global fleet, Mr. Eremenko said. “They are very risk averse, but having proof of passengers flying could tip the balance,” he added.

While Boeing CEO

David Calhoun

has been publicly skeptical about hydrogen playing a part in the next generation of narrow-body jets, his counterpart at Airbus,

Guillaume Faury,

championed the technology during his spell at French car maker Peugeot and has taken up the cause again.

Yet the fuel cells currently being tested won’t be of use to Airbus or Boeing, because they would need to be prohibitively heavy to move bigger planes. The A320 replacement pitched by Airbus last year would mostly rely on a traditional engine to burn hydrogen directly. This basic technology has been around since the 1950s, but has many drawbacks, such as the emission of nitrogen oxide—also a greenhouse gas.

There are also reasons to doubt Airbus’ conviction in its own timeline for the rollout of hydrogen technology. It presented two other concepts at the same time: a regional aircraft that would be an unambitious goal for 2035; and a “blended wing” futuristic plane that would be far too ambitious.

Hydrogen seems like a useful power source to eventually decarbonize aviation. Thinking it can be deployed in time to meet the industry’s 2050 emissions targets, however, requires a lot of optimism.

Write to Jon Sindreu at [email protected]

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What Happens When Stocks Only Go Up | Sidnaz Blog


Bear markets haven’t gone extinct. They’ve evolved into teddy bears.

That’s what some investors seem to believe—and who can blame them? The stock market used to take years, sometimes decades, to recover its prior peak after the start of a bear-market decline. After last year’s 34% meltdown, however, stocks regained record highs in only 126 trading days.

With the exception of a 100-day rebound after an interim drop in early 2009, that’s the fastest-ever recovery to a prior peak. The S&P 500 has fallen at least 20%—the conventional definition of a bear market—26 times in the past nine decades, according to Dow Jones Market Data. Recoveries to previous highs have typically taken almost three years, often much longer.

Nobody likes losing money and waiting for ages to get it back. Then again, that kind of pain can be a blessing in disguise, by chastening investors who otherwise might take risks they ought to avoid.

Bear Minimum

While the stock-market decline of 2020 was fierce, with a 34% loss, it was also one of the shortest in history.

Last year’s bear market recovered after 126 trading days.

Percentage drop during bear market

The longest bear-market recovery took 7,262 trading days, until Sept. 22, 1954, to reclaim the previous high of Sept. 7, 1929.

Start of bear-

market decline

Recovery to

previous peak

Last year’s bear market recovered after 126 trading days.

Percentage drop during bear market

The longest bear-market recovery took 7,262 trading days, until Sept. 22, 1954, to reclaim the previous high of Sept. 7, 1929.

Start of bear-

market decline

Recovery to

previous peak

Last year’s bear market recovered after 126 trading days.

Percentage drop during bear market

The longest bear-market recovery took 7,262 trading days, until Sept. 22, 1954, to reclaim the previous high of Sept. 7, 1929.

Start of bear-

market decline

Recovery to

previous peak

Start of bear-

market decline

Recovery to

previous peak

Percentage drop during bear market

Last year’s bear market recovered after 126 trading days.

The longest bear- market recovery took 7,262 trading days to reclaim the previous high of Sept. 7, 1929.

Just look at a sample of more than 2,000 investors that the Vanguard Group has been surveying regularly since early 2017. Among other questions, Vanguard asks how likely the U.S. stock market is to lose at least 30% over the next year.

In February 2020, before the pandemic had fully hit home, these investors estimated the odds of such a bear market at an average of only 4%. By April, just after the S&P 500 had fallen by one third, their expectations that the market would plunge again in the coming year nearly doubled to 8%.

Those fears swiftly faded. By last December, investors in the Vanguard survey estimated the probability of another crash in the ensuing 12 months at only 5%. That was slightly lower than their average estimate during the three years before the pandemic.

It’s as if the speed of the recovery had erased the pain of the decline, or made a recurrence seem even more improbable. Just like that, a grizzly bear turned into what feels more like a teddy bear.

