eToro Charges on Through the Crypto Winter

Well, just when we thought sour sentiment, egged on by more hawkish talk from Federal Reserve officials, would drive the markets to new lows, a funny thing happened last week: buying–and a lot of it. Call it support, call it a trend reversal, or just call it a bearish bounce, but the buyers were back last week and they got busy on some beaten-down sectors, especially tech stocks. All three major averages snapped a three-week losing streak last week. The Dow added 2.66%, while the S&P 500 gained 3.65%, and the Nasdaq Composite–it was up 4.14%. Those big moves tend to happen when the market gets beaten down, which is why we don’t sell after a downturn, if we can help it.

Let’s get to our big three things this week. They say that super-negative investor sentiment is a contrarian sign. If everyone’s negative or pessimistic, that usually leads to a tipping point where sellers get exhausted, all the bad news gets priced into the market, and the bold buyers start buying. Just how bearish is individual retail investor sentiment right now? Well, according to the American Association of Individual Investors (AAII), which runs a sentiment survey every week, the 40-week average for sentiment readings has never been as low as it is right now. Never! Not in 2008, 1999, or not even in 1987. Sentiment stinks. The reverse works as well. Too much optimism is usually a sign that the market is overbought and it may be time to back away. This theory also kind of works inside companies as well. When companies are overly pessimistic and they are public about it, they are probably acting out all their bad news, hoping that investors will appreciate the transparency and decide they can live with the bad news and recommit to owning shares in that company.

Well, our number one thing to watch this week is the tone we’re hearing from public companies. In this most recent earnings season, according to FactSet, 240 companies–nearly half of the S&P 500–have mentioned the word ‘recession‘ in their reports and earnings calls. That’s the highest number in more than a decade, and we have to go all the way back to the Great Financial Crisis to find more mentions of the ‘r’ word in earnings calls. Whether or not we’re in a recession or heading into one, a lot of public companies are acknowledging the downturn and preparing for it by curbing their spending, watching their head counts, and battening the hatches. That’s usually a good thing, as prudence can often pay off. As investors, you want to hear the bad news. You want to know that the companies you’re investing in are ready–come what may. Based on this latest earnings season, which was albeit weaker than past several quarters, most companies know what they might be facing and could come out stronger on the other end.

Number two–and this is a train story. Tens of thousands of U.S. railroad workers could be on strike by the end of this week, which could send new shockwaves through the supply chain here in the U.S., just as we’ve seen some signs of easing. Do you remember when we were in Omaha for the Berkshire Hathaway annual meeting in May, and do you remember our conversation with Dennis Pierce, the president of the Brotherhood for Locomotive Engineers and Trainmen? Well, that union and the Smart Transportation Division, another rail labor union, are both holding out on contract talks between a dozen other unions and the nation’s railroads. The Brotherhood of Locomotive Engineers and Trainmen, and Smart, represent 57,000 engineers and conductors who have bowed out of contract talks and could vote to strike this week.

With freight railroads serving agricultural, industrial, wholesale, retail, and other parts of the U.S. economy, a nationwide shutdown could cost up to $2 billion a day, according to the Association of American Railroads. U.S. Labor Secretary Marty Walsh met with the unions over the weekend to help broker an agreement, but none was to be had. With inflation still ticking in at a 40-year high but showing signs of cooling, a railway strike could be crippling. We’re going to keep our eyes on those tracks.

Meet Lule Demmissie

Lule Demmissie is the Chief Executive Officer (CEO) of eToro, a multi-asset investment platform that empowers people to grow their knowledge and wealth as part of a global community of investors. Lule has been in this role since September 2021.

Lule’s career in finance spans over 25 years. Prior to her current role, Lule was President of Ally Invest, where she led the brokerage and wealth management divisions of the firm. Throughout her career, Lule has served in a variety of high-level positions with firms including TD Ameritrade, Morgan Stanley, Merrill Lynch, and JP Morgan.

Lule earned a B.A. in Economics from Smith College and an M.B.A from Columbia Business School. She holds several financial licenses and designations, including CIMA designation from the Investments & Wealth Institute, as well as Series 7, 66, and 24 securities licenses.

