When Some Investors Look at Stocks They See Dollars, Not Shares
A new way of stock-market wagering is taking hold among younger investors who prefer to think about how much they can spend instead of how many shares they can afford.
A new way of stock-market wagering is taking hold among younger investors who prefer to think about how much they can spend instead of how many shares they can afford.
Purchasing a piece of Apple or Tesla once meant calculating how many shares you could afford to buy. That no longer matters. Now you can pay whatever you’re willing to spend, even if that amounts to pocket change.
Thinking primarily about dollars instead of shares represents a dramatic shift in the world of personal finance, posing new opportunities and risks for investors. The practice is gaining momentum thanks to the widespread adoption of fractional trading—which allows investors to purchase slivers of traditional shares—as well as an industry push to reduce online trading fees to zero.
These twin developments made it easier and more cost-effective for new investors to wager as little as $1 on stocks. The volatility of the coronavirus pandemic then turbocharged these bets as market leaders like Apple Inc. and Tesla Inc. soared into the hundreds or thousands of dollars. The S&P 500, meanwhile, is up 73% since its intraday low point in March 2020.
The lineup of wealth managers catering to dollar-focused investors is spreading from upstart online brokerages that rely on flashy apps to industry stalwarts that have longstanding bricks-and-mortar offices around the U.S. One of those giants, Fidelity Investments, launched a service early in 2020 called Stocks by the Slice allowing investors to purchase fractional shares for the first time. When Stocks by the Slice launched last February, 75% of the buy trades from investors using the service were in dollars on average. This month Fidelity now says that figure is closer to 85%.
In the future “retail investors will be thinking 100% in dollars, not in shares,” said Scott Ignall, head of Fidelity’s retail brokerage business. “Clients no longer need to use a calculator to figure out how many shares of stock they want to buy.”
Advocates say the dollar-first approach is helping democratise access to the stock market and open the wealth management industry to a new wave of investors. There are also dangers. Some say the strategy could encourage risky speculation that some analysts and academics warn will end with individuals losing money. Thinking in dollars, some worry, will distance new investors from their investments or inhibit their greater understanding of market moves.
“If you give people a smaller sandbox to make mistakes, they’ll still make mistakes,” says Larry Harris, former chief economist for the Securities and Exchange Commission and professor of finance at the University of Southern California’s Marshall School of Business. “But also when you make mistakes, you can learn at a lesser cost.”
The ability to pay micro amounts and hold fractional shares when purchasing stocks isn’t necessarily new. Investors have long paid little for penny stocks and small-cap stocks, while others have been able to amass portions of shares through dividend-reinvestment plans. What is new is the ability to freely trade partial shares during market hours. Brokers like Fidelity and Robinhood Markets Inc. can now execute fractional orders immediately, much as they execute ordinary orders to trade stocks or exchange-traded funds.
“Surely, people had to think in dollars before,” Mr Harris said. “Now, they just don’t feel the constraints.”
That is the case for James Evans, a 29-year-old bar and night club manager in Manchester, England. When the pandemic hit Manchester, he was furloughed with more time on his hands to think about his personal investing strategy.
Mr Evans uses Trading212, a London-based trading app, to “build his own ETF,” as he puts it, with fractional buys. He said thinking in dollars gives him more freedom to diversify his portfolio and establish a stronger position.
“This has given me a lot more time to look at what I’m doing, as opposed to just kind of winging it,” he said. “The pandemic has kind of helped that, just in a weird way.”
Robinhood, which was founded in 2013, is one of the biggest beneficiaries of this shift. Its free app now has 13 million users with a median age of 31. Investors can start investing for as little as $1, but the most commonly-traded amount on Robinhood’s recurring investment feature—which makes investments in dollars—is $10 every week.
Account holders “want to not do the math,” said Madhu Muthukumar, head of product at Robinhood.