That complacency takes a toll—even among Vanguard investors, who tend to be cautious. These people often follow the philosophy of the firm’s late founder, Jack Bogle, who preached patience and repeatedly warned that stocks are risky. If anyone should come through the sharpest market decline in decades unperturbed, it’s the people in this survey—typically about 60 years old, with about $225,000 in Vanguard investments, roughly 70% in stocks.

Yet they didn’t all sit tight. One group in the survey stood out: those who went into early 2020 with the highest expectations for stock returns in the upcoming year. They ended up reducing their exposure to stocks much more sharply during the crash of February and March 2020 than those who had been expecting lower returns.

They also tended to turn around and buy back much of the stock they had just sold—but not until prices had already shot above the March lows.

Investors elsewhere seem to have concluded from the swiftness of the recovery that stocks aren’t risky at all. After last spring’s rebound, Dave Portnoy, a social-media celebrity, declared “Stocks only go up” so often that it began to seem like a magic incantation.

And, for the past year, just about every stock has gone up.

That’s largely because the Federal Reserve has backstopped markets by squashing interest rates toward zero and by buying more than $2.5 trillion in Treasury securities since February 2020, along with other massive interventions. Meanwhile, emergency government programs pumped trillions of dollars of stimulus into the economy.

Share Your Thoughts

Have you lost your fear of a bear market? Why or why not? Join the conversation below.

Fund managers fruitlessly complained about how these policies were distorting markets, but individual investors simply followed the old Wall Street adage: Don’t fight the Fed. So long as the central bank is drenching the markets with liquidity, why not buy stocks—and why fear another crash?

What’s more, target-date funds, which continually seek to keep a predetermined exposure to stocks, command in excess of $2.8 trillion, according to

Morningstar Inc.

Investors added $52 billion to target-date funds in 2020.

The popularity of these portfolios has—so far, anyway—helped make market crashes self-correcting. The more stocks fall, the more the target-date funds have to buy them; otherwise, the portfolios would fall below their mandated ratios of stocks to other assets.

None of that means, however, that grizzlies have forever been transformed into teddy bears.

“Sure, stocks only go up,” says

Rob Arnott,

founder and chairman of Research Affiliates, a firm in Newport Beach, Calif., whose investment strategies are used to manage about $160 billion world-wide. “They only go up—until they go down!”

This isn’t the first time people have thought that bear markets had been rendered extinct.

In the 1980s, a strategy called portfolio insurance was intended to truncate losses—until it failed to prevent the more than 20% drop on Oct. 19, 1987. In the late 1960s, a tidal wave of pension-fund money was sure to drive stocks ever higher—until they fell more than 45% in 1973-74. In the 1920s, a “new era” of technological disruption made caution look absurd—until stocks crashed by 89%.

The best way not to be overwhelmed by fear during a bear market is to retain a trace of it in bull markets, too.

What You Need to Know About Investing

Write to Jason Zweig at [email protected]

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NFTs: The Method to the Madness of a $69 Million Art Sale | Sidnaz Blog


Financial innovations often feel like insanity at first. Pay bills with a piddly piece of plastic? Get cash from a faceless machine rather than a bank teller? Stop trying to beat the market and just own all the stocks, including the bad ones?

Yet credit cards, ATMs and index funds went on to make the financial world easier, safer and more convenient for millions of people. One of the nuttiest-sounding ideas in years, NFTs, could do the same.

You’ve heard of nonfungible tokens even if you don’t yet know what they are—because the people buying them sound so crazy. In February, an NFT representing the Nyan Cat video meme, which looks like a feline Pop-Tart dragging a rainbow through outer space, sold for more than $500,000. A video NFT of LeBron James dunking a basketball sold for $208,000. On March 11, an NFT attached to a digital collage by the artist known as Beeple sold at Christie’s for $69 million.

Although such prices are baffling—and may, in fact, be crazy—NFTs could solve problems that have dogged the art world and other markets for centuries. Think of a nonfungible token as a unique digital serial number that certifies the authenticity and ownership history of an associated object.

