My Two Cents, Wait Four Cents, Wait $10,000, Wait $7 Thoughts on Gamestop and Robinhood

Blogging, business, lessons learned, retirement, social justice, Teaching and Education, Wall Street Journal 2 Minutes

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… 🙂

Published by Jim Borden

A 60-something guy trying to figure out the world, and his place in it. Happily married for 40-plus years, three wonderful sons. Accounting teacher, fitness enthusiast, blogger, reader.

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57 thoughts on “My Two Cents, Wait Four Cents, Wait $10,000, Wait $7 Thoughts on Gamestop and Robinhood”

  1. I think you’re all wrong about this. The difference between the “experienced” investor crowd and the Reddit crowd is not really experience, but market access. The Reddit crowd got market access, and then figured out how to beat the experienced crowd at their own game. What the Reddit crowd did was pretty much just straight, down the line investing, the story here is not that they were stupid, but that they won.

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      1. that was a good read, thanks for sending it. I agree with most of it; I am also not a fan of hedge funds, and I was not a fan of Robinhood shutting down trading for a while, unless it was out of necessity because of lack of access to shares to purchase. And congrats to those from Reddit who made some money…

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    2. I agree that access to markets has not been equal, but I would also say that there is a significant difference in experience levels between the people who work on Wall Street and the people getting stock advice from Reddit. As I said, congrats to those who made some money on the Gamestop purchase, I just don’t think that style of investing is sustainable. But if the whole incident gets more people interested in the markets and they learn a thing or two about investing, then that is a good outcome.

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      1. The thing is that experience has nothing to do with it. This is the same game that investors play every day. They’ve rigged the game in their favor, but this time they lost, and they’re bad losers.

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      2. I guess we’ll just disagree about the importance of experience; I’d rather take advice from someone who has had 25 years of success working in the financial markets vs someone who just opened up a Robinhood account. Can the newbie beat the experienced one? Of course, but I think it would just be luck, and in the long term, experience would win out.

        And yes, I have no sympathy for the hedge fund people, and it when it comes to losing money, probably a lot of people are bad losers…

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      3. I’m just confused as to what role you see experience playing in this scenario. What exactly do you mean by experience? What, specifically, do the professional traders have that puts them on a different level? You keep saying experience, but that’s kind of vague. Maybe I just don’t understand what you’re trying to say.

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      4. By experience I mean having some familiarity with the world of investing. How options work, having some appreaciation for the history of the markets, knowing that in the long run you can’t beat the market, knowing the tax implications of trading, knowing about the power of the time value of money. As one commenter noted, it doesn’t take a lot to get such experience, but I still think it is helpful to have that familiarity/knowledge…

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      5. I guess that’s a pretty good way of looking at it. A Brilliant example of trying to beat the market would be shorting stocks. Looks like a lot of bigwig investors finally got some experience.

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  2. As you can imagine I don’t pay attention to stocks. But I am laughing for I feel a tad smarter today for earlier Jason and another blogger were talking about this on my blog and now you are. I impressed my son by saying I read about stocks today. 😄

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  3. I agree that before you get into the markets, you’d better know what you’re doing. It amazes me how hard people work for their money, including long hours of overtime, and yet how little time they put into how to invest their hard-earned savings for a future retirement. If they only spent about say, 10 to 20 hours reading books with varying viewpoints on how to invest, they’d be able to make informed choices that will keep all those long hours of work from going to waste.

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    1. well said, Tippy. That’s what bothers me about this situation. People are making investment decisions without really understanding what they are doing. It’s become like a mob mentality. Hopefully, things settle back to “normal”…

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  4. I’m not going to pretend that I have a lot of expertise in this area. We work with a financial planner who we trust, and she has guided the ship well for several decades. She makes more money when we do well, so she has an incentive to manage our money. We’ve generally had a fairly conservative approach, although we had our money working for us in some higher-risk stocks when we were younger. Now that we’re retired and have more of a fixed income, we’re more conservative. It helps that the house is paid off and the kid is through college, living independently.

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  5. I would agree that all investing comes with risk. If being aware of that risk, the Reddit crowd used their combined strength to move the market, then kudos to them. I am sure to those who hold the power, seeing the success of those they consider powerless is a little discomforting. Maybe this is a wake up call to all the old money. But as there are laws and regulations governing the buying and selling of stocks, I will assume this will all work itself out in the wash. Now, let’s get to the real news here! I am most amazed at how you have now incorporated answering student email questions in your blog, in a veiled attempt to drive up your stats!

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    1. well said, Brad. I’m just not sure all of those Reddit individuals knew what they were getting into; it has worked well for them so far, so yes, congrats to them.

      and it was far from a veiled attempt, it was a real attempt 🙂

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  6. I don’t know much, if anything, about Gamestop or Reddit or Robinhood or hedge funds. I’m against market manipulation, period. I’ve always wondered about people’s faith in markets. Markets are just people, and people don’t have perfect knowledge or perfect motivations. But if I was smart, I’d be rich.

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  7. this is not my field of expertise, my connection is that my grandsons and I each invested $25 into Robinhood accounts to watch and follow and try to learn about how markets work without much risk even if we lose it all.

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      3. well, I do teach pre-k economics, only a matter of time before I’m at the uni level. we can earn a penny by doing a job in our room, and sell our school snacks to each other that each cost a penny. they take turns being the store owner/seller or earner/buyer. I’m on my way!

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      4. I guess when it comes to money, everything you need to know, you can learn in pre-k. sounds like some great lessons you are teaching at such a young age! have you noticed any potential Warren Buffetts?

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      5. one year, they each got 3 play dollars, one to save, one to shop with, and one to pay taxes for services in our little class city. (schools, roads, public services, etc.). one girl refused to pay taxes and said I don’t care about those things, I’d rather keep the money. her dad said that fit her personality perfectly.

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  8. I’ve never understood how the markets work, nor have I ever wanted to. I prefer any investment I might make to be safe. For me, the best thing I’ve seen about this whole episode is the tweet from the Robin Hood Experience (Nottingham, Sherwood Forest and all that) welcoming all their new Twitter followers but questioning if that was who they meant to follow 😊

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  10. I do a bit of my own investing but as you discussed, I also do a lot of research and a lot of watching the stocks, markets and outlying events that may influence my investments. I am conservative with my investing as I am by no means an expert. (Definitely did not do the GameStop thing or anything at all like that!). I agree with you that knowledge and experience are important and that is why I go through someone else for most of my investments.

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    1. I guess it’s good to be cautious, but I think for the most part if you do your homework and stay relatively conservative, the markets can provide a nice steady return that starts to add up after a few years.

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  13. I’ve followed this closely as I follow the markets. Heck, I even joined Reddit so I could lurk on wallstreetbets. The market is definitely manipulated in some sectors at the very least. Reddit boys revealed it. Good luck to them, strength in numbers did pay off. My fear is they are dieharding ‘to the moon’. Now, if I were to be so lucky as to turn 8 bucks a share into 479, I’m pretty darnn sure I’ was probably cashing out way before then and leaving a few crumbs in the game. And, you don’t stop investors from pulling out their money as it dips. You can’t change the rules because you’re in over your head. It wouldn’t surprise me to see Robinhood go belly up. Good conversation!

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    1. hubris is a problems on Wall Street, of that there is no doubt. And I have no sympathy when they lose money, just like I have little sympathy for people who lose money because they didn’t do their homework…

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