Robinhood’s recurring investments option allows users to put a set amount of money toward given investments on a weekly or monthly basis. The company says the feature was in response to users who aren’t day traders but wanted an investment option they could build into their otherwise low-tech financial lives.
Larger rivals are now embracing the same approach. Last June Charles Schwab Corp. launched a fractional-trading program called “Stock Slices” that had nearly 190,000 accounts as of December. Schwab estimates the average Stock Slices user is younger than its average brokerage customer. Their average buy order is $275, according to Schwab, still well below the going stock price of companies like Tesla and Netflix Inc.
“We’re seeing growth across all kinds of clients, but we have seen a lot of growth in our younger user base,” said Fidelity’s Mr. Ignall. “We do think that this new way of investing has definitely contributed to that growth.”
For Mr Evans, the 29-year-old nightclub manager, thinking in dollars as opposed to shares demystifies the process. He employs dollar-cost averaging, a strategy that invests the same amounts of money at regular frequencies over time, to build his portfolio. This strategy makes it easier for novice investors to set up their investments with the amount of money they want to spend—and it is also often the only option available to younger, newer players who don’t have lots of money to invest in the market.
“Especially when you’re dollar cost averaging, it’s a lot harder with whole shares, because if the whole share is quite a lot, you have to make your dollar-cost averaging more spread out,” Mr. Evans said. “If you can’t do fractionals, you have to just buy one share, which could be, you know, $100. Then you have to make sure you time it so that it fits your investing time frame.”
But as Mr Harris points out, all investors should be thinking about dollars in some capacity. Stock prices can go up and down depending on the total value of a company’s equity or the amount of shares left to buy.
Ultimately, Mr Harris said, the best way to purchase stocks is a personal decision for many investors: “Do you feel richer owning the number of shares you own or the dollars you own?”
Consumers are going to gravitate toward applications powered by the buzzy new technology, analyst Michael Wolf predicts
Chris Dixon, a partner who led the charge, says he has a ‘very long-term horizon’
Zara and H&M are adding beauty salons and new digital features to physical locations to renew their appeal
LONDON—Fashion retailers have found a way to make their shops dazzle customers again: make them more like Apple stores.
Brands including H&M and Zara have closed hundreds of stores in recent years to cut costs as more shoppers turn to e-commerce. Now they are investing in those that remain to woo customers in ways they can’t online.
The new-look stores are typically larger and more spacious, offer services such as beauty salons, repair stations and coffee shops, and enable new digital features such as apps that allow shoppers to rummage virtually through the storeroom.
“Now it’s about engaging with consumers and giving them an experience,” said Henrik Nordvall, manager of H&M’s U.K. business.
At the brand’s recently redesigned store on London’s Regent Street, foot traffic matters more than sales figures, Nordvall said. While in-store sales are still strong, many customers spend time there developing an affinity with the brand and then buy clothes online later, he added.
The refurbished store is home to a floor-to-ceiling TV screen that the company says is the biggest in any store in Europe, a beauty bar for customers to book nail or eyelash treatments, and a rental section where shoppers can borrow selected items, especially relatively expensive clothes from H&M’s designer collaborations.
Since the changes, the average duration of a customer visit has increased substantially, said Nordvall, who declined to provide specific numbers.
By turning their stores into destinations that shoppers actively seek out and spend time in—a model that Apple honed with its roomy, landmark stores filled with usable gadgets—the fashion retailers are redefining the clothing store for the digital age.
Retailers once needed a large network of stores “to reach people, but now they have the internet for that,” said Patricia Cifuentes, an analyst at the asset manager Bestinver. “Now stores are about brand image. They’re like tourist destinations.”
Not every retailer is following the approach of the big global fashion brands. Macy’s, for example, is opening smaller stores as a way of bringing its brand to places where customers run their daily errands. The electronics chain Best Buy is closing larger locations and opening small stores instead.
But for global fashion’s heavy hitters the shift toward fewer but better stores is well under way. While the investment could backfire if the stores fail to draw sustained traffic, for now the strategy appears to be working.
