In this shutdown, the entertainment value of financial investing shines.
On March 23, the S&P 500 plunged almost 34 percent from its February 19 record high, to a record low.
But it has subsequently rallied against the gravity of the situation: a collapse in consumer spending, an anticipated huge fall in the GDP and a record number of unemployment claims. If you only looked at the stock market, you’d have little indication that a global pandemic and Great Depression-like conditions have hit the streets of the United States.
The question is: why?
Some observers attribute the rebound to the federal stimulus and the likelihood of future installments. Others have pointed to the Federal Reserve Bank’s commitment to inject liquidity into the market, buying as much government and corporate debt as necessary—thus supporting the flow of credit.
In March, Federal Reserve Bank of Minneapolis president Neel Kashkari told CBS’ 60 Minutes “There is an infinite amount of cash in the Federal Reserve [and] we will do whatever we need to do.”
There’s also another driver, according to investment banker Matt Levine in Bloomberg News: a boom in individual trading that is propelled by lockdown boredom.
The fun factor
Bloomberg reporter Sarah Ponczek has separately pointed out that giant retail brokerages—E*Trade, TD Ameritrade and Charles Schwab—each saw record signups in Q1, with a significant increase during March.
TD Ameritrade, for example, reported $45 billion in net new assets for Q1, with 58 percent being retail (individual) investors, and said it added more than four hundred thousand accounts in March. Discount brokerage E-Trade recently announced that its daily trading volume for this past April was three times more than the same month, a year ago.
All three brokerages also recently eliminated commissions for buying and selling stocks, which is obviously another factor in the increased activity. But many of the individual investors “are not trading because they have an informational advantage and a reasonable expectation of profit,” Levine contends.
Instead, he said, “they are trading because it is fun, or because it looks fun.”
The coronavirus crisis has “eliminated most forms of fun,” he said, like dining in restaurants, going out dancing or going to the movies. According to this theory, trading stocks through an app like Robinhood—with quick and easy interaction and zero trading commissions—is not unlike the engaged activity of a good mobile game.
Gambling, fun and entertainment
Or like gambling. Ponczek cites DataTrek Research cofounder Nicholas Colas, who says that Google Trends data shows “some of the action [from closed casinos/sports betting] went to stock markets.”
As with the rollercoaster rides of the bitcoin craze and the popularity of financial TV like CNBC, speculative investment has become a kind of entertainment. Like movies or live sports events, this kind of entertainment has its share of dramatic moments, disappointments, plot turns and triumphs.
Of course, fun or entertainment aren’t the motivating factors for big institutional investors, whose decisions drive much of the market.
But, even if the trades of individual investors make up only a small part of the market’s activities, their collective movement can still have a giant effect. It’s possible, for instance, that the boom in new accounts set up at TD Ameritrade and the like may have factored into the decisions by institutional investors.
Creating the conditions for gamification
Consider the game of poker. It requires skill, assessment of risk and some self-control. It also requires luck, a dynamic factor that reflects how the gods of poker play with poker players.
When you do it well, you can win money. Few things are more pleasurable than walking away from a game with more cash in your pocket than when you entered.
These factors—skill, risk assessment, self-control, luck and smart responses to luck—are all key elements in any interactive entertainment, whether poker or a mobile game. Add in the possibility of making money and the relatively quick action enabled by today’s market feeds, and you have the reason why stock market investing is not like its other financial cousins, such as buying insurance.
In fact, the entertainment value of investing is the explicit driver for the popular financial app Robinhood. On its web site, Robinhood describes its goal as making investing “more affordable, more intuitive, and more fun.”
Not mentioned as a goal: helping you make money.
Not your grandfather’s idea of finance
The Internet has transformed stock market investing by slashing commissions and making tools easier and more accessible. Satya Patel, partner at Homebrew Ventures, explains that these tools have given Americans access to previously inaccessible ways to grow wealth:
"Historically, the best ways to create wealth were through real estate and stocks. One of those is much more accessible now than it was even a decade ago. You can research and buy stocks from your phone and you can do that with zero commissions. That's made individual investing more attractive."
