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Retail Investors' "Cult"-est Stocks

Tyler Durden's picture




 

Via ConvergEx's Nick Colas,

Even though we are an institutional brokerage firm, we always keep a weather eye on the state of retail investing in the U.S.  There is, of course, the old saw that this batch of buyers doesn’t get involved until the top; therefore, it makes sense to see if they are getting too “Bulled up”.Then there is the fact that retail “Cult” stocks can hold premium valuations far longer than those without such sponsorship.

 

To get a look at retail’s top stocks, we went to Fidelity’s website, which shows to anyone interested what 10 names their retail customers traded most today.  From the top of this list: AAPL (4,500 orders, better to buy), FB (2,200 orders, much better to buy), GPRO (1,400 orders, better to buy) and so forth.

 

 

The rest of the list is in this note, but we also took a look at another vector:  how often does the general public “Google” a particular symbol over time, and who exactly is doing the searching?  That’s where the notion of “Retail interest” in a stock gets, well, interesting. As it turns out, the vast majority of Google searches for “AAPL”, “TSLA”, and “MSFT” come from the cities where these companies are headquartered.  If that’s good or bad we’ll leave it up to you to decide.

Apple’s stock is trading down after hours as I write this note, which likely means that tomorrow’s news will include a healthy dose of “Apple has to buy something!  Some company with a large addressable market!”  OK, they’ve been saying that for a while now, I know…  But at least some market commentators will say the lack of transparency on Apple Watch sales means the Cupertino-based company should enter new markets and jump start that initiative with a meaningful acquisition. Will it be in automobiles?  Or other electronic gadgets?  Social networking?  Over the years Apple’s cash hoard has made it “Potential Buyer #1” in what must be thousands of investment banking pitch books to a slew of companies, public and private.

So what happens when you type “Apple buys…” into Google?  The search engine has an autofill function that tries to finish this phrase, based on what other users have entered before you.  Most of the autofill answers include things like “Beats”, the headphone company, or “Linx”, the maker of camera components.  Both of those are announced transactions, so that makes sense.  After that, Google’s users have a pretty wide arrange of ideas, presented here with no additional comment: Tesla, Android, Samsung, and Spotify. 

The institutional side of Wall Street often looks at retail investors – the type that create such lists – with a combination of a bemused and jaundiced eye.  On the one hand, retail sponsorship of a stock is a powerful factor in creating a “Cult” following and a premium equity valuation.  Steve Jobs, Lee Iacocca, Andy Grove, Lou Gerstner, and Jack Welch are historical examples and you can likely name a few of more recent vintage as well.  And yet for their ability to identify superstar individuals, retail investors have a reputation for getting too optimistic at the top and too cautious at the bottom. 

One exercise I regularly perform is to look at Fidelity’s website, where the online retail brokerage lists daily the top 10 names in terms of buy/sell orders.  If you are a client ($2,500 minimum), you can actually see the top 30 names, but we’ll respect their terms of use and just outline what is visible to the outside world.  Here are the key takeaways from today’s action:

Retail investors still trade a lot of single stocks rather than exchange traded funds.  In Fidelity’s Top 10, there is only one ETF listed: NUGT, a 3X leveraged play on gold miners. Trading was pretty even on this name today, with roughly 600 orders each to buy and sell. 

 

The top 3 names in terms of order flow today were: Apple, Facebook and GoPro. To give you a little sense of history, we did the same analysis three months ago and the top three names were Apple, Netflix and Facebook.  NFLX was the 5th most traded name today, with PayPal slotting in at #4.

 

Every name on Fidelity’s Top 10 list had more “Buy” orders than “Sell” orders today, except one: Microsoft, with just over 200 “Buys” and 700 “Sells”.  The rest of the list after the six already mentioned are: IBM, TSLA, MSFT, and LOCK. The last one isn’t commonly on the list, but today’s drop in price evidently brought in some purchase interest.

 

Last time around – 3 months ago – when we did this exercise the remainder of the list was: Schlumberger, GE, Alibaba, American Express, AT&T, and Bank of America.

