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Gamestop, memes, and market volatility

January 29, 2021/in Behavioral Finance, Investments, Stock Market /by admin
Did you hear #GameStop went viral?
 
It’s been a long (and strange) week so I figured I’d provide a quick guide to the market frenzy you’re seeing in the headlines.
Long update ahead. (Buckle up, it’s a little complicated.)
 
What is GameStop and why does everyone care?
GameStop is a brick-and-mortar video game chain that hit hard times in the pandemic. Like many distressed companies, it was targeted by short sellers betting that the stock’s price would go down.1
 
Basically, short sellers do the opposite of most investors. They try to make money when a stock’s price falls. They borrow shares from their brokerage for a fee, immediately sell them, and plan to buy them back later at a lower price when the price falls. Shorting is a strategy used by certain types of hedge funds.
 
What’s a short squeeze?
Shorting stocks is risky since any positive news or interest in a company can drive the stock’s price up. When short sellers bet wrong and a stock’s price rises, they can be forced to buy shares at higher prices to cover their losses (or pony up more collateral).
 
A squeeze happens when short sellers scramble to buy shares to cover their positions when the stock price is rising. The more investors who buy and hold those shares, the harder it is for short sellers to find shares to buy (exposing them to potentially huge losses).
 
With me so far?
 
Where does Reddit come in?
After it became clear that short sellers were betting on GameStop’s demise, the popular company became the focus of amateur traders on the popular WallStreetBets forum on Reddit, a popular community of chatrooms and forums.
 
By banding together and coordinating buying activity, these small-time traders boosted the stock’s price far above what the company’s financial fundamentals support, putting pressure on the hedge funds betting the other way.2
 
The stock went viral.
 
Why?
 
Social media chatter + free trading apps like Robinhood + bull market + new investors with time on their hands = FRENZY
Is it illegal? That’s a stretch. These armchair traders are egging each other into speculative bets, but I don’t think it rises to the level of illegal market manipulation. However, regulators might feel differently.
 
Is it bad for markets? The battle between gleeful amateurs pushing prices up and hedge funds scrambling to force prices down has led to some of the highest volume trading days on record and cost short sellers billions.3
 
Is this David vs. Goliath?
I don’t think the GameStop bubble is just about greed or boredom or euphoria. I see a powerful narrative at play.
 
I think a lot of these small traders are angry at the perception that All-Powerful Wall Street is pulling strings and using their connections to hurt mom-and-pop investors. They see this as an opportunity to stick it to the big-money pros by using their own strategies against them.
 
It’s new school vs. old school. Rebels vs. the Empire. Bueller vs. Principal Rooney. Reddit vs. CNBC.
 
So, should I be investing in GameStop?
No. GameStop’s stock is massively inflated and trading has been halted multiple times because of its meteoric rise.4 At this point, it looks like folks are piling in just to say they were there.
 
 
When the bubble bursts, it’ll be a rush to sell and many GameStop holders will end up losing most of their investment.
(It might already be happening by the time you read this.)
 
We’ve seen frenzies like this many times before. Tulip mania in the 1630s, the Nifty Fifty in the 1970s, the dot-coms in the 1990s, Bitcoin’s multiple bubbles over the last decade, etc. We’ll see more in the future.
 
Why are people angry at Robinhood?
Amidst the buying frenzy, Robinhood and other popular brokerage platforms suddenly restricted trading on several red-hot stocks, including GameStop.5
 
Protests erupted from investors, many market pros (not the short sellers, obviously), lawmakers and more.
 
Did Robinhood halt trading to appease big investors at the expense of small investors? Did they do it to protect markets from manipulation and liquidity problems?
 
I dislike the idea that a broker can just shut down trading in a security. I think it opens the door to situations where platforms prioritize one investor over another and that’s a massive conflict of interest.
 
I’m frustrated on behalf of everyone else affected by brokerage outages and difficulty trading.
 
But frankly, it’s pretty wild that a bunch of regular folks with small trading accounts can bring massive institutional investors to their knees.
 
What are the implications of this frenzy?
There’s no predicting the future, obviously, but I think a few things are likely. Most bubbles end naturally when the euphoria turns to panic, folks start selling, and the price crashes.
 
However, it’s also possible that regulators will step in if they think there’s risk to markets (or they see too many investors getting hurt).
 
I think this ride’s going to end in tears for many folks caught up in it. But I’m not sure who will be crying hardest.
 
I think markets could see some wild swings and pull back from their frothy highs, but I don’t see major risk yet.
I also think we’ll be left with some pressing questions once the dust settles.
 
Will social media traders continue to drive big market moves?
 
Do platforms have the right to arbitrarily decide customers can’t trade?
 
Are coordinated moves by small investors a danger to markets?
 
Should regulators be watching hedge funds more closely?
 
This is an evolving situation so I’m keeping a close eye on markets to see what might happen next.
 
