In her most recent book, former Secretary of State Madeleine Albright quotes Mussolini: “If you pluck a chicken one feather at a time,” he said, “no one will notice.”

Don’t worry—I‘m not veering into political commentary. But when I heard this quote, it brought to mind what we’ve been seeing in financial markets this year. Taken individually, there’s nothing that strikes me as a clear red flag. But taken together, the current environment looks a little bit like a chicken that— all of a sudden—seems to have lost a whole lot of feathers.

Worry #1 – Market concentration. There are thousands of public companies listed on U.S. exchanges. But recently, the largest stocks, by market value, have grown disproportionately larger. Today, just five stocks—Microsoft, Apple, Amazon, Alphabet (parent of Google) and Facebook—account for more than 20% of the total value of the S&P 500. That percentage has doubled over the past five years and is at its highest point in 20 years—higher, in fact, than it was at the top of the market in 2000.

Why does this concern me? Isn’t that concentration just a reflection of those companies’ success? Yes and no. Yes, these companies’ earnings have increased dramatically. But as a group, their valuations have increased as well. That means that investors are willing to pay more for each dollar of earnings. In other words, they have become more popular. And with apologies for sounding like a stick in the mud, popularity is not healthy for investment markets. That’s what leads to bubbles.

Even if these stocks weren’t becoming more popular—that is, even if their earnings fully justified their prices—there is still a risk in this growing concentration. That’s because more of the market’s fate now rests in fewer companies’ hands. And the fact that these companies are all, more or less, in the same industry, only magnifies that risk.

While these stocks have been going up, everyone has benefited, but if one or more of them should hit a speed bump, it will be felt by everyone, like a gorilla jumping in the kiddie pool.

Worry #2 – Market speculation. Above, I noted the growing popularity of a small group of stocks. The reality is that stock markets, practically since their inception, have walked a fine line between investing and gambling. Three hundred years ago there was the South Sea bubble, and there have been many more since.

Both investors and brokers play their part in this. Let’s look first at the brokers. Since industry deregulation in the 1970s, brokers have gotten more creative with their advertising to draw in new investors. Recall, for example, eTrade’s talking baby or dancing monkey commercials. But over the past year, the brokerage industry has taken things to a new level.

You may have heard of an online trading platform called Robinhood. With an altruistic name, its website states, “We’re on a mission to democratize finance for all.” And on the surface, that’s what they’re doing. To open a Robinhood account, there are no minimums, and trades are commission-free. They also pioneered the concept of fractional shares, so an investor with as little as $1 can invest in the stock market.

In theory, Robinhood is a good thing, and that’s what I thought at first. But Robinhood seems to be appealing more to speculators, or even gamblers, than to investors. As one observer put it, Robinhood’s website makes investing “feel more like playing Donkey Kong than risking hard-earned money.” It’s a good description. When I visited their website, I was offered a free share of stock as an enticement. “When you sign up, a surprise stock appears in your account.” The prospective stocks were presented in the form of animated playing cards, with my odds of receiving each listed alongside it. And after a user completes a trade, confetti covers the screen. It feels like a cross between a video game and a casino.

It’s not just the Donkey Kong aspect of Robinhood that’s troubling. In and of itself, there’s nothing wrong with an engaging user interface. The problem is that there’s evidence this is leading to unhealthy behavior—not just among their own customers, but industry-wide.

You may have seen the news last fall that all of the big online brokers dropped their stock trade commissions to zero. While they didn’t acknowledge it, I believe this was driven by competitive pressure from Robinhood, which has grown rapidly and now has more than 10 million customers.

Again, on the surface, these trends may all appear to be consumer-friendly. Aren’t lower prices better for everyone? Usually, that’s the case. But when it comes to stock trading, research has repeatedly shown that frequent trading leads to worse investment results. And unfortunately, there’s evidence that the move to zero commissions has driven stock trading volumes through the roof. Recent data reveals that online brokers have seen trading volumes double over the past year.

What’s worse, the investment choices Robinhood users are making are, in many cases, downright scary. Among the top 20 exchange-traded funds (ETFs) owned by Robinhood users, according to a recent review, seven are leveraged. What is a leveraged ETF? It’s something so risky that last year Vanguard banned them from their trading platform. And yet this is a big part of what Robinhood users are buying.

And while this is an isolated case, one 20-year-old Robinhood user tragically took his own life after misreading his balance and believing that he had incurred a $730,000 debt. How could this have happened? It turns out that he was trading a complex stock option strategy. In cases like this, an investor’s balance can appear negative until the entire trade has completed. This isn’t unique to Robinhood, but it is symptomatic of a broader trend. Young people are being drawn in without sufficient education. In the note that he left for his family, this young man wrote, “How was a 20-year-old with no income able to get assigned almost a million dollars’ worth of leverage? I had no clue what I was doing.”

Who’s to blame for all this? I have singled out Robinhood, and I do believe they are responsible for stoking some amount of speculative behavior. But it takes two to tango, and investors play their part—especially high profile personalities. One in particular is a blogger named David Portnoy. The founder of a site called Barstool Sports, Portnoy explains that, “when COVID-19 caused sports to be postponed indefinitely a few months ago, I turned from sports gambling to day trading…”

On Twitter, Portnoy has 1.6 million followers. His posts and his videos are almost impossible to describe, so I will include a few quotes to illustrate:

• “This is free money every day…Stocks only go up. They only go up.” (7/2/20)
• “I just bought ZOM because somebody told me he’s from the University of Michigan, and that’s where I went to school…So I put two hundred grand into ZOM…Don’t know what it does.” (6/26/20)
• “I’m sure Warren Buffett is a great guy but when it comes to stocks he’s washed up. I’m the captain now.” (6/9/20)

This might be amusing—and again, you might call me a stick in the mud—but Portnoy’s videos often have several hundred thousand views. Can I draw a straight line between these videos and anyone else’s risky stock market behavior? Of course not. But I do see it as a data point to bear in mind.

Conclusion

What should you make of all this? Is this a warning sign about the stock market? As I’ve noted before, investing requires a healthy balance between optimism and pessimism. And I’ve cited reasons why you should be optimistic. So please view this only as evidence to weigh on the other side of the scale. But in this kind of environment, I feel that it’s even more important to stick to time-tested investment principles that, in my opinion, provide the best chance for long-term success:

• Diversify—both among asset classes and within asset classes. As noted above, the S&P 500 may not be enough.
• Avoid big bets on individual stocks, especially “popular” stocks.
• Limit trading.
• Seek out reliable, evidence-based resources. For investors at all levels, for example, I always recommend University of California professor Terrance Odean’s video series. It’s as good a personal finance curriculum as any.

If you follow that prescription, I doubt you’ll have as much fun as David Portnoy, but I do believe it’s the right path.