The new applications also heighten investing’s intrinsic entertainment value, with appealing interfaces, a variety of fun-to-use options, and tools that allow a player to manage performance, much as a video game player might manage her energy level and powers.
Watchlists, for instance, let investors track the price changes of multiple stocks, and notifications alert them when the opportunity for a new investment move comes up. And new kinds of graphical tools, like Japanese candlesticks, make it easier to quickly see how stocks have performed.
The Acorns and Stash apps allow investing with very small amounts of money. Stockpile similarly offers trades for 99 cents, and adds the ability to give an e-card or physical gift card that is redeemable as stock.
Even though new-wave financial applications like Simple.com (“a bank that doesn’t suck”) or TD Ameritrade’s thinkorswim advanced trading platform don’t push themselves as much toward financial gaming as, say, Robinhood, they do move in that general direction. A fast, easy-to-use, graphically-based and colorful interface, and a limited use of obscure financial jargon, goes a long way toward building a user base among customers, especially younger ones.
What are the limits of gamification?
There are risks, of course, to treating financial investing like a game.
“The casualization of trading makes money more ethereal, like a token in a video game,” senior lecturer in media and communication at Australia’s Swinburne University of Technology Dr. César Albarrán-Torres told Business Insider last year.
“This makes gaming the system not seem like a big deal,” he added, “but rather a playful and inconsequential action,” such as the use by some players of a now-closed “infinite money” glitch in Robinhood.
Some promoters of the idea that gaming and finance belong together include renown design firm Frog Design. In a recent post on his firm’s blog, for instance, Executive Director David Zemanek provides a rundown of gaming principles for fintech—but the emphasis is on applications for savings practices.
Savings—a habitual activity that benefits from methodical additions into a few well-considered pots—is a very different kind of activity than investing, which is ultimately a form of gambling. Zemanek’s suggestions make sense to encourage savings and related financial education, but they have limited application to investing.
Similarly, a 2017 post on the Federal Reserve Bank of Boston’s blog examined “The Gamification Effect.” Interestingly, that game-based approach isn’t posited for investing, but for financial education and savings programs.
The drawbacks to investing as entertainment
Both of these posts advocate a gamification approach that can benefit financial savings or financial education, because those are necessary endeavors for financial security that commonly elicit big yawns.
But the entertainment value of financial investing, even with such shiny new apps, has built-in limits if your goal is to actually, you know, make money.
First of all, very active stock trading may not be the most tax-effective or investment-wise way to see your money grow. And, without active trading, there are only so many things you can do in an investing app.
Second, while gamified apps offer such difficult-to-understand stock trading actions as puts, calls and buying on margin, it’s easy to misuse them.
When you are confused about ways to conserve battery power or acquire new powers in a mobile game, you might lose some points, or maybe a few of your many lives. But when you misunderstand margin buying and your retirement nest egg is suddenly cracked and drained,
you can’t just reboot the app and start over a new life.
Better than a trip to the dentist
Even if the entertainment value of financial investing has its limits, the appeal of fun across fintech is something that all financial and marketing executives should note.
Only a few years ago, financial management by individuals maintained its stature as being one of those many boring things you had to do as a grownup.
Even today, the annual presentation by an employer’s 401(k) manager is often greeted with all the excitement that accompanies a trip to the dentist.
But, now, investors don’t have to file papers or struggle to understand arcane jargon from a broker. Instead, they’re riding a bull or dodging a bear, often in tiny slivers of investments that even low-net worth individuals can enjoy.
This changes the potential appeal of financial products or services of all kinds, and can affect their design, purpose, functions and marketing.
CapitalOne, for instance, has said it is “re-inventing” banking, with branches designed to resemble cafes instead of bank offices. Liberty Insurance has offered a “Best Driver” competition, as a way of providing “something fun, interesting and meaningful,” while other kinds of gamification have become a significant trend in that industry.
An enjoyable approach to financial activity is now becoming common, whether it is more customer-friendly banking or an investing app that borrows from gaming. This overall trend counters the somber approach long championed by many of the gray beards in finance and economics.
"Investing should be more like watching paint dry or watching grass grow,” Nobel prize-winning economist Paul Samuelson once said. “If you want excitement, take $800 and go to Las Vegas."
