Young people try to be Warren Buffett before investing
A slide of emotions. “Euphoria when things go well for you. When you see how you are being able to identify graphs and trends, it gives you a feeling of having predicted the future and that gives you more of a rush than the very fact of making money. Disappointment when you lost it, when you saw that you have let your emotions drag you down and you have dedicated yourself to betting and not investing with your head ”. Also a certain satisfaction and desire to move forward in the world of investment when realizing that he is learning, although he still has a lot to do. This is how Juan Carrasco, 19, a student of Economics and Finance at the Autonomous University of Madrid, sums up his investment experience in the last two months. It is the time you have been buying and selling cryptocurrencies, one of the most fashionable financial assets.
According to the CoinMarketCap portal, specialized in information on digital currencies, which are already more than 9,000, if at the beginning of 2021 the total value of cryptocurrencies was close to a trillion dollars, at the end of March it already marked historical highs around the 1.8 trillion dollars. In 24 hours, on average, more than 130,000 million dollars are traded in this virtual market.
Jimena González, 22, a student of Mechanical Engineering and Industrial Design at the Polytechnic University of Madrid, was bitten by the investment bug two or three months ago. Around him there were people who did it and he decided to give it a try. After studying a graph of the 10-year American stock market, “I came to the conclusion that not investing was almost more risky than going public. If you don’t put your money to work, it loses value, ”he explains. He opted for the American market: “The number of companies and shares is immense and the commissions for operating are very low,” he adds. And he admits that at the beginning winning was easy, but it also turned out that “losing was even easier”. Hence, while he is dedicated to learning to understand the market and being able to achieve consistent profitability, he has decided to put his savings in technology companies that he believes are the future.
Carrasco and González are just one example of the thousands of people, many of them young, who have ventured to be investors, especially after the outbreak of covid-19. Platforms such as Binance, Kraken, Coinbase, DeGiro, XTb, Plus500, eToro, Interactive Brokers, Bankinter, Renta4 and a long etcetera have seen their number of new clients more than double in recent months, as they acknowledge.
By chance it is another Juan Carrasco who, as manager of the consulting firm Bain & Company, points out that in recent years access to investment has been democratized, “which is no longer something typical only of the highest incomes advised by financial experts” . The general population and especially young people, “the new players in the market”, are clearly betting on increasing their exposure to financial assets due to three factors, he explains. On the one hand, they have more and more knowledge or information at low cost about how financial markets work. On the other, the appearance of new attractive assets such as cryptocurrencies allows them to take greater risks in exchange for the possibility of greater profits. Finally, the mobile firstIn other words, the appearance of easily accessible platforms and applications with few requirements to start operating.
Diego Fernández Elices, general director of investments of A&G, applauds that more people approach the world of investment, more if they are young. He believes that in the future some of them may even become “great professional managers: they are interested, restless, and they will acquire experience little by little.” Over time, he assures, they will contribute and teach the markets things, but, for now, “on many occasions, they tend to make very high-risk investments and end up losing money.” In his opinion, it is an educational challenge to train new generations of clients to understand how the market works. “The reality of trader it is much more complicated than it seems. It’s about seeing profits grow, but also about avoiding losses. In short, to create a repeatable investment process over time while being disciplined ”, he adds.
Dennis Concepción, 26 years old and now a university student of Economics after having developed a business activity – “I had a gym that I closed a year ago when the coronavirus crisis broke out” -, began a few years ago to take positions of Ibex 35 companies a through a well-known Spanish manager. “Little by little I was leaving it, looking for new opportunities, especially in the American market.” He explains that he has designed a medium and long-term portfolio of 10 companies, of which he has analyzed their liquidity, debt, prospects and cash flows. Every month and a half, he assigns them a percentage of that portfolio. He assures that nothing has gone wrong. In 2020, an extraordinary year for many reasons but also in the markets due to the injection of liquidity they received, it obtained a profitability close to 50%. In previous years, “on average, it was 4% or 5%,” he acknowledges.
Not everything is legit
On the internet the amount of information offered is infinite: thousands of explanatory videos, book summaries, blogs, social platforms such as Reddit or Telegram, Twitter groups, youtubers e instagramers. The three young investors admit that they are all tools that help them train, their ultimate goal beyond achieving higher or lower income. Do not forget that your investment assets ranges between 400 euros and 5,000 euros. The problem, explains Carrasco, is that “yes there is a lot of information, but little on how to make the selection of values and little fundamental analysis of quality”. To this must be added, according to González, that although forums often show you experiences and give clues about new companies, others seem like invitations to take positions in which only a few win. It is clear that “it is very easy to be fooled. You have to take a lot of the information they give you with tweezers ”. Concepción acknowledges being in many of these forums “to see” and even “to do the opposite”: in his opinion, values are heated so that people “bite”.
Javier Riaño, product selector for the investment team and data analyst at Diaphanum, believes that young people now have a radically different way of entering the stock markets, but warns them: “If they get carried away, they will incur unknown risks” . The graphical analysis that they often use to take positions, he says, “is nothing more than a consequence, never a cause, of what happens.” Riaño defends the importance of fundamental analysis of companies to “avoid falling into bubbles”, as well as the need for a critical spirit with the information that floods the market.