The 2020 stock market had several distinct phases.
And few were as hotly debated — and ultimately as persistent — as the rise of the retail trader.
Work from Wall Street firms including Goldman Sachs and Deutsche Bank chronicled the surge in new trading accounts opened in the spring and the areas of the market these new investors were playing in. This trend continued through the year.
But at the beginning of 2020, before the pandemic’s retail frenzy erupted, Ramp Capital — one of Finance Twitter’s biggest anonymous accounts — set out to run an experiment: What happens when you put up $10,000 of your own money and ask more than 190,000 followers on Twitter to vote on a stock to buy or sell each week?
The answer in 2020 is that you beat the S&P 500 by more than 1,300 basis points.
“The People’s Portfolio”
Starting January 1, 2020, Ramp Capital ran a weekly poll on Twitter with 4 stocks or ETFs and asked the masses to vote on which one to buy. After week 5, the portfolio known as $WERAMP was full, holding five names each with a 20% portfolio weighting. Ramp Capital came to call this “The People’s Portfolio.”
At the market close on Thursday, the entire $WERAMP portfolio was liquidated and booked a gain of 30.71% in 2020. The benchmark S&P 500 rose 16.6%.
“Definitely lower,” Ramp Capital told Yahoo Finance when asked how they thought the experiment would fare at the outset.
“Every single person I talked to about this said, ‘There is no way this is going to work,’” Ramp Capital said, adding, however, that “everyone told me this would be fun to watch.”
It’s also fun to make money.
After the initial five votes set the portfolio’s holdings, each week for the rest of the year Ramp Capital asked their followers to vote on either keeping the oldest name in the portfolio for another five weeks or adding a new holding from the poll. After five weeks, the portfolio held stakes in Amazon (AMZN), McDonald’s (MCD), Twitter (TWTR), Lockheed Martin (LMT), and Activision Blizzard (ATVI). Only one of these names made it to the end of the year.
Ramp Capital admits the process for putting together the weekly polls was more art than science. They would scour watchlists and track the week’s market conversation on Twitter, trying to find a balance in each poll that would yield an even 25% split between that week’s four choices.
But it was clear over the course of 2020 that Ramp Capital’s followers were converging around a simple market idea.
“It was always sort of this chase for the hottest stock,” Ramp Capital said. “I'd put in an oil stock or a bank stock or a value stock and every time it would get smoked. There'd be polls I would put in three value stocks and they'd just always do poorly.”
Throughout the year, this portfolio included many of the names that defined the 2020 market. Amazon was a portfolio mainstay. Penn National Gaming (PENN) — the parent company of Barstool Sports — was a holding for a short time. Procter & Gamble (PG) made an appearance during the peak of consumers hoarding cleaning supplies. Walmart (WMT) was a holding for several weeks through the spring and summer.
In the final poll of the year run on Christmas Eve, Ramp maintained a position in Lululemon (LULU), leaving the portfolio unchanged for the final two weeks of the year. For those last two weeks, $WERAMP held names familiar to those watching Yahoo Finance, trading their Robinhood accounts, or reading Reddit — Amazon, Lululemon, DraftKings (DKNG), salesforce.com (CRM), and the Roundhill Esports ETF (NERD).
Ramp Capital — a full-time engineer who has invested on the side for over a decade — told Yahoo Finance that they’re really a value investor at heart. Of course, to some extent everyone fancies themselves as such. No one, really, wants to admit that they just chase winners and don’t worry about valuations.
But the wisdom of the crowd certainly has something to teach professionals and amateurs alike. “I truly think [this experiment] made me a better investor,” Ramp Capital told Yahoo Finance. “Or at least it switched my mind on to the possibility that momentum has its place.”
As for what Ramp Capital plans to do with the winnings? Those will go to charity.
2020: Year of the retail trader
The retail investor energy that Ramp unlocked with this experiment also fits into one of the biggest ways that market psychology changed in 2020. In short: the internet made its way to financial markets this year.
The modern retail investor’s mindset is both serious and joking at the same time. It’s a position that argues stocks only go up, that investing is fun, and that people who spend their time posting memes on Twitter and Reddit can do just as well as your friendly neighborhood CFA.