Inditex, the parent of Zara, has eliminated a quarter of its stores since 2018 and now has 5,745 locations across its brand stable, which also includes Bershka and Massimo Dutti. Yet the Spanish group’s total revenue from stores increased 8% in 2022 compared with four years earlier, with each store selling 30% more on average, Chief Executive Officer Oscar Garcia Maceiras said on a recent earnings call.
After closing its weaker locations and upgrading the rest, “We have been left with a network of bigger, better and more beautiful stores in the best retail destinations globally,” Garcia said.
Despite operating fewer stores overall, Inditex increased its capital expenditure budget for 2023 by 14% to 1.6 billion euros, equivalent to about $1.7 billion, half of which is earmarked to make improvements to stores.
Much of that money is being spent on the rollout of a new Zara store design—including at new U.S. locations in Baton Rouge, La., and San Antonio—to make the shopping experience more enjoyable.
Essential to the new layouts is making stores feel roomier by having more open space between displays so customers don’t feel crowded. With more open space, stores will increasingly have discrete in-store boutiques to highlight individual collections.
Zara has a team of in-house architects who design its stores, and uses pilot stores at its headquarters in Spain to experiment with new layouts.
Garcia, who regularly visits Zara stores around the world, said in a recent interview that store managers routinely tell him they want to expand because only larger stores are able to accommodate most or all of Zara’s range.
The Zara store in Miami is one beneficiary of the move toward bigger and better: It is doubling in size, according to Garcia, to provide the more spacious experience the company wants to deliver.
Bigger stores are more productive, Zara has found. Though stores are getting larger, sales per square foot is now up 16% relative to 2019, Garcia said.
Zara is cramming its stores with new tech such as automatic return and collection points, as well as self-checkout areas. Customers can use the Zara app to check the contents of the storeroom to see if an item is available in their sizes, for example.
H&M has shrunk its store count 14% from its 2019 peak to 4,375 outlets today. The company doesn’t break down its revenue into physical and online, and says the two parts of the business are complementary.
Increasingly, stores “are a way for our customers to get inspiration,” CEO Helena Helmersson said in a recent interview.
H&M upped its capital spending budget 43% for 2023 to roughly $1 billion, partly to push ahead with store modernisation.
Even before the Covid-19 pandemic, H&M’s leaders recognized it was time to update the physical store to offer a more engaging experience, said Nordvall, the U.K. manager. When the pandemic led to a surge in online sales, the company accelerated its effort to redesign its stores, he said.
The revamp of the Swedish brand’s store on London’s Regent Street was aimed at encouraging customers to spend more time there. It has a secondhand area, Lego sculptures in the children’s section and fitting rooms with a built-in selfie function.
H&M also uses the store to host events for shoppers who sign up for its membership program. In November, it held a party to mark the launch of a collaboration with the fashion house Rabanne.
The Japanese brand Uniqlo is still expanding in Western markets, where its footprint is significantly smaller than H&M and Zara, but it is also opening so-called destination stores.
The chain’s recently opened store in London’s Covent Garden is located in a converted Victorian-era carriage works building, where shop floors loop around a brightly sunlit courtyard beneath a vaulted glass roof. There is a Japanese tea shop upstairs with a rooftop balcony, and a florist downstairs.
Visitors can use a machine to print their own T-shirt designs, have clothes altered or mended at the store’s repair station, and lounge in comfy chairs while browsing coffee-table books.
While online sales are growing, destination stores “have become the driver of European earnings,” as well as places where the brand communicates what it stands for, said Taku Morikawa, the CEO of Uniqlo Europe, during a recent earnings presentation.
Only a memorable in-store experience will make customers trust and admire your brand, he said.
Consumers are going to gravitate toward applications powered by the buzzy new technology, analyst Michael Wolf predicts
Chris Dixon, a partner who led the charge, says he has a ‘very long-term horizon’