the original thesis
our vision for the future of financial markets was that increasingly, individual people are going to have profound impacts on markets as people opt to put more and more money into self-directed investments versus managed funds and portfolios.
this thesis was built on three key pillars:
- the power of community and herd mentality in stock trading and picking
- the belief that as a small portfolio, you can be more 'dynamic' when compared to a fund manager with billions under aum
- the widespread information and tools now in the palm of retail investors combined with commission free trading
what actually happened
community power
the power of community still holds true today. however, that same herd lost a lot of money, and learnt a valuable lesson about markets along the way.
concentration risk
portfolio agility matters more than ever, but concentration risk is only getting worse. just look at how much the s&p 500 is being carried by a select few names. there's a growing fear that ai advice and guidance could amplify this risk - imagine if chatgpt told everyone what stocks to buy, and everyone listened. that's the definition of systemic risk.
tools & information
the proliferation of tools and information has only been heightened by ai's ability to help with processing and consumption of market data. yet, this hasn't translated to the widespread adoption we expected.
the demand problem
the problem appears to be on the demand side. the expected uptick and continued growth of self-directed investment hasn't been as drastic as expected. instead, we've seen just a brief moment of people feeling empowered to make their own investment decisions.
what we've witnessed instead is the explosive growth of etfs and managed portfolios, with blackrock's aum growth telling the story. attempts at democratizing trading through social features, like etoro's copy trading, have seen surprisingly weak uptake. even with an abundance of free tools available, people haven't rushed to use them. part of this comes down to trust - why would someone trust a random black box chat bot to tell them where to put their real money when they could rely on established names like JPM or BlackRock?
why self-directed investing struggles
the challenges of self-directed investing are understandable. it requires a constant view on the market, and keeping up with the endless number of trends is exhausting. when you're busy with work and life, maintaining an active investment strategy often falls to the bottom of the priority list.
i do believe that as work begins to take a smaller percentage of people's time, due to global productivity gains in the next 5-7 years, and the amount of free time increases, we might see renewed interest in self-directed investing. seasonality also plays a crucial role - there's a reason the term 'crypto winter' was coined. financial narratives come, explode, and then die.
the wealth planning challenge
the fundamental problem with wealth planning is that no one wants to think about when they're old and grey. the inertia in this space is insanely high, and most people can't actually afford traditional financial advice because they don't have enough wealth - typically needing more than 250K in liquid assets to make it worthwhile. this creates a catch-22 where those who might benefit most from financial guidance are the least likely to have access to it.