Non-fungible tokens, or NFTs, have exploded onto the digital art scene this past year. Proponents say they are a way to make digital assets scarce, and therefore more valuable. WSJ explains how they work, and why skeptics question whether they’re built to last. Photo Illustration: Jacob Reynolds/WSJ

That information, along with other data, is recorded on a blockchain. This is a ledger, or immutable record, that resides on a decentralized network of computers world-wide. The blockchain technology underpins bitcoin and ethereum, the leading cryptocurrencies. Any of the ledger’s millions of users can instantly verify that the information is accurate and complete.

By connecting the blockchain to art and other creative work, NFTs bring the objectivity of computer code to fields that are notorious for subjectivity. Artists, writers and musicians struggle to find audiences and make a living. Curators, dealers, collectors and art historians bicker nonstop about the quality and valueand the authenticity—of major works.


Are NFT buyers getting carried away? Does the technology have promise? Join the conversation below.

Consider the French artist Jean-Baptiste-Camille Corot, who was jokingly said to have painted 3,000 canvases, 10,000 of which were bought in the U.S. Is a particular Corot genuine or a forgery? Who were its previous owners? Has it ever been exhibited at a museum or previously sold at auction? Was it ever seriously damaged and extensively restored?

Until now, buyers often had to take the answers to such questions on faith. An NFT, however, can integrate reams of information about an artwork into an authoritative, permanent digital record.

Today, for the most part, NFTs are linked to digital assets like electronic images or audio and video files. People are already experimenting with tying physical objects to blockchain records of ownership, which would make NFTs feasible for material assets—although some technical challenges remain to be solved.

A detail from a collage by digital artist Beeple. An NFT attached to the collage sold at Christie’s for $69 million this month.


christie’s images ltd. 2021/beep/Reuters

With NFTs, all the relevant knowledge about a work of art “can be permanently systematized, automated and accessible by anybody,” says Noah Davis, the specialist in postwar and contemporary art at Christie’s in New York who arranged the $69 million sale of Beeple’s work.

Some people in the art world see the explosion in NFTs as “absolutely absurd and appalling,” he says. “But I studied the theater of the absurd in college, and I don’t think it’s ridiculous at all. I think it’s inevitable.”

More from The Intelligent Investor

NFTs also are giving creative people an ownership stake they’ve never had before. Consider Josie Bellini, an artist based in Chicago who majored in finance in college and worked briefly at an investment-advisory firm. Since late 2018, she has sold about 300 of her paintings this way.

One of her NFTs, a dazzling digital work titled “Yours Truly #0,” is on sale by its current owner, an account called BitBuzz, for 250 ether. That’s a cryptocurrency, worth a total of about $450,000. Ms. Bellini, who sold the NFT for 50 ether in February 2020, will receive a 5% royalty if it sells—now and anytime again in the future.

Typically, when an NFT is traded on the blockchain, that network won’t allow a sale and purchase to be completed without forwarding the predetermined royalty to the wallet, or account, of the artist who created it.

“It’s so amazing that even if it gets traded 10 or 20 times or more, I’ll still be getting my fee for it,” Ms. Bellini says. “That’s totally not how the art world has worked until now.”

Earlier this month, Mario Gabriele, an investment analyst and newsletter writer, prepared to turn his research report on cryptocurrency trading platform Coinbase Global Inc. into an NFT. “Tokenizing” the report, illustrated by digital artist Jack Butcher (who earned half the initial proceeds), quickly raised nearly $36,000 in ether.

For that, the 119 backers each got tokens they may be able to exchange for ether, now that Mr. Gabriele has opened an auction for access to the NFT of his research. If buyers of the report pay more than Mr. Gabriele’s supporters already put in, then the original backers will share in those proceeds—and in future sales as well. Mr. Gabriele’s goal, he says, is to put investment research “within the reach of those who don’t have a multimillion corporate research budget to deploy.”

