The dramatic social media-inspired volatility of GameStop, AMC Entertainment and silver has been mesmerizing and disturbing. Yet in many respects the speculative frenzy was another signpost in the long-term evolution of the financial markets.
Communication and information technology advances have long transformed the financial markets. European merchant bankers used carrier pigeon networks in the 18th century to get an edge. The telegraph, the ticker, and the telephone in the 19th century allowed stock trading to become a national business dominated by Wall Street. Financiers poured trillions into proprietary quicksilver communications networks in recent decades.
Online day trading also became a phenomenon during the dot.com boom. More people than ever tried buying individual stocks.
Of course, the dot.com boom went bust. Since then, individual investors have increasingly gained access to sophisticated market information, while trading costs fell further with the advent of zero-commission trading platforms like Robinhood.
That said, my guess is with more reporting and studies we will learn that plenty of professional investors and Wall Street trading desks profited nicely from the social media-driven campaign that boosted GameStop and other companies at the expense of several hedge funds. Financiers will devote more talent and money toward figuring out how to make money off the buying power of the crowd in coming years.
Another insight drawn from historical experience is trying to beat the market is a loser's game. The history of speculative fevers and the madness of the crowd is that these episodes end badly. If you are inclined to try your hand, the money should come from your entertainment budget — money you can easily afford to lose.
For those investing in the markets for retirement, children's college education and other long-term goals, it's far better to heed the advice of John Bogle, the late founder of Vanguard and index fund pioneer. "Don't look for the needle in the haystack," he said. "Just buy the haystack."
Broad-based equity and bond index funds with their razor-thin fees in a well-diversified portfolio remains a savvy way for individuals to invest for the long haul. Nobel laureate William Sharpe told me years ago that indexing is "a dull, boring way to be a better investor than many of your friends." He was right back then and now.
Chris Farrell is senior economics contributor for "Marketplace" and Minnesota Public Radio.