So many people are raging over the GameStop “infinite money glitch”.
In case you’ve been hiding under a rock for the past 12 months, and know nothing about what’s happened to GameStop, you can scroll YouTube for a basic explanation of how short-selling works and what traders and hedge funds have been doing with GameStop’s stock.
I don’t have time to go into it here in full detail.
But… what’s so amusing are the calls for pitchforks on antisocial media.
Everyone was rooting for the Reddit folks and booing the hedge funds.
And booing Robinhood and other brokers for halting trades just when things were getting interesting.
You are seeing a first-ever run on brokerage firms caused by the trading of a “normal” stock.
Reddit users aren’t market manipulators anymore than GME short sellers are. Short sellers are always net buyers of stocks. Buying is the closing out of a short position. So, all these short-sellers will eventually have to go long on their positions.
This is all price discovery.
Albeit in a very unusual way.
So… a lot of folks probably need to take a chill pill and relax.
That doesn’t mean there aren’t some interesting lessons to be learnt, like:
- Stock prices move in almost random and arbitrary ways in the short-term, even when it looks like there’s a “logical” explanation for it — often, there isn’t.
- Short-term movements can trick investors into thinking they understand more than they actually understand.
- Brokerage firms aren’t immune to “bank run” style cash grabs.
- Brokerage firms aren’t obligated to do business with you or execute your trades — THERE IS NO CONTRACTURAL GUARANTEE OF ANYTHING WITH INVESTING, NOT EVEN TRADE EXECUTION.
- Investing in stocks is 100% about sharing in the risk of loss for the possibility of gain; it’s not about a guarantee of future savings.
- Investing firms can and do change the rules when they want, without consulting you first.
- Investing, even when it’s simply buying stocks, isn’t as risk free as the fake news tells you it is.
- Plans can be ruined in an instant without recourse.
Number 4 is especially important because so many people just take that for granted.
They believe they can just hop in and out of stocks whenever they want. They cannot because, technically, they’re using an intermediary and don’t have direct ownership of the stocks they’re buying. They are relying on market makers and exchanges to make everything work for them.
It’s very risky, and people need to learn a thing or two about taking risks they can’t afford.
Maybe this will be a great learning moment.
Speaking of risk, if you want to shift financial risk away from you, and have guarantees about the future value of your savings (and yes, even a contractural guarantee that you will get to have it), then go download my free Monegenix® Labs mobile app to access the free financial courses and trainings.