Because NFTs are so new, using them isn’t cheap.

On OpenSea, an online marketplace, the typical NFT changes hands for the equivalent of $100 to $1,000, says Devin Finzer, the firm’s co-founder and chief executive. But transaction costs on the cryptocurrency to fund those purchases run roughly $40 to $60. So small buyers incur giant expenses. (OpenSea also charges a 2.5% fee of its own.)

“That’s why the high-value things make a lot of sense for buyers who can afford them,” says Mr. Finzer.

Are buyers getting carried away?

“I’m sure that some of this is a bubble,” says Ms. Bellini, the Chicago-based artist. “Sometimes [buyers] just hear it’s cool and good and they don’t even know what an NFT is, but they want to buy anyway, and I think some of those people are going to get hurt.”

NFTs bring objectivity to the objects being sold, but they can’t bring it to the buyers of the objects, because those are human beings. In the long run, I think NFTs will make markets better. But nothing will remove bettors from markets.

Write to Jason Zweig at [email protected]

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What Came Before the $10 Billion Bet on Flying Taxis | Sidnaz Blog


Back in Business is an occasional column that puts the present day in perspective by looking at business history and those who shaped it.

In the 1962-63 animated television series “The Jetsons,” people in the year 2062 zoomed around in “aerocars” that could take off straight up, exceed 2,500 mph and fold into a briefcase with a touch of the finger.

Today, 2062 is only 41 years in the future, and Silicon Valley is obsessed with the latest incarnation of the aerocar: electric vertical-takeoff-and-landing aircraft. These helicopter-like vehicles could be used to alleviate congestion at airports and in traffic-choked regions.

Companies are raising billions of dollars to develop these air taxis. Will they ever take off?

The history of transportation over the past two centuries is a chronicle of astonishing advancement. (Until the 1860s, it could take more than six months to get from the East Coast to the West Coast of the U.S.) That progress, however, has been full of false starts, stalls and surprises. The funders of radical new transportation technologies have often been wiped out. Because history is written by the winners, it’s important to remember the lessons of the losers, too.

Today’s transportation innovators already sound like winners. In recent weeks, air-taxi companies Archer Aviation Inc. and Joby Aviation have announced that they will go public by merging with special-purpose acquisition companies, or SPACs. These are firms whose stock already trades on an exchange while they look for businesses to buy. Others are sure to follow.

Those merger plans value Archer at $3.8 billion and Joby at $6.6 billion, even though neither company has any revenues and developing and delivering their aircraft could take years. Yet they have big backers, ranging from

United Airlines Holdings Inc.


Toyota Motor Corp.

and the U.S. Air Force.

Taxi companies using radical new technologies and promising to transform transportation have arisen before.

In 1897, what became known as the Electric Vehicle Co. began operating battery-powered taxicabs in New York City. In the U.K., the London Electrical Cab Co. also began service that year. In 1899, the Compagnie Française des Voitures Électromobiles got underway in Paris.

The electric taxis offered some great advantages over the horse-drawn cabs they sought to replace. They were clean and quiet and, because they were so innovative, they appealed to the wealthy and fashionable.

An ad for an electric passenger car, “Your Rauch & Lang or Baker Electric is a Car of Pleasure,” made in 1915.


The Henry Ford

In New York, the electric-taxi business boomed. In June 1898 alone, nearly 1,600 customers traveled a total of 4,400 miles, according to business historian and management professor David Kirsch of the University of Maryland. They paid 30 cents a mile, more than $9.75 in today’s money. (Horse-drawn cabs charged 50 cents a mile.)

In 1899, the Electric Vehicle Co. had about 45 cabs in service, averaging 27 miles of trips per day, and a financing rush was on. A rival, the General Carriage Co., sought to raise $20 million in capital (about $650 million today). The New York Central railroad said it would launch a service with 100 electric taxis based at Grand Central Terminal.