What’s in This Episode?

2020 was the year of the retail trader, as tens of millions of new individual investors and traders swarmed the stock and crypto markets, riding a wave of ridiculous gains spurred on by stimulus checks, the meme stock armies, and social media. But 2022 has been a very different story as a bear market in equities, a brutal crypto winter and the back-to-the-office mandates have quieted the retail crowd. Daily trading volumes and trades per customer are well below their 2020 and 2021 levels, and online brokers are left looking for ways to reengage their customers and attract new ones if they can. EToro has seen a few market cycles. The online broker was founded in 2007 and was among the first of the brokers to encourage the sharing and copying of trades among its members. It launched its U.S. business back in 2018, just in time for the meme stock and crypto crowds, and last year it higher Lule Demmissie from Ally, to be CEO of eToro U.S., and she is our special guest this week on the Express. Welcome.

Lule: “Thank you for having me, Caleb.”

Caleb: “We’re chatting out here in Huntington Beach at the Future Proof Conference. It’s very cool to see you out here, but it’s a great time to have this conversation. I’m wondering how eToro U.S. is handling the crypto winter, and the muted activity among its members. I know you have a pretty active base, but how are you dealing with it and what are you seeing?”

Lule: “Well, it’s great being here with you in this beautiful sunny California. We are seeing what I think is a refreshing change from what I saw. I’ve been in this industry for many years now. When ’08 happened, not only did people go to their bunkers, they left. And that’s not what we’re seeing in this environment. What we’re seeing in this environment is potentially what you would consider to be caution–a bit opportunistic depending on which age group you’re in. Just to give you a little bit of context, eToro is an investing and trading platform that has a social element to it. So the nature of the product itself has attracted a generation of what I consider to be tomorrow’s investors–so older and younger millennials.”

“And so what we see is a different lens than perhaps what you would see in the broader investor base, where people might have gone completely flight-to-quality. Yes, some of our people have gone to flight-to-quality, but we are still seeing them nibble at growth when they see an opportunity to enter. We definitely see them a little bit more cautious and understanding that maybe this isn’t quite a rally yet, but what we are not seeing them do is panic. So we see them logging in on a regular basis. We don’t necessarily seeing them liquidating at large, but rather holding. But again, caution in terms of the environment they’re in.”

Caleb: “I wonder if a lot of that has to do with the fact that there is the sharing and the copying and the ability to see what other people are doing. So if you’re new to the industry, if you’re a new trader or a new investor and you’ve had a rough go of it, in your platform, you can look and say, “what are the successful people doing? Do I want to copy some of those strategies?” Are you seeing a lot of engagement there?”

Lule: “Indeed, our social feed is one of our sort-of creeds, if you will. So when you log onto your app or your website, the first thing you see is your social feed. It’s ingrained in the way that you consume our products. It’s also the way, like, let’s say you did a trade–the first thing we would ask you is if you want to share this. So there’s this element of invitation to the hive mind that happens on our platform. And what happens is people consume from that hive mind and they contribute to it. And we don’t necessarily see a ton of bravado right now, but we see opportunistic behavior. So when they see something happening, they’ll do a trade, share information about it. We’re very cautious to make sure that people don’t think this is advice or, you know, they should be following the herd. But definitely there is a hive mind sort-of element to our platform that our consumers benefit from–not only in the feed, by the way, but also in the data. You get to see what the top trades are, the top activity. So there’s also the footprint of the consumer that you’re seeing, not just the words of the consumer.”

Caleb: “Yeah, that’s fascinating. And we see some of that behavior on Investopedia, too, because people are scared on the one hand, opportunistic on the other, and your platform, like ours, is really rooted in education. So if people can learn, even if they’re losing or have lost a little bit, that’s a pretty valuable skill. You recently acquired Gatsby, the online options firm, to expand the offerings. Given that stock trading is basically free these days, and ETF trading is basically free–you were among the first there as well. Crypto and options are areas where you can make some money and you can engage customers on a different sort of level. Is it too early to tell how that’s going so far, or what brought you to that acquisition? Why did you decide it was time for that?”

