Retail investors are flocking back to the stock market, and their investing behavior is savvier than during previous periods such as the meme stock frenzy of 2021.

A resurgence in equities, with the S&P 500 hitting a series of record highs in recent months, has helped draw skittish investors back, and they in turn have helped fuel some of the rally. And this time, they’re paying a lot more attention to company fundamentals and how they trade as opposed to simply buying whatever stock is trending on Reddit as in 2021. 

“Our customer base is not just buying, not just jumping in, but they're actually really focused on what the movements of the stocks have been,” Steph Guild, senior director of investment strategy at Robinhood, said in an interview.

Investors Enticed by Rally Give Stocks Added Boost

Robinhood (HOOD) added 130,000 of what it calls funded customers—those who have at least one Robinhood account with a balance and have completed at least one transaction in the prior 45 days—in February to bring its total to 23.6 million, while assets under custody jumped 16% from January to $118.7 billion.

Charles Schwab (SCHW), which largely serves retail investors, has 35.1 million brokerage accounts as of last month, up from 34 million a year ago. 

Those individual Schwab investors are becoming increasingly optimistic. For the first quarter, a sentiment survey of individuals showed 53% of those polled were bullish. That compares to 32% in the fourth quarter.

“That's a number that we have not seen probably since, I want to say, the end of 2021,” said Joe Mazzola, Schwab's head of trading and education.

And then there’s Wall Street Bets, the Reddit forum at the epicenter of the meme stock craze where the number of page views in February reached 136 million, 40% greater than the previous month as retail traders seek out information to help make informed investing decisions.

It’s precisely the buoyant market that’s driving more people to Wall Street Bets, said Noor Al, a moderator of Wall Street Bets, in an interview earlier this month.

“The old adage is that everyone's a genius in a bull market,” Al said. “That's when people are most excited to get on social media and talk about things.”

And while the level of investor attention is “absolutely exploding,” Al doesn’t see anything ever coming close to what he saw in 2021, when monthly page views skyrocketed to about 1.2 billion from a usual 100 million.

More Measured Than During Meme Stock Craze

The retail investor of today is different from that of three years ago, when they irrationally pumped up Gamestop (GME) and AMC (AMC), prompted in part by chatter on the Reddit Wall Street Bets thread rather than by company fundamentals.

And they’re not just buying.

“If a widely held name falls in value, I see them add a little bit more; if it rises significantly in value, I see them trim, which shows me the learning and the savviness that our customer base has earned over the last decade that we've been around,” Robinhood’s Guild said.

Retail traders are now taking “a measured approach when it comes to their portfolios”, according to Chris Larkin, head of trading and investing at Morgan Stanley’s (MS) E*TRADE, and are not shy to cash out.

“In February as the stock market continued its push into and through record territory, E*TRADE clients looked to profit-taking opportunities with net selling in 8 of the 11 sectors,” Larkin said in an email.

Here’s What Retail Traders Are Investing In

At Schwab, clients are now spending their money on businesses with more solid balance sheets and free cash flow such as Nvidia (NVDA), Amazon (AMZN), Microsoft (MSFT) and Advanced Micro Devices (AMD), according to Mazzola, the head of trading and education at the firm. 

Tesla (TSLA) remains a favorite, even as it has dropped nearly 30% this year. Mazzola said retail investors may be buying the dip in that case. 

Artificial intelligence, healthcare, space travel and electric vehicles are among the segments that are spurring the resurgence in retail investor interest, said Robinhood’s Guild, but overall, the theme is that investors are being cautious and educating themselves.

“Even if you look over decades, all you have to do is buy something similar to The Magnificent Seven, they've had different names for themselves,” Guild said. “That’s no longer the case. Other names are rallying, and it’s not social-media driven.”

They’re also interested in what they know and use. With the average age of the Robinhood investor at 34, if they have kids, that means video game developer Roblox (RBLX). Post-pandemic, that meant cruise lines and airlines, though those have fallen off a bit in interest, Guild said.