That year, estimates of demand for electric taxis quickly ratcheted up from 1,600 to 2,000 to 12,000. To shuttle passengers to New York’s booming Metropolitan Street Railway trolley system, which covered 232 miles in Manhattan, 1,500 battery-powered taxis would be needed. The Electric Vehicle Co.’s parent ordered as many as 850 “electromobiles” from its manufacturing affiliate in Hartford, Conn.

In seven weeks that spring, the share price of the New York electric taxi company nearly tripled.

Then the surge began to fade as overexpansion took its toll. Short battery life doomed the London and Paris firms in a year or two. In 1902, the General Carriage Co. collapsed after its stock shot from 87.5 cents to $20.50 and fell back again. Most of the electric-taxi services in smaller U.S. cities never got traction.

Above all, Henry Ford supplanted the electric car by changing the idea of what automobiles were for.

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What would make you feel comfortable hailing an electric air taxi? Join the conversation below.

Electric taxis were the natural offshoot of the 19th-century model of transportation, exemplified by steamboats and railroads: centralized services that charged fixed prices to serve fixed routes on fixed schedules. Consumers who accepted that as the status quo would rather pay others to drive them than to drive themselves.

Instead, Ford got consumers to think of transportation not as a service someone else offered but as a product they could own and operate themselves. That enabled people to go anywhere they wanted whenever they wished. Transportation no longer had to be rigid; it could offer freedom. Traveling was usually still a necessity, but it could also fulfill an aspiration.

Huge improvements in the power and range of gasoline engines helped, but Ford’s biggest weapon was low price: He introduced his Model T in 1908 at $850, roughly one-third of what electric cars cost at the time. Suddenly millions of people could own a product that gave them a sense of control over time and space.

Decades later, Sir Freddie Laker adopted a similar approach. Air travel had long been limited mainly to the wealthy and to business travelers when, in 1977, he launched his Skytrain, a bargain-priced, no-reservations and no-frills airline linking the U.K. to the U.S. People stood in line for hours, sometimes days, in what they called “Queue Gardens” to snag tickets at one-half to one-third of competitors’ fares.

Freddie Laker launched Skytrain, a bargain-priced, no-reservations and no-frills airline linking the U.K. to the U.S., in 1977.


Philip Townsend/Hulton Archive/Getty Images

Laker’s innovation helped force governments to deregulate the airline industry, slashing airfares across the board just as the global economy was about to boom. In 1976, 137 million middle-class people world-wide had traveled by air. By 1981, that number hit 212 million; a decade later, it reached 583 million.

Technologies and industries often take leaps forward when products and services can be put to surprising new uses, enabling customers to fulfill needs—or aspirations—they didn’t even know they had.

Radio, developed to assist navigation, became the indispensable musical accompaniment to people’s lives. The airplane, in its early decades, was used far more for delivering mail and shipping goods than for carrying passengers. The mobile phone, originally designed for people to talk with, has become the all-in-one wristwatch, camera, stereo, movie theater, road map and encyclopedia we all carry in our pockets and purses.

Endless commutes in torturous traffic jams have made travel something millions of people dread. Perhaps—if all the technology works and every bureaucracy cooperates—air taxis can someday reinvest travel with the sense of novelty and freedom it once had.

Success might depend on what the technology can deliver soon. It might depend even more on whether the technology can deliver what people don’t know they will want later.

Corrections & Amplifications
Archer Aviation Inc.’s plan to merge with a special-purpose acquisition company values Archer at $3.8 billion. An earlier version of this article incorrectly said the deal valued Archer at $2.5 billion. (Corrected on March 12)

Write to Jason Zweig at [email protected]

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The Covid Baby Bust Could Reverberate for Decades | Sidnaz Blog


The number of babies born globally has declined sharply in the last year, with the combined effects of the pandemic, lockdown restrictions and the global recession that followed all weighing on the fertility rate. The effects on some businesses will be immediate, but a large part of the demographic impact may be permanent, meaning that there will be longer-running economic effects too.

