Women scored higher than men when quizzed on stock market basics.
83% of respondents incorrectly defined short selling.
The average respondent score on our stock market quiz was 49%, a failing grade.
Swathes of new investors have entered the stock market since the pandemic, with first-timers now making up 15% of all retail investors. This is due in part to new apps like Robinhood and Acorn enabling investors to begin with as little as one dollar, while the GameStop phenomenon inspired a frenzy of people to join the investing game. But how much do these newbies know? How much do all investors really know? We spoke to more than 1,000 people who have invested at least once to find out.
Investors were asked to rate their own knowledge, which was then put to the test. After asking people basic questions related to the stock market, we were able to see how all types of investors performed. Average scores were broken down by everything from gender and generation to whether participants invested in crypto. We also found out the answers that investors most frequently got wrong. Keep reading to discover our results.
Top Portfolio Choices
Our study first asked respondents to share what they've invested in. We looked at the top stocks and digital currencies and compared answers by generation. We also asked them to rate their own stock market knowledge before taking the quiz.
GameStop was the most popular stock for our respondents in the last six months. A third of investors had put their money on this company, which is actually seeing another financial rally at the time of writing. The second most popular choice was another "meme stock," BlackBerry, which is also up this past month. Even generationally, GameStop and BlackBerry were among the three most popular investments for baby boomers, Gen Xers, and millennials alike.
Where cryptocurrencies were concerned, Bitcoin was the most popular by far. Seventy percent of digital investors had invested in Bitcoin, compared to only 39% who invested in Litecoin, the next most popular coin. Only a small 3% invested in coins other than the top 11 options listed.
Before taking the exam, most respondents rated their stock market knowledge as average (38.9%) or even above average (31.5%). Only 8.3% were able to admit that their knowledge was below average. As we'll see in the coming research, these responses were falsely optimistic.
Investment Knowledge Scores
Moving onto the quiz, the next section of our study looks at average scores across all respondents, then breaks those scores down by gender, generation, and crypto ownership. We even compared scores with how each person assessed their knowledge beforehand.
Men and women were pretty much neck and neck, although women won the day with an average score of 51.4% in comparison to an average of 50.4% for men. Scores were also not so different among people who said they took the stock market very seriously versus those who were not at all serious about it. In fact, those who took it very seriously actually fared slightly worse than other respondents.
What made the real difference was whether or not a person owned cryptocurrencies. Those who did not performed much better with a score of 63.5% than those who did (44.8%). This could be because cryptocurrencies tend to appeal to younger, and therefore less experienced, investors or because crypto investors are opting out of the traditional stock market altogether and have no interest in gaining stock market knowledge.
A person's opinion on whether or not the stock market was akin to gambling also seemed to affect how well they performed. Those who saw the process as gambling got only 44% of questions right, compared to 73% for those who saw the stock market as true investing –the highest score of any demographic breakdown. Perhaps it's a healthy love and respect for the stock market that improves knowledge most of all.
Common Investment Knowledge Gaps
Our study concludes with a look at the specific questions from the investment quiz that most people got wrong. The most common incorrect answers were also analyzed in terms of how much respondents had claimed to know about the stock market prior to taking the quiz.
In spite of the short sell behind the GameStop frenzy, 83% of people could not properly identify the definition in a multiple choice question. Short selling refers to borrowing a share of a stock and then selling it. If the price does as anticipated, traders can rebuy the stock at a lower price and hold onto the difference. GameStop was one of the most heavily shorted stocks on Wall Street. And speaking of GameStop, most people couldn't identify the correct term for the abbreviation GME. GME is an example of a "ticker symbol," something that 73% of respondents did not know.
More than half of investors couldn't properly explain what the "ask" and the "bid" were, either. For clarification, the "bid" price is the maximum amount that a buyer is willing to pay for a stock. The "ask," on the other hand, is the minimum price that a seller would take for that same stock. Another common knowledge gap was how to correctly define hedge funds, mutual funds, and exchange funds.
Investing in Knowledge
Ultimately, investment knowledge wasn't reserved for the elites or enthusiasts. Even those who claimed excellent understanding missed basic questions, while the vast majority of all investors failed to pass the test at all. That said, not everybody claimed to take the process seriously and may very well still be enjoying the fruits of their investment decisions.
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Methodology and Limitations
This study uses survey data from 1,006 people who have some amount of money in the stock market. Responses were gathered using Amazon Mechanical Turk, where users were presented with a quiz-style survey followed by a variety of other survey questions, including an attention-check question. Of the respondents, 371 identified as women, 634 identified as men, and one individual identified as nonbinary. The survey included 99 baby boomers, 256 Gen Xers, 595 millennials, 34 Gen Zers, and 22 respondents from other generations.
All data reported in the above survey rely on self-report, which can be subject to issues such as exaggeration, telescoping, and recency bias.
Fair Use Statement
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