Today, Amy Walls of Thimbleberry Financial sits down with Jon Gay to explain the ubiquitous story of day traders on Reddit and Robin Hood driving the stock of GameStop through the roof, much to the chagrin of Wall Street Hedge Funds.
When investors believe a stock is about to fall, they can bet against it by "shorting" it - they profit when the value falls. But they also lose when the value rises. Tough times for a brick-and-mortar video game retailer had been well documented and Wall Street assumed the stock price would fall. Then the investors on Reddit jumped in, buying up the stock so quickly it shot the share price from $18 to $347, costing hedge funds $5 billion by some estimates.
The Robin Hood app temporarily stopped day traders from buying up the stock, not because of collusion with Wall Street, but to meet their financial obligations as an RIA.
The bottom line - investing in short-term fads or trends is