The Brookings Institution estimates that there were 300,000 fewer U.S. births in 2021 than would have been expected prior to the pandemic, compared with the 3.8 million births recorded in 2019. China reported just over 10 million births last year, down by more than 12% from the 11.8 million births in the previous year.

The drop has accelerated the general trend towards lower fertility rates, especially in developed countries. Japan’s famously low fertility rate is less markedly different now than it was 20 years ago. In Germany, the U.S., U.K. and France the total fertility rate—the number of children an average woman will have in her lifetime—is now below two, and not expected to rise. Japan’s rate fell to 1.36 in 2019.

Previous examples of natural disasters and pandemics reducing the birthrate, like the Spanish Flu, preceded the widespread use of contraception. Education levels and other social factors like the average age of new parents were wildly different to today’s, so direct comparisons are difficult to make.

In some more recent examples like that of SARS in Hong Kong, fertility slumped during the epidemic before rebounding to above pre-pandemic levels. But that was a brief and limited episode compared with this one. Recessions tend to reduce fertility too. In the aftermath of the global financial crisis and euro crisis, one study found that falling birthrates were strongly related to increases in unemployment, affecting the worst-hit European countries most severely.

An expectant mother browses baby products in a shop in Hong Kong.



In the years following the global financial crisis, the U.S. fertility rate has not recovered to its levels immediately preceding it. According to the University of New Hampshire, 2.3 million fewer babies were born in the U.S. between 2008 and 2013 than would have been expected if fertility rates had stayed at 2007 levels. Some of the decline in fertility is due to structural change, but there is little doubt among social scientists that the economic uncertainty caused by the crash reduced birthrates.

In December, Korea’s central bank suggested that the decline in the country’s fertility rate in 2020—to 0.84, already the world’s lowest—would be lasting as delayed marriages led to permanent social changes and fewer children born overall.

The most obvious part of the economy to feel the impact immediately will be companies which make products for newborn children and their parents.

In the last 12 months, China has recorded the slowest increase in its imports of powdered milk, the key ingredient for baby formula, in nearly five years. One example of a stock that has suffered is A2 Milk Company Ltd., listed in both New Zealand and Australia. Its shares had risen by almost 1000% between the beginning of 2016 and mid-2020. Now, half of that increase has been lost, as the extent of China’s decline in fertility has become clear.

Western companies like Reckitt Benckiser, which produces infant formula and


which owns the Huggies diaper brand have been forced to address the sudden shortfall in births. Reckitt is aiming to shift into adult and particularly senior nutritional products, and Kimberly-Clark into markets where the birthrate has not slowed so sharply. But the effect is notable. Both stocks, along with competitors

Procter & Gamble



are down by between 8% and 16% over the last 6 months, bucking the broad market rally. Individually, the firms can try to move into different markets, but it is very difficult for them all to succeed at the same time.

In the longer-term, the effects could be far deeper and more pervasive across a range of asset classes.

Recent economic research has suggested that falling birthrates are a major factor in the declining interest rates of recent decades—in some estimates even the largest single factor. The large drop in fertility in the U.S. in the 1960s and 1970s was, according to a landmark study published by the Federal Reserve in 2016, the largest factor responsible for falling growth rates after 1980 and the joint-largest responsible for falling real interest rates, along with the change in employment rates.

Likewise, Bank of Japan research published in 2018 indicates that more than 40% of Japan’s decline in interest rates between 1960 and 2015 was caused by changes in the working-age population, about half of which down to declining numbers of births, and the other half down to increased longevity.

Unlike some of the other factors at play, declines in fertility are close to impossible to alter globally. One country can prop up its demographics with immigration from another, but globally that is a zero-sum game. Employment, productivity and longevity can change, but a shrinking workforce caused by births two decades prior is easy to see coming and difficult to do much about.

Several countries have experimented with plans to boost fertility rates, but with limited successes so far. Even in Hungary, where the government is more publicly committed to raising birthrates than almost any other, the fertility rate still sits at just 1.49 as of 2019.