So we know what retail investors think Apple should buy, and we can track which individual stocks have their favor – but what about some more information, like who searches for “AAPL” and “NFLX” and “GOOG”?  Where do the individuals who have an interest in public market stocks live?  There is a way to find out – just look at Google Trends, the online tool that allows you to track how many times a search user enters any word or phrase.  Not only will you get a time series of the frequency of the search, but also where the search was done.  Here’s what we found out for a few of the names mentioned above:

"AAPL”.  Over the last 12 months, Google users have been searching less for this symbol.  From a peak last September indexed to 100, the last full week count is just 37.  No, we haven’t done an in-depth regression of what this means to stock prices, so maybe this is just noise.  What isn’t just chatter is the search user location for “AAPL” – virtually all of it comes from Cupertino, Sunnyvale and Santa Clara. In other words, plenty of people have a deep interest in Apple’s stock, and they probably work for the company or its ecosystem. 

 

“NFLX”.  Interest in Netflix stock peaked just last week in terms of Google search trends.  Unlike “AAPL”, the geographic locations of this search are quite diverse, including heavy traffic from San Francisco, New York, San Jose and Seattle.

 

“TSLA”.  Search interest here is stable, according to Google search trend data.  Like Apple’s search concentration near its home office, almost all the search interest comes from Fremont CA, the site of the company’s manufacturing plant, with a few other California cities mixed in: Mountain View, Sunnyvale, and San Francisco.

 

“MSFT”.  Search interest for Microsoft’s symbol is steady over the past year, and interest in “MSFT” is very heavily concentrated in Washington State.  The only city that cracks the top 5 for MSFT searches is San Francisco, but on a scale of 100 (Kirkland, near the Redmond Microsoft HQ), it is a 6.

 

“GOOG” and “GOOGL”.  Taken together, interest in Google’s two symbols is modestly lower over the last year. Geographic interest is quite diverse, with New York taking second place for “GOOG”, ahead of San Francisco in fourth.

If you would like to see how much the search data matches up with your ideas of how popular these names are among retail investors or the market as a whole, just go to Google Trends and enter the relevant symbols.  We didn’t try symbols like “FB” or “GM” because they have other, non-equity market, meanings or online uses.  And – again – there’s no backtest that can prove the data is predictive of future stock price moves.  We use the work exactly as we’ve discussed here – as a piece of the retail investor mosaic.

 

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Wed, 07/22/2015 - 13:43 | 6341952 The Delicate Genius
The Delicate Genius's picture

"See, this is what I'm talking about. Illiteracy? What does that word even mean?"

--Charlie Kelly, "The Gang Gives Frank an Intervention"

Wed, 07/22/2015 - 13:45 | 6341954 El Oregonian
El Oregonian's picture

Whoa, Stock Shock! won't be diffi-cult....

Wed, 07/22/2015 - 13:45 | 6341957 Waylon Bits
Waylon Bits's picture

We see a lot of entertainment and leisure in this list... not much substance or production.

Wed, 07/22/2015 - 14:08 | 6342032 SafelyGraze
SafelyGraze's picture

fidelity's website must be mistaken.

for each buyer there is a corresponding seller, so you have offsetting positions. We have no stake in whether prices rise or decline. Rather we’re running a flat or relatively flat matched book. What is commonly out there is that someone is manipulating the market. It’s not part of our business model. it would be wrong and we don’t do it.

Wed, 07/22/2015 - 15:47 | 6342467 Jus7tme
Jus7tme's picture

The orders are between Fidelity customers and the entire market, hence only a subset of all orders. Such a subset does not need to balance.

Addtionally, there is the question of whether the data contains orders ENTERED or orders EXECUTED. Can anyone answer that question?

Wed, 07/22/2015 - 13:53 | 6341987 KnuckleDragger-X
KnuckleDragger-X's picture

Retail investors really are the new cargo cult, having sacrifices (investing) in hopes the magic will return. It's a sad part of the human condition is that herd mentality that drives so much of this.....

Wed, 07/22/2015 - 13:46 | 6341959 TheRideNeverEnds
TheRideNeverEnds's picture

Well today is a great day to pile on moar Apple stock, it hasn't been this cheap for a week and probably won't be this cheap ever again. As soon as the malicious stock selling subsides it's going straight to the moon.

Wed, 07/22/2015 - 13:57 | 6341995 lasvegaspersona
lasvegaspersona's picture

Apple should relist on the China exchange! If no selling is allowed the stock can't tank.

