The Retail Hive Mind
Retail investors are often portrayed as emotionally driven and unsophisticated, somewhat affectionately labeled “dumb money” by Wall Street and academia. But in recent years, retail trading has become something more complex and more vulnerable. Empowered by zero-commission platforms and fueled by social media, retail investors now operate as a loosely connected “hive mind”, able to move markets in coordinated bursts.
This decentralized crowd trades with speed but not stability, and while their behavior appears irrational, it is also disturbingly predictable. The 2025 US–world tariff war brought that vulnerability into focus. As President Trump toggled between threats and walk-backs, the average retail investor reacted in real time, often selling into volatility while some quietly positioned ahead of the news cycle. This was not behavioral error; it was behavioral engineering.
Tariff Bait-and-Switch
Donald Trump’s reelection on November 6, 2024, sparked a rally in US equities. The S&P 500 rose significantly by his inauguration, on top of a 2-year AI-driven bull run, despite campaign promises of sweeping new tariffs. The rise was especially sharp among companies seen as close to the incoming administration: industrials, defense contractors, and certain energy firms.
The contradiction was clear: the MAGA president’s policy signals should have made markets nervous, yet prices climbed. Retail investors, optimistic and overexposed, fueled much of the early momentum. But when tariff threats began materializing in February those same stocks fumbled. And as some select individuals rotated quietly or hedged ahead of the policy shocks, it was retail traders who bore the brunt of the drawdowns.
From Biases to Blueprints
Behavioral finance has several theories to explain this. Retail investors tend to sell winners too early (the disposition effect), overtrade, and chase attention, especially in names highlighted by news or social media. This behavior is not random, but clusters around volatile stocks, creates predictable order-flow imbalances, and leads to sharper price moves. The rise of algorithmic feeds and social trading has turned retail behavior into something almost mechanical: a fast-reacting but fragile hive mind. And now, those behavioral patterns are no longer just curiosities, they are inputs. They can be modeled, anticipated, and exploited.
Evidence of Rigging
During politically sensitive events like the 2025 tariff conflict, well-connected billionaires hedged, rotated, or stepped back entirely. Retail investors, driven more by sentiment than strategy, absorbed the downside. The imbalance may not have been accidental. In a leaked Oval Office video, a visibly pleased President Trump is seen praising the market impact of his tariff pause, boasting that several allies had positioned “beautifully” ahead of the announcement. According to the footage, Charles Schwab (investment professional, Charles Schwab Corporation) reportedly netted $2.5 billion during the rebound, while Roger Penske (several ties to NASCAR) made $900 million.
The leak not only revealed the potential foreknowledge of the 90-day delay, but it also underscored how policy signaling and timing were deeply entangled with trading advantage. It would be remiss to claim that retail investors were completely in the dark about this, as President Trump posted “THIS IS A GREAT TIME TO BUY!!!!” on Truth Social just hours before the tariff break, however, given the President’s track record with social media posts, it is not surprising that not everybody could decode this equally well.
Why the Crowd Keeps Cheering
How is it that, despite clear signals and matter-of-fact statements, President Trump can still catch the market off guard? How is it that US adults, on both sides of the aisle, are broadly skeptical of tariffs, yet protectionism was a cornerstone of his campaign? And why is there no public outcry when politically connected billionaires increase their net worth by hundreds of millions or even billions in a single afternoon?
I do not pretend to have definitive answers, but the pattern is too consistent to ignore. What follows are a few possibilities worth considering.
First, tribalism replaces reason with loyalty. Tribalism is deeply engraved in the human psyche. We, as humans, like to belong. It is a fluid concept, that can be as atomistic as belonging to our families or to a broader political group at the macro level. However, belonging now seems to mean full commitment without ever questioning our tribe’s actions or motives. Post election, the American tribe agrees that “a Republican president is (at least) good for the economy,” so the US economy rallies, no matter what that president actually promises.
Second, echo chambers reward confirmation over truth. Despite the potential for open debate and discussion, we are ever more likely to get stuck in echo chambers. Paradoxically, the vast openness of the world wide web makes it possible to find like-minded individuals, no matter how fringe our own ideas are. Since we prefer to have confirmation instead of confrontation, it is no surprise that people gravitate towards feedback loops, instead of engaging in constructive debate.
Third, reform is theater. We have seen it all before, and nothing has changed. Three of the last four US presidents were Democrats, yet billionaire wealth kept rising, and lawmakers continued to trade the very stocks they were supposed to regulate. The STOCK Act of 2012, which was meant to bring transparency, now looks like a joke: a $200 fine for missing a 45-day reporting window. It is theater, not enforcement. Some observers suggest the current administration is simply more transparent about practices that have long existed across parties. From that perspective, even Senator Elizabeth Warren’s request for an SEC review may come across as largely symbolic.
Finally, post-truth makes outrage pointless. When everyone’s opinion is equally valid on any topic, when any serious inquiry can be shaken off by labeling it a witch-hunt, people’s senses are dulled to the truth. When literally everything and its exact opposite is (made to look) equally likely, reactions are muted. It is also hard to take a president seriously as he posts “… TIME TO BUY” when he could have also tweeted “Covfefe.”
Endgame: The House Always Wins
It appears that everything is in place to widen the socioeconomic gap. With only a phone, one can enter a high-stakes, uneven game of investing, and a select group just got a serious handicap to outplay retail investors even more. At the same time, many are even happy while being ripped off, provided their team appears to be winning.
Barkó Tamás
Quoniam Asset Management, MNB Intézet
This post should not be used or interpreted as investment advice. The opinions presented here are my own, and do not necessarily reflect those of my employer.
Borítókép: unsplash.com
The post Everything Wrong with Retail Investors and Why It Is Not Just Psychology appeared first on Economania blog.