That means that any enduring drop in births should suppress bond yields in the long term. It is entirely possible that bonds with maturities of more than 20 years in particular, which account for very long-term growth expectations, remain indefinitely lower compared with their pre-pandemic level.

Just as it has taken a year for the extent of the drop in fertility to become more clear, it will take several more before the full extent—and any recovery —is obvious. Some stocks are already feeling the impact, but the drop in births in 2020 and 2021 may have a much more extensive impact on financial markets for decades to come.

Write to Mike Bird at [email protected]

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Teens Are Gambling Their Savings on GameStop Stock. Their Parents | Sidnaz Blog


Jake Schlein began investing when he was 14 years old with the help of a $10,000 gift and a custodial account opened by his father.

He started out playing it safe—sticking to well-established companies like Apple Inc. and Inc.

Jake bought 33 shares at $87 a piece last month after he and his friends saw the hype on


Discord and Reddit’s notorious WallStreetBets forum. After a wild ride that sent the shares soaring as high as $483 on Jan. 28, GameStop closed Thursday at $53.50.

The now 16-year-old says he has no intention of selling the stock anytime soon—even though his father, a former

Citigroup Inc.

executive and longtime financial professional, has suggested he cash out.

Jake Schlein, left, began investing when he was 14 years old with the help of a $10,000 gift and a custodial account opened by his father Michael Schlein, right. Jake bought 33 shares of GameStop Corp. at $87 a piece last month.


Amy Lombard for The Wall Street Journal

“The stock price hardly matters right now,” said Jake, who like many other investors, hasn’t been deterred by GameStop’s recent volatility. “I’m definitely riding with it.”

The day-trading frenzy that has fired up stocks like GameStop, started a de facto war between hedge funds and Reddit traders and galvanized securities regulators is benefitting from capital provided by a growing number of young investors. Many of them are trying their hands at trading for the first time. And they have an entirely different viewpoint on the markets than their parents, for whom investing has often looked more like contributing to a 401(k) account, not diving into the trade du jour on social media.

“He actually thinks he’s making history,” said Linda O’Flanagan, a New Jersey resident whose 16-year-old son sold the entirety of his modest holdings last month so he could buy a single GameStop share and join the frenzy. “I said, ‘Don’t be silly,’ but what do I know?”

Rarely has trading stocks looked this fun.

Ms. O’Flanagan’s son, Connor, keeps GameStop’s stock price up on a second screen so he can keep track of its movement while answering questions in online classes. He swears he even saw his math teacher sneak a look at GameStop’s stock price at one point in class.

“It’s cool how the internet came together… and it could just overthrow Wall Street,” Connor said. He only intends to hold GameStop for a short while. “It’s basically a ticking time bomb,” he said of the stock’s rally. His plans for any profit he comes out with? Put that money straight back into the market.

Ms. O’Flanagan has other dreams. “Hopefully he makes enough money to pay for college. What a load off!” she joked.

‘The Fed just did what?’

It is no accident that teenagers like Jake and Connor had the chance to jump in on the GameStop mania. This generation has grown up in an era where trading has become as accessible as ever to the masses thanks to the rise of no-commission trading, the ability to purchase slivers of traditional shares for as little as $1 and the proliferation of free trading apps like Robinhood. The median age of users on Robinhood last year was 31, far younger than older rival Schwab’s average of 52.

Jake Schlein monitors his investments on one screen and does his school work on the other. He doesn’t intend to sell his GameStop stake anytime soon even though his father suggested he cash out.


Amy Lombard for The Wall Street Journal

Zachary Cox, a 12-year-old from the U.K., only had 40 pounds ($55) to play with when he convinced his mom to open a custodial account for him last year on the British platform Trading 212.

He’s invested in everything from U.K. stocks to payment company Square Inc. and electric car maker

Fisker Inc.

He even put a tiny sliver of his portfolio—less than 1% of it—into

AMC Entertainment Holdings Inc.

after seeing the hype around the stock take off.

So far, it has paid off: Zachary’s portfolio has more than doubled in the eight months since he started trading.