In late February, Bloomberg Businessweek chronicled the rise of r/wallstreetbets, a Reddit forum that brands itself as what happens when 4Chan finds a Bloomberg terminal. As Bloomberg’s Luke Kawa wrote, “The do-it-yourself traders of r/WSB are waging a kind of guerrilla warfare in the markets, trying to exploit what they see as weaknesses in the system to move prices where they want them. For anyone who wondered about where the small day traders who made the 1990s so wild went, meet the 2020 version.”
This dynamic only got more interesting as the COVID-19 pandemic rocked markets through the spring.
Through November, Charles Schwab (SCHW) reported its active brokerage accounts were up 11% over last year excluding the impact of acquisitions. In November 2019, brokerage accounts rose just 6% over the prior year. Including acquisitions made this year, active brokerage accounts at Schwab were up 138% from November 2019.
At Interactive Brokers (IBKR), which courts a more active trader, client accounts at the end of November were up 52% over last year and daily average revenue trades were up 179% from last year. And then of course there is Robinhood, which has become synonymous with the surge in new market participants chasing the latest SPAC or EV stock higher.
Asked whether Ramp Capital thinks this enthusiasm sticks around in the years ahead, there was little hesitation.
“I think it will,” Ramp Capital said. “We're already addicted to our phones. The fact that you can get on your phone and [trade]... I mean, could you imagine having Robinhood on your phone when you were in college? It just blows my mind.”
For the $WERAMP experiment, Ramp Capital worked with Public, which like Robinhood offers commission-free trading and is currently mobile-only.
What could’ve been
And while $WERAMP might’ve trounced the S&P 500 this year, it still lagged the Nasdaq, which was perhaps a better benchmark considering some of the names that were in the portfolio. The tech-heavy index rose some 43.6% in 2020, trouncing the gains seen by the S&P 500 and $WERAMP.
“This portfolio could’ve easily gone up 50%,” Ramp Capital said, noting that obviously everything is clear in hindsight. The success of $WERAMP, then, serves as just another “could’ve been” for investors during a crazy 2020.
And in a portfolio that seemed to zero-in on some of the market’s hottest names, some big winners were missed in polls through the year. Ramp Capital cites Jumia (JMIA), Palantir (PLTR), and the one-cycle ownerships of both Shopify (SHOP) and Penn as examples of ones that got away. And then of course there’s Tesla (TSLA), which was voted on twice but never included in the portfolio. Penn, Jumia, and Tesla each rose more than 700% from the March lows; Penn and Jumia rose more than 1,000% over that timeframe.
The market’s rally from the March 23 lows was the largest and swiftest bounce off a market bottom in history. Data from Bespoke Investment Group published in December showed the first 190 days of this run were the strongest in history. From that December 22 report the S&P 500 gained another 1.8%.
In this kind of environment, perhaps we shouldn’t be so quick to declare the fans of a meme account on Twitter the new wizards of the stock market. And maybe 2021 will provide this group their comeuppance.
Ramp Capital plans to run another version of the $WERAMP portfolio in the new year but the exact rules haven’t been settled on, though the portfolio is likely to grow to seven or ten names, which would elongate the holding period for each member.
“I’m trying to be innovative with [The People’s Portfolio],” Ramp Capital said. “I don’t want it to be or become stale. Which I’m sure after 52 weeks some people are thinking it is.”
And like all volatile markets, this year leaves a lot of folks walking away feeling equal parts genius and bonehead. Anything crazy that could’ve happened seemingly did, and the most durable lesson for investors is that nothing should ever be ruled out.
And so even if a weekly Twitter poll feels tiresome for the voters or the pollster, the modern financial market is unlikely to ever return a boring result over a full year of action.
The rise of passive investing in the last few decades has democratized the ability for the average retirement saver to earn the market return while avoiding big fees. This shifting landscape has proven unpleasant for many professionals in the investment business.
But for the common man, this market revolution has also made trading and investing cheaper, easier, and more fun than ever before. At least for now.