As we roll into 2020, fractional share ownership for retail investors is finally a thing. It has taken forever for this feature to be offered.
The Stocktwits ‘Trade App‘ has it. Robinhood is about to launch it. By next year all the brokerages will offer it.
I have been blogging about the move to fractional shares forever, here is a post from back in 2016. The gist:
The one thing we are hiding from the next generation of investors (the millennials) in a shrinking stock market is a way to efficiently buy individual stocks.
An 18 year old person today can have a bank account, a gun (certain states) and on demand movies, cars and food on their smartphone but not the ability to invest $500 in a company they love.
The biggest market capitalization companies do not like to split their stocks anymore (Google at $800, Priceline at $1400, Amazon at $800). I like that. Management knows splitting the stock does not add true long-time value value. Stock splits likely just increase trading, not sticky ownership which is what public companies want.
At the same time, Robinhood is proving that a younger generation wants to invest in single stocks and save. Stocktwits is as well. Our users median age continues to drop as our mobile apps grow in popularity.
My daughter is in college and last year she started buying individual stocks on Robinhood. One of here first buys was Amazon. She bought 1 share of stock for $547 and today it is $837.
She can only sell the 1 share or buy more full shares.
She would love to be able to sell $300 worth of Amazon and diversify into $100 of 3 more stocks so she can start building her own portfolio. It’s not rocket science to build or teach portfolio construction and risk management with the tools we have today.
Of course, if Rachel had $100 million she could go to Goldman Sachs and they would create ANY derivative she wanted to put that money to work. Here is a great story about how Goldman Sachs abused Libya with single stock derivatives. If you are rich and stupid and lazy you get to learn the hard way.
ETF’s are great. The stock market shrinking is NOT great.
We should want a healthy stock market. It should not be a casino just for mood bets and a place where robots buy baskets of stocks.
Now that fractional share investing is here, participation rates in the market should rise.
It will be interesting to see how the feature gets used and if there are any changes to the runaway trend in passive investing flows.