Wed, 07/22/2015 - 14:11 | 6342005 El Oregonian
El Oregonian's picture

I misunderstood and thought they said ABLE (on the OTCBB) instead of APPL and the fortune was dumped therein. It has since drifted down to .0001 ... Oy veh

Wed, 07/22/2015 - 14:20 | 6342095 The Delicate Genius
The Delicate Genius's picture

s/ I take it - but this afternoon and tomorrow really *are* good times to buy.

ZH's apple-phobia is becoming legend. I begin to wonder if Steve Jobs died owing one of the Tylers $$.

Wed, 07/22/2015 - 14:30 | 6342141 Bitcoin Meiser
Bitcoin Meiser's picture

You are right. AAPL is undervalued and I would buy in a normal situation. But this market is far from normal and it's about to go down and might take Apple down even more with it, despite Apple's good fundamentals.

Wed, 07/22/2015 - 14:03 | 6342017 reTARD
reTARD's picture

When a brokerage firm (and mass sentiment) recommends something to their clients, isn't it best to do the opposite? If anything, not that I'd be buying, one may probably consider MSFT especially as a contraian, if we were in actually functioning markets.

Wed, 07/22/2015 - 14:05 | 6342020 devo
devo's picture

Tech bubble 2.0

Wed, 07/22/2015 - 16:51 | 6342720 venturen
venturen's picture

I believe it is 3.0

Wed, 07/22/2015 - 14:11 | 6342045 Squid Viscous
Squid Viscous's picture

chipotle 50x "earnings" lol

Wed, 07/22/2015 - 14:15 | 6342064 cdude
cdude's picture

Almost 10 percent of all NYSE stocks that traded on
Monday hit new 52 week lows with the
stock indices near their all-time
highs.
This is a dangerous dichotomy!

Wed, 07/22/2015 - 14:35 | 6342162 Squid Viscous
Squid Viscous's picture

sounds very hindenburg, and that has worked so well!

long triple short ETFs and triple hopped ales! 

Wed, 07/22/2015 - 15:05 | 6342306 cdude
cdude's picture

Yes, last HO was June 11th . One of 11 such occurrences since 2010. So, if this one turns out predicting a crash than a HO will have predicted 11 out of 1 crashes.

Wed, 07/22/2015 - 14:39 | 6342186 ZeroPoint
ZeroPoint's picture

Funny, I make must of my money in DXD. I am only happy when it rains.

 

Wed, 07/22/2015 - 14:42 | 6342201 Jaspergers
Jaspergers's picture

NUGT FTW LOL

Wed, 07/22/2015 - 15:46 | 6342465 Prober
Prober's picture

I remember when the list of retail cult stocks included:

ENRON, TYCO, GLOBAL CROSSING, WORLDCOM, etc

and a worthless "investment" drone was trying to persuade me to stuff the proceeds from the sale of all my lifetime entrepreneur equity into these "great investments".

At the time I investigated them, thought they were fictions, and invested my life savings in muni bonds instead.

Sometimes you are the bug,
Sometimes you are the windscreen -

The challenge of life is to exercise judgment that results in NEVER being the bug.

My Rule:
Never believe hype from the people who are trying to sell you the stuff that THEY profit from, whether you win or lose.

Wed, 07/22/2015 - 15:55 | 6342498 Jus7tme
Jus7tme's picture

I will ask some important and obvious questions

1. Are the statistics based on plain order count or order share volume or (implied) order dollar volume?

2. Are the statistics based on orders ENTERED or orders EXCUTED? (why do I asK? Because limit orders often are not   executed)

The meaning of the numbers depends heaviliy on knowing exactly what the numbers represent. Not knowing the answers makes the data much less usable.

Wed, 07/22/2015 - 15:57 | 6342499 Jus7tme
Jus7tme's picture

(deleted duplicate)

Wed, 07/22/2015 - 16:02 | 6342526 cashtoash
cashtoash's picture

and I thought only the HFT guys are meanigful, now you tell me the retail investor counts.  Really??

Wed, 07/22/2015 - 16:53 | 6342727 mpath
Wed, 07/22/2015 - 20:39 | 6343543 Wild Theories
Wild Theories's picture

when people working at a company spends more time watching their share price rather than making a damn product... you know what it means

nice to know AAPL and TSLA employees are the two most self-obssesed ccompanies out there

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