Lule: “It was a natural extension of the kind of curiosity consumers on our platform have to consume different kinds of assets. We have digital assets on our platform that you can purchase stocks, ETFs, and it was a natural extension to dabble in options. Now, what was important for us for options is that our ethos at eToro is that the reason why we’ve invited the consumer to come to the table is the simplicity of our offering. And we were looking for something that would, if you will, de-jargonize options. And Gatsby does that most elegantly. And so it was a very natural marriage to bring Gatsby on to our platform, to have that sort-of de-jargonized means of consuming yet another opportunity to engage in capital markets. It’s too early to tell because we are in the midst of finishing the integration and getting it all live. But we are so excited about the potential because when we were looking through the acquisition, it was clear: similar customer base, similar sensibility to simplicity, but opportunity for complex things. So we’re very hopeful about what this will bring to the future of eToro.”

Caleb: “eToro, like us, like Investopedia, very strong in trading and investing education. If you don’t have that foundation, people really kind-of peter out pretty quickly, especially if they’ve suffered some losses. It’s core to your mission at eToro, so what tools are you using to expand and amplify the educational offerings? It’s all there on the site, it’s all there on the app, users can get to it pretty quickly–but how do you sort-of make that the foundation, the thing that everybody knows about?”

Lule: “I think the key, you know, I spent my entire career understanding that education was central, but never quite figuring out how to crack the code to make it the vegetable you wanted to put on the side dish. Right? And I think Investopedia has done a marvelous job of doing that. So the way we’ve done it as a platform for investors and trading, is to ensure that at the premise of it are two things. One, that it is a learning-by-doing mechanism. If you expect people just to learn, read and go away, then that’s not going to happen–they don’t have time in their everyday life. So we embedded that education in what they do: when they trade–engaging with the feed–when they log on–engaging with the feed–when they log in and don’t want to necessarily put capital at risk, but want to do paper trading to create an entire platform that is exactly like our regular platform, and award them $100,000 of virtual money to play with. So you have the ability to learn by doing, which I think is the reason why we’ve cracked the code. Of course, we have our amazing Copy Investor tool that makes it even that much simpler to be able to track people. We’re hoping to bring that up to a broader audience in the U.S., but we have it for our crypto audiences right now. So the way that eToro has innovated its way into education is the learning-by-doing in simplicity.”

Caleb: “You have also the Good Dollar, the platform to help people understand crypto by basically giving them access to crypto. Again,another way to educate and try to bring people into the fold, not just by saying “go ahead and trade, it’s a free for all,” but by actually showing them how it works and giving them access to crypto. How is that platform working? What’s the adoption like and what are you seeing through the data there?”

Lule: “So the Good Dollar is a nonprofit endeavor, and it is another extension of the genius of our founder who understands that the digital asset future has many use cases to solve. In many ways, I think, we are in the digital asset revolution where we were, if you recall, when everybody thought the Dotcom bubble was going to just bust everything to do with the with the Internet and how overrated it was, and–little did we know–it would completely revolutionize our lives. Right? The moment, I think, when an innovation looks like it has no promise is when we get a little too overzealous on the shrinking of that innovation. That’s when we should watch out, because that innovation might just be going back into the dungeon to figure out more things. And so I’m really excited about the digital asset space, and that’s what our founder has discovered.”

“And the Good Dollar is essentially a nonprofit that allows the consumer to engage in a digital asset, to either invest in it for the purpose of either the store of asset of it, as well as if they have a philanthropic endeavor, which is essentially to share some of that profit with the other side of the equation, which is people who actually get the Good Dollars on the other end. So the Good Dollar is a universal income digital asset. And so some of our largest users are Indonesians, Nigerians, and so they actually get Good Dollars out on the other side. And the premise is, as it takes on and catches on, is that those dollars, those universal income means, are a much more effective way of creating capital formation in communities, than donations. Because what happens when you give universal income through digital assets is it has data, it has insight. And those people that engage in the digital asset universe, which means they learn, they become part of the future of what the technology means. So not only are they recipients and users of this very sophisticated technology, but they become evangelizers of what the new technology will do. So I’m really excited about what the Good Dollar is, which is the number one universal income digital asset, but all the other use cases that digital assets have promise to give.”

