My first exposure to finance was a high school class on markets where we were required to read Peter Lynch’sOne up on Wall Street. About 25 years later, including many years of studying economics and finance, what we were taught about investing seems crazy to me: that good investing entails picking the right stocks, stocks that will make money.
This is wrong because it leaves out one of the major objectives of finance: managing risk. Yet this is how most people think about investing; we teach it in schools and we see it in our culture. A few weeks ago, we cheered on small day traders who, for a few days, anyway, appeared to get the better of hedge fund short-sellers. And it was a compelling story: In these times of stagnating wages, rising inequality, and seemingly endless rewards for financiers, few things are more satisfying than watching the little guy get a piece of the action. The GameStop saga was heralded as the democratization of finance—which happens to be the stated mission of the Robinhood trading platform. Easily accessible brokerages aim to make stock speculation easy for retail investors and have contributed to popularizing stock trading during the pandemic.
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