“By the time I’m 18, maybe I’ll have enough money to pay to go to university,” he said.

Social media is another tool that puts trading within reach of more young investors. Online communities and platforms like Reddit’s WallStreetBets, Discord, Twitter and even TikTok have exploded with posts from users sharing everything from their latest portfolio recommendations to screenshots of their eye-watering losses. They have made the stock market hard to ignore, especially during particularly volatile periods like last week.

At age 13, Mya Parker is already active on both Twitter and YouTube. In fact, she said she learned almost everything she knows about investing from watching YouTube channels like “Financial Education,” which uploads videos with titles like “The Fed Just Did What! Federal Reserve Go Brrrrrr” and “Are Airline Stocks Cheap to Buy Now!?”

Now, she runs a YouTube channel of her own, where she posts videos detailing her thoughts on her investments in companies like electric vehicle maker


Roku Inc.


Dropbox Inc.

Gavin Mayo, a 19-year-old college student, has made his name on TikTok. He’s shared everything from videos parodying WallStreetBets to short and snappy explainers on gamma squeezes to his more than 230,000 followers on the platform.

Mr. Mayo admits his parents aren’t exactly enthused he spends so much time trading and posting online. To placate them, he tries to stay on top of his grades while maintaining a busy posting schedule.

“I don’t know if they really understand what I’m doing,” Mr. Mayo said of his parents’ views on his day trading adventures. “They’ve kinda just been safe with their 401(k)s.”

Meet the parents

Parents do have some degree of control over their children’s investing. In the U.S., minors need an adult—typically a parent—to open a custodial account for them. The adult retains control of the account until the minor reaches the age of majority. (In most states, that is 18; in some, it is 21.)

But any money in the account legally belongs to the minor. That means parents can’t withdraw money once they have transferred it to the account, unless they use it for the direct benefit of the child.

Share Your Thoughts

If you have a teen trader in your life, how do you educate them about market risks? Join the conversation below.

Gains from investments are also subject to taxes—something financial advisers worry young investors scrambling to make a quick buck may be unaware of. While profits from stock sales and dividends of up to $1,100 are tax exempt in many cases, the next $1,100 is typically taxed at the child’s tax bracket—usually between 10% and 12%. Beyond that, what’s known as the Kiddie Tax kicks in. That means the child’s investment income is taxed at the parents’ marginal tax rate, instead of the lower child’s tax rate.

Even if minors don’t wind up selling their stocks, custodial accounts can cost those who apply for college financial aid.

Custodial accounts count as assets belonging to the child, meaning the bigger portfolios are, the less aid they are eligible for. Some financial planners estimate that financial aid payouts can be reduced by as much as 20% of the funds in a custodial account.

‘You have to be willing to lose it all’

Individual investors’ gains have been huge this year. But the losses have been just as punishing for those caught off guard.

GameStop, for instance, has plunged in a punishing reversal of its late January rally. Investors following the online crowd also racked up big losses last year when oil futures swiftly dropped below zero and highflying stocks like

Hertz Global Holdings Inc.


Eastman Kodak Co.


That hasn’t put off parents from supporting their children’s forays. Some are simply pleased their children have found a new hobby—even if they view their investment style as more akin to gambling than anything else.

“I haven’t seen Connor so excited about anything since the start of the pandemic,” Ms. O’Flanagan said.

And if Connor’s investments don’t pan out? “He’s not going to lose thousands or millions of dollars,” she said.

Jake, the 16-year-old in Brooklyn, has more to lose. He’s more than doubled the value of his portfolio since starting his investment journey. But under the agreement he made with his father, he won’t withdraw any of the money in his account until he turns 25.

“You have to be willing to lose it all,” Jake said.

Michael Wursthorn contributed to this article.

Jake Schlein, left, has more than doubled the value of his portfolio as an investor. Under an agreement with his father Michael Schlein, right, he won’t withdraw any money in his account until he turns 25. ‘You have to be willing to lose it all.’


Amy Lombard for The Wall Street Journal

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