Cooperman warns that the rise of mom-and-pop investors in the stock market will not last

On Monday, billionaire Leon Cooperman, chairman and chief executive of Omega Advisors warned against the sharp rise of mom-and-pop investors on CNBC. These individual investors are taking advantage of acquiring stocks that have been affected the impact of the coronavirus on the economy. Cooperman warns that things will eventually “end in tears” for these investors.

He reiterated that the Robinhood market will “end in tears.” He said this in reference to a Barron’s article that noted that Robinhood, a free-trading app added more than three million new accounts this year, with over 13 million accounts, with an average user age of 31.

“They are just doing stupid things, and in my opinion, this will end in tears.”

Cooperman also added that due to a shortage of diversions as a result of the Covid-19 lockdowns, the increased unemployment rate has created a conducive environment for new day traders to thrive. This would only wreak havoc in the long run, he warned. Cooperman made reference to the purchase of a bankrupt car-rental company, Hertz Global Holdings Inc. The company’s current state has caused it to be in a state of unfavorable buying-interest.

While critics like Cooperman are certain that this purchasing strategy was sure to fail anytime soon, mom-and-pop investors have outperformed expert investors and mutual funds. In a research report from Goldman Sachs, it is not yet certain how long the outperformance will last and to what degree as individual investors are recklessly making investments without considering the implications.

No matter how long the outperformance lasts, Cooperman is almost certain that it must end in tears. Saying, “let them buy and trade. From my experience, this kind of stuff will end in tears.”

H expressed his displeasure at the fact that amateur investors were replacing gambling and sports betting with day trading at the detriment of the market. In his opinion, there absolutely no way this new practice would last. The major reason is that many of these new investors lack the right knowledge in investing.

“The gambling casinos are closed and the [Federal Reserve] is promising you free money for the next two years, so let them speculate. With reference to the central bank’s balance sheet which has ballooned $7.2 trillion from $4 trillion in March, there could be a possibility of rolling out stimulus measures to limit the damage caused by the pandemic.