Caleb: “Yeah. And this sounds like because it’s being picked up by people from outside the U.S. who actually understand the transmission of money and all the friction that goes into the traditional uses of money, it’ll probably get the most traction there, because they get this. This is how they live, and have been living their lives. So it sounds like a great use of crypto and a great use of blockchain technology.”

Lule: “Indeed. I mean, that’s kind of why I came to eToro. Like, when I track my career–I came all the way from traditional finance, which is Morgan Stanley, which was, for the most part, servicing wealthy individuals, let’s get real. Right? And I’ve made my way towards lower-asset investors, and what eToro affords us is not only within the U.S. but globally, how to make that footprint happen.”

Caleb: “I want to get into your career a little bit as well, because you have tracked a very interesting path through this industry from your early days at Morgan Stanley. You were running Ally for a while, and now you’re here at eToro, but you’ve had a really interesting journey. I want to get to how you got onto that journey. What did you study in college? What was your first job? Because there’s not a lot of women in leadership positions, in financial services, and you know that well, And there’s not a lot of women of color or people of color either. You’ve done both, you were both, and you’re sitting at the top of a very impressive platform. Let’s talk about what got you into this industry and what got you to the place where you are today.

Lule: “So my first hope is that that will never happen again and that will be many, many women and people of color that will be in the room, if you will. But it really started with the fact that I came from a family who valued education, but who were immigrants, and like all immigrants, started from scratch. And really, immigration did for us that we were political immigrants and immigration did for us what it does for a lot of immigrants, which is that it uncapw opportunity. And you know that you have nothing else to do but build, because there’s nothing to go back to.”

“And so that sort of upbringing really informed everything about how I saw everything that I had in front of me as an opportunity not to squander–whether it was the curiosity to learn, or the understanding that learning had to lead to some sort of financial success so I can support my extended family. For whatever reasons, there was no direction but to go but towards the ambition of trying to be successful. That really was the genesis of it all. My family believed in education. They believed in curiosity. My dinner table was full of debate and I have three brothers, older brothers, and it’s just vigorous debate all the time. So that love of learning and the going after knowledge and debate was always seeded in me. And so when I came to finance, I was like, “Whoa, this is me. I get it.” It is it’s an explainer of everything in our society that we don’t want to talk about, right? Money is a dirty word, and yet it runs everything about our lives. And decoding what that meant psychologically and opportunistically for people and myself was important to me.”

Caleb: “It’s fascinating, and you have to be able to debate if you’ve got a bunch of brothers or a bunch of sisters, and it’s a table that encourages that. But that path from traditional financial services to eToro, which couldn’t be more different than walking through the old halls of Wall Street. Now you’re really dealing with the retail investor–you’re really dealing with individual investors. And you know them well from your time at TD and your time at Ally, how has the individual investor changed over the last decade or so? Technology’s been a big part of it. You’ve been a big part of bringing that forward, but behaviorally, what have you noticed?”

Lule: “So we’ve done so many studies and tests, but the best example I can give you is actually my own life, which is: I host Thanksgiving and summer at my family holidays. I’m essentially–my parents are all passed–and I’ve taken the guard on to be the gatherer of the family. And I remember when we used to gather and we would talk about sports and movies, which was fun–I loved it–and we would talk politics. And for the last three-to-four gatherings, it’s been about my brother telling me about his particular stock holdings and why he likes this stock or that; my nephew telling me about his debate over Bitcoin. And that shift has been so visible in my own life–and it’s not just in my own micro family–when I go to my wife’s family, all they want to talk to me about is digital assets and investing. So I think what’s happened is, you know, investing has gone into the zeitgeist of our our culture, and more better for it, right? Because at the end of the day, we are as sick as our secrets, and money was a secret in our society. And it was not good that it was a secret. And I think it’s wonderful that now we talk about it, the makings of it, the opportunity around it, the caution around it that we should have, but nonetheless to engage in it.”

Caleb: “Yeah, I agree with you, and it’s a never-ending journey of learning, which is the beautiful part of it. And I get the same thing at my dinner table too, no matter what. People want to know what I think of their holdings or their portfolio or what they should do, and it’s all different. But it’s so good that you’re also experiencing that. I would like to know who your biggest influence was in your career–or is–in your career, especially as you’ve gone from step to step through this path through the financial services.”

