Earlier this week, I had a former student send me an email asking me what I thought about the Gamestop and Robinhood controversies that have been in the news. I’m far from being an expert on the markets, so as you read my response below, take everything I say with a grain of salt In crafting my response, I also realized the power of writing in forcing me to think clearly about where I stood on the issues.
Here’s my response:
I’ve thought about the Gamestop and Robinhood stuff a little bit, and I guess I am not happy with any of it.
I’m not a fan of hedge funds, but at least those individuals have some experience with the markets and know, or should know, the risks they are taking. If they lose big-time on their decision to short some stocks, they should have known that was a possibility, and so I have no sympathy for them when they lose money.
As for the Reddit crowd getting into Gamestop and AMC, my sense is that many of them are not experienced investors, and they view the market as a game, and are enjoying watching the professionals lose lots of money. I expect many of the Reddit people to lose some money as well, hopefully, it would be a valuable lesson at not too much of a cost.
Maybe it’s a generational thing, but I think you should learn a bit about the markets before you put your hard-earned money into it. And to me, learning the markets means learning a bit about the companies you are investing in by looking at their financial statements (as an accountant, I’m probably biased here).
I have not read much about Robinhood restricting trade in certain stocks; generally that does not seem like a good idea to me. But if it was because perhaps there was a lack of shares to transact with, then it may have been necessary.
If Robinhood can become a vehicle enabling people to learn about the markets, and make some money along the way, then that would be a wonderful app.
The Reddit people that made money on Gamestop are more like gamblers than investors, and I don’t think people should treat the financial markets like a casino. It’s a key source of financing for firms, and a key source of saving for retirement for many people. It’s not a game.
So congrats to those who made money on Gamestop; in my opinion you got lucky; it was not skill.
So there are my two cents; we had a brief discussion of this in class today, and there were some students who seemed to know much more about the situation than I do, which was nice to see such interest. Their opinions were a bit mixed but seemed to favor the Reddit crowd..
I heard a great quote on the radio today: there are two types of investors, those who have been humbled and those who will be.
Here’s a nice short blog from someone whose opinion I greatly respect that offers another perspective: https://avc.com/2021/01/the-revenge-of-retail/
If you’re interested in the markets, I highly recommend Fred’s web site.
So there you have it. I’ve mentioned Fred Wilson’s wonderful blog before, and so I’ll repeat my recommendation.
It’s also nice to get double duty out of answering a student email, and then using it as a blog post… 🙂