 
1https://www.morningstar.com/articles/1019249/what-the-heck-is-going-on-with-gamestop
2https://www.marketwatch.com/story/gamestop-stock-has-another-volatile-trading-day-with-more-price-spikes-and-trading-halts-11611686411
3https://www.ft.com/content/56658052-76fe-4910-8cb7-810039753f7c
https://www.reuters.com/article/us-retail-trading-shortbets-idUSKBN29X1SW?taid=6012f37e9ac87d000147d4e3&utm_source=reddit.com
4https://www.cnbc.com/2021/01/28/robinhood-customer-sues-trading-app-over-gamestop-restrictions.html
https://woodsonwm.com/wp-content/uploads/2021/01/GameStop_ClosingPrice-01.jpg 423 601 admin https://woodsonwm.com/wp-content/uploads/2020/07/logow.png admin2021-01-29 21:40:252021-01-29 21:40:25Gamestop, memes, and market volatility

Does Impeachment Impact the Markets? A Quick Historical Look At Past Proceedings

January 18, 2021/in Economy, Election, Stock Market /by admin

On Jan. 13, President Donald Trump was impeached for a second time by the House of Representatives – a first for our nation. Trump was impeached for his part in inciting violence against the United States government.1 This move comes days before Trump is set to leave office, but it still begs the question – does an impeachment of the President of the United States have a direct impact on the stock market? To answer this question, we’ll take a look at past impeachments – starting with Trump’s first impeachment in 2019.

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https://woodsonwm.com/wp-content/uploads/2021/01/impeachment2021feature.jpg 1000 1400 admin https://woodsonwm.com/wp-content/uploads/2020/07/logow.png admin2021-01-18 16:55:042021-01-18 16:55:04Does Impeachment Impact the Markets? A Quick Historical Look At Past Proceedings

Now That We’ve Taken a Deep Breath, Here’s a Reminder About Presidential Elections & the Stock Market

November 9, 2020/in Economy, Election, Stock Market /by admin

 

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This content is developed from sources believed to be providing accurate information, and provided by Twenty Over Ten. It may not be used for the purpose of avoiding any federal tax penalties. Please consult legal or tax professionals for specific information regarding your individual situation. The opinions expressed and material provided are for general information, and should not be considered a solicitation for the purchase or sale of any security.

 

https://woodsonwm.com/wp-content/uploads/2020/07/logow.png 0 0 admin https://woodsonwm.com/wp-content/uploads/2020/07/logow.png admin2020-11-09 21:57:532020-11-09 21:59:01Now That We've Taken a Deep Breath, Here's a Reminder About Presidential Elections & the Stock Market

What’ll happen with the outcome of the election?

October 27, 2020/in Behavioral Finance, Economy, Election, Financial Planning, Stock Market /by admin

Hi, I’m Jamie Lima with Woodson Wealth Management, and I’m here to help you keep cool, calm, and collected in these uncertain times.

I’ve been hearing many questions and concerns from folks about the upcoming elections, especially in light of the President’s previous COVID situation, and the turmoil in Washington.

Trump supporters are worried about a Biden win.

Biden supporters are nervous about a Trump win.

Whichever side of the political divide you sit on, you might be anxious about who is going to win and what it could mean for your money.

 

I get it. Emotions are running high, and the way things are going this year, it seems like anything could happen. I’m not here to make predictions, but I can offer some insight.

So… will it actually be the end of the world if “the other guy” wins? Here are three things to keep in mind.

One: We can expect market volatility because we’re in uncertain times. The good thing is that we can prepare for that volatility and mentally get ready.

Two: Even if the other guy wins, his ability to change regulations really depends on what happens with the House and Senate. If the two branches of government remain split, we probably won’t see major changes any time soon.

Three: While the election is top of mind right now, it’s not the only thing driving markets. We’ve got a pandemic, an economy recovering from a recession, and a society undergoing major shifts. My job is to keep an eye on all of that, so you don’t have to.

I can’t predict who will win or what will happen next. But, I can help you work through scenarios and make plans for an uncertain 2020 and 2021.

If you have questions about how the elections might affect your portfolio or you’d like to talk one-on-one, please use the form below to send me a message. I’ll respond personally.

#bestfinancialadvisorsinsandiego#topfinancialadvisorssandiego#fiduciaryfinancialadvisorsandiego #registeredinvestmentadvisorsandiego #financialplanningsandiego #certifiedfinancialplannersandiego #investmentmanagementsandiego #sandiegofiduciaryadvisor #sandiegofinancialfirms #independentfinancialadvisorfirm #investmentadvisoryfirm #financialplanningfirm #financialadvisorycompany #financialadvisoryfirmsandiego

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https://woodsonwm.com/wp-content/uploads/2020/10/Election-Worries.jpg 630 1200 admin https://woodsonwm.com/wp-content/uploads/2020/07/logow.png admin2020-10-27 16:23:352020-10-27 16:33:24What'll happen with the outcome of the election?

Will the election tank the market? Here’s what you need to know!

October 6, 2020/in Economy, Election, Investments, Stock Market /by admin

Hi, I’m Jamie Lima with Woodson Wealth Management, and I’m here to help you stay level-headed — even in times of chaos.

The 2020 election is coming up fast, and I’ve had worried folks ask me: Will it tank the market?

In this video, I’ll give you three things to keep in mind so you can plan for uncertainty. 2020 has been wild, to say the least. And the upcoming election could be one of the most divisive races we’ve ever seen.

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https://woodsonwm.com/wp-content/uploads/2020/07/logow.png 0 0 admin https://woodsonwm.com/wp-content/uploads/2020/07/logow.png admin2020-10-06 02:14:552020-10-06 02:17:32Will the election tank the market? Here's what you need to know!

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