Lule: “So a few in my personal life? Of course, my parents, who sacrificed a lot for me and fostered, which I think is more important, I didn’t have inherited wealth, but what I did get is the inherited intellectual curiosity, which is worth its weight in gold. And I didn’t have inherited wealth because they were immigrants. They were starting from scratch, right? They left me a lot of wealth. My grandfather, who is a very knowledgeable and accomplished finance individual, he was very prominent in Ethiopia during the the “old era.” So his inspiration really sort of sits and I really look for him as my north star of, like, what’s possible. If a man in the 1930s can do this, I, in this era, can do this.”

“And then, of course, in my personal life, in my professional life, it’s been every single kind of person I can think of. I’ve had mentors that have nothing to do with my biography, right? One of my favorite mentors I love to talk about is a Caucasian man who lives in Connecticut who loves golf. I don’t really talk about golf. And he and I are spiritual, you know, friends. And he had such an important part to play in my life and in my career. He helped sponsor me at Morgan Stanley. And then I had like a ton of women, you know, my prior boss at Ally was amazing. Unbelievable. She was just like a fierce capital formation woman. And so I feel like, you know, a lot of people have contributed. And so my ethos has been: I’ve stood on a lot of shoulders, and I try to bring people in the room as many people as I can to be the shoulders to stand on now.”

Caleb: “Yeah. There are hundreds of people who have probably worked with you or through you that would probably say you’re one of their greatest influences. Well, Lule, you know, we’re a site that’s built on our financial terms, our definitions–that’s how a lot of people experience us for the first time. You’re a professional in this industry. I’m wondering what your favorite investing term is and why? What’s the one that just speaks to your heart?”

Lule: “Oh, my goodness. It actually has nothing to do with investing. It’s the word that I love to use to deconstruct investing, which is “de-jargonizing.” I love the word de-jargonizing because I actually think that that is what we have to do in investing, is to de-jargonize. But in general, you know, for me, the love of investing has less to do with the jargon of the language as it is what it does in the mechanics of our everyday life.”

Caleb: “Yeah, that’s a brilliant one, and we love it too at Investopedia–even though we have a little bit of jargon, we try to keep it simple. It’s been such a pleasure talking to you. Lule Demmissie, the CEO of eToro, U.S., thanks so much for joining The Express.”

Lule: “Thank you.”

Term of the Week: Drawdown

It’s terminology time. Time for us to get smart with the investing and finance term we need to know this week. And this week, we’re going to let our pal Doug Boneparth take the mic. Doug is the president and founder of Bone Fide Wealth, a registered investment adviser in New Jersey, and he’s also a perennial member of the Investopedia 100–our list of the most influential financial advisors in the United States. Doug is out here in California with me and a couple thousand advisors and members of the financial services industry at Future Proof. And Doug is always quick with the wit and the smarts.

Doug: “The term of the week is drawdown, and it’s my favorite way to describe how a market has fallen from its peak to a new low. Makes me feel a little bit better when telling people that things have gone down.”

Closing Message: Queen Elizabeth

We’re going to let the late Queen Elizabeth take us out this week. For those like me who are not that familiar with the queen or the royal family. We learned a lot following her passing. Her longevity, her steadiness, and her symbolism have been a very important part of the past 70 years. Queen Elizabeth was one of the first public figures to really embrace new technology like television. In fact, back in 1957, she delivered the Royal Christmas address on television for the first time, letting the cameras into her home so she could come inside the homes of her subjects. Here’s Queen Elizabeth on Christmas Day, 1957 with her message:

“Happy Christmas. Twenty-five years ago, my grandfather broadcast the first of these Christmas messages. Today is another landmark because television has made it possible for many of you to see me in your homes on Christmas Day. My own family often gather round to watch television, as they are at this moment. And that is how I imagine you now.”

What a woman. What a queen. Rest in peace. Thanks for joining us this week. And special thanks to Lule Demmissie for climbing aboard the Express. We’ll post the transcript of that interview as well as links to all the reports we cite on the show.