The pandemic has produced multiple side effects. In addition to hate crimes and social unrests, the involvement of younger generations in the stock market has led to the surge of GameStop and other stocks, disrupting Wall Street. Young investors are also an important force behind rising prices for tech stocks. It’s a movement and can be a movement for good. Read more
Traditional market analysis is based on profitability and ignores social and environmental values. For instance, ETSY offers a platform to connect individual designers, artisans, and artists to customers. This does a huge social service to our society by improving quality of life and helping a group that is generally undervalued. Electric cars will make our environment more green. Most electric car makers are not making money yet, but they need capital to research the technology and expand production. How could measures like Earnings per share (EPS), Price to Earnings (P/E), Price to Sales (P/S), or Return on Assets (ROA) capture their true value to society?
A stock may have an “intrinsic” value calculated based on those measures of profitability. Supply and demand can drive price change in the short term. And many other factors, including small pieces of rumor, could instantly make waves. But the price of a stock is really an aggregate of what all investors are willing to pay on average for a piece of the company at a given time. Naturally, we expect valuation changes in different situations. It makes perfect sense that ZOOM is richly valued during the pandemic – it keeps workplaces going and connects socially isolated people, and therefore provides an extremely important service to society. Maybe stock prices have always included some other values (not easily quantifiable) than pure profitability, just like commodity prices in the real market.
If we think what eventually settles, more or less, on a stock’s price reflects a consensus among investors on how much the company should be valued, stock prices may well reflect society’s dominant value system. Then, the participation of young people could make positive change to the stock market by bringing social and environment values into stock pricing – because they do care more about such values. They are also tech savvy and are more willing to invest in risky innovative technologies, where capital is truly needed, and what stocks are supposed to be about. It is all for good.
(I agree with them: what’s the point to invest in Dominion Pizza? Or even the FAANG – they have already grown up. It’s simply boring to buy Chase Bank stocks.)
The future belongs to the young, and they will determine dominant values in the future. The stock market can be a vehicle for them to shape the future and make change. I hope they will be investors not speculators. Even if you like gambling, it cannot go wrong to bet on the future.
The United Nations has been pushing sustainable development for a long time that includes social and environmental measures. But it is hard to internalize these values in action as we are so entrenched in a capitalism mentality that money is everything.
Under this perspective, “overvaluation” of companies that provide innovative products/services, particularly those bringing positive social and environmental values to society, may be justified. We need a new sort of market analysis.