Enthusiastic young investors creating new wave

(05 - 12 - 2021) - Over the last two years, the unexpected burst of enthusiasm in the stock market has unnerved most established and experienced investors, who now are beginning to accept this as a new trend. In the unpredictable world of trading, seasoned investors are recognizing the new craze to get rich quick, which is also causing stocks to rise and plunge in uncertain ways.

This new wave of enthusiastic young investors is willing to accept the risks and challenges of the stock market, by forming their own business strategies, going into in-depth analysis, developing business plans in chat rooms, and making tough decisions on betting on stocks, unlike earlier investors who depended on picking up bits of information from across the floor.

Startup generation

Discussions on stocks is not entirely a new concept, as investors in the first wave of stock explosion in 2002 and also during the second wave in 2006 got together for discussing transactions, but then they met on trading floors or forums. The situation is very different now with easy access to social networks like Facebook, Instagram and Zalo that can provide quick connectivity for investors to gather together and share information in seconds, while operating their own businesses, rather than be dependent on forum managers and forum moderators.

This new generation of investors are different in many ways, as they are more knowledgeable and make use of the latest technology that the older generation of investors were unaware of. Khanh (not real name), a fourth-year student of Artificial Intelligence (AI), is now the leader of a Zalo group for investment activities. He said his group conceived of an idea for their program six months ago and it is being tested in the real world now. It is an AI software program that is expected to help Khanh learn valuable lessons to be successful in the stock market. Khanh said that transactions are being experimented with quite good results when connected to the transactions network of stock companies. He said that this AI program is now able to carry out transactions and is also getting smarter and smarter by the day, with more progress showing.

Khanh's two associates are about to graduate with an economics degree, and a degree in teachers training. The three friends now plan to start a new group of young investors. When it comes to creating a startup, people tend to think of it as a company running a wide variety of business activities, but Khanh only wants his startup for investing in stocks. Khanh aims at making money in a simpler way in the stock market, but with the use of technology they can count and calculate figures on the floor immediately. Khanh uses the example of Warren Buffett who initially entered the business world by trading in stocks.

Seasoned and experienced investors are generally more serious about investments in stocks and would see such simple ideas as childish. On the other hand, the stock market today is better known to a much larger group of people than it was a decade or two ago. The younger generation now have better and easier access to practical knowledge on investments and a significantly better ability to do research. Another difference is that earlier stock investors became financially independent after years of hard work and accumulating savings, before they could make investments in any business.

These days, the younger generation are in better economic situations with incomes which are not only enough for their daily lives but also allows them to invest elsewhere for generating profits. In chat groups and forums, it is not hard to find young investors with startups with net asset value (NAV) worth upto hundreds of million of Vietnamese dong. Whether this money comes from parents or other sources, it still makes its way into the stock market in a totally different form than how the earlier investors used their money. It is clear that times have changed and seasoned and experienced investors can no longer look down on junior investors or their views. New investors now have knowledge that can easily overwhelm older investors.

Intellectual competition

Khanh and his two associates are expected to introduce their startup with an initial capital of VND 500 mn. Khanh says he will raise more funds if everything goes right. On the other hand, Khanh is prepared for any event if his startup should fail. He accepts that startups may or may not be successful, in which case he says he will profit by selling his AI program. The current younger generation is well equipped with the latest technology and works with diligence and confidence to tackle challenges wisely, breathing new life into the business environment in Vietnam.

Stock transactions based on algorithms or an AI program are not actually new. International funds and some Vietnamese funds even, have used these before. So Khanh could be described as an apprentice. It is difficult to predict the success of a business at the very start. The effectiveness of algorithms in investments has always been a highly controversial topic, because the learning process has been going on and on due to the uncontrollable variety of market situations, or even social contexts. We can easily take for instance the Covid-19 pandemic that started in 2020, and which caused immense losses to well-known quantitative funds. It is impossible to say that top software engineers were paid hundreds of millions of US dollars for their defective software programs. So simply speaking, there is no algorithm that can perfectly predict all the future possibilities.

All said and done, the overconfidence in knowledge and skills among young investors could also prove to be their undoing and a huge mistake. Knowledge and skills can only partly support and the younger generation of investors still need valuable hands-on experience to retain a hold on the stock market. Knowledge is learnt, but hands-on experience is gained in diverse situations over a period of several years.

NGUYEN HA