But he misread the future of finance. Today, you don’t need $800, you don’t need Vegas, and the rewards can be more quickly revealed than in a long-term staring contest with your front lawn.
Sandeep: Tell me a bit about the early part of your career.
Tom: I spent a decade helping to build start-ups focused on application and database software. This was where I learned how to sell and do business development. I was fortunate to be part of one company going public and another being sold to IBM.
Sandeep: What is something you learned during this time that helped you with consulting?
Tom: I began to appreciate how different customers achieved varying levels of success with the same foundational technology. This made me understand just how critical getting your team and process right can be.
Sandeep: This is something I only came to appreciate years into consulting, especially after the sale of my first consultancy to Capital One.I saw teams in different parts of the company trying to solve challenges like real-time messaging. Same corporate culture, same technology, same internal support mechanisms. Night and day outcomes.
Tom: We saw a lot of the same thing after selling our practice to EMC (sold to Dell in 2015). This is probably the thing I'm most proud of when it comes to the teams I've helped to build: the ability to perform well in a variety of contexts, sometimes in ways that inspires the client team to up their game as well.
Sandeep: Yes. It's particularly cool to see your team succeed in individual ways after an acquisition...consulting skills definitely translate into the corporate environment.
Tom: Totally. We have people who've stayed on at Dell and risen up the ranks, while others took the opportunity to become successful executives at other Fortune 100 companies....or to start their own agencies and startups.
Sandeep: We've both been around a while. My first consulting project was a Y2K thing for Cisco back in 1998. You've been around a little longer than that :). How do you think consulting has changed most during the past five years?
Tom: I think because there is so much infrastructure available now, consulting has become more delivery and outcome-oriented. A better blend of strategic and tactical. Public Cloud has also enabled velocity to increase at a pace unfathomable 5 years ago.
Sandeep: What has stayed the same?
Tom: It's still mostly about people. People who thrive on change and are focused on their personal and professional development. I love that this has not and will not change...it's what I love about consulting.
Sandeep: I know you're adjusting your work style to COVID. You're still a dude who clearly prefers to drive an hour for a socially-distanced hike or outdoor meeting over Zoom any day of the week :) But personal styles aside, what is specifically compelling about a remote agency during the era of COVID?
Tom: Kunai has been remote for years, which gives them an inherent advantage. There is something about the communication and management styles that just works in a way that other organizations are still figuring out.
Sandeep: Yeah, I think what a lot of people fail to realize is that remote work isn't just office work over Zoom. it's an entirely new paradigm. There needs to be an understanding for asynchronous efficiency...and this just takes time and effort to develop. How do you approach remote work and family? What are you learning about separating work and personal time?
Tom: No matter what the form of interaction, Focus. Be present. Quality over quantity. The best weeks are the weeks where I proactively schedule work and personal time. Neil (Kunai's Head of Delivery) shared a great quote with me "With discipline comes freedom." When I am proactively addressing the majority of my professional and personal commitments, I find I earn a little flexibility. A little freedom.
Sandeep: Tell us about a business hero of yours that I may not have heard of before.
Tom: Paul O'Neill is someone you may not know. His work in both the public and the private sector created a profound impact
Sandeep: We are both over forty years old :). How have you learned how to work smarter during the past decade or so? What do you wish you knew about consulting when you were 25 that you know now?
Tom: Consultants want to make lasting change. Lasting change is often not the act of a single person. Today I work much harder bringing others along on the journey.
Sandeep: Last question. What are you doing here? :) Why join a small consulting company this late in your career when you could have a cushy job somewhere else?
Tom: I love a good challenge personally and professionally. When I turned 40, I decided I would run a 10K every Thanksgiving weekend and try to have my finishing time be less than my age. With the exception of one year where I did not run due to a health issue, I have met the goal. I also recently completed the Leadville 100 Mountain Bike race. So, I guess I'm here because I'm a glutton for punishment :) Jokes aside, our customers have a job to do and I intend to put Kunai in a position to execute flawlessly on their behalf. I love committing jointly to audacious goals for our customers and our business.
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