America’s Investing Identity Crisis

What compelled hundreds of thousands of people around the world to invest in the initial public offering of Elon Musk’s SpaceX this summer? It certainly wasn’t the company’s financial metrics. Despite the success of its core rocket business, the company is burning through a prodigious amount of money. Yet SpaceX still managed to pull off a record-breaking IPO, transforming Musk into the world’s first trillionaire.Although an outlier, the SpaceX IPO is not unique. It is merely an extreme manifestation of two remarkable trends that have become increasingly hard to ignore in financial markets: ordinary investors are a huge and growing force, and their feelings can often trump fundamentals. This is becoming apparent around the world, but nowhere more so than in the U.S., where ordinary people have embraced speculation both as a way to get rich and as a reflection of their own beliefs with perhaps greater zeal than anyone else on the planet. The first point is easy to quantify. Ordinary retail investors now account for over 20% of U.S. stock market activity, according to estimates by Jefferies, an investment bank. That is roughly twice the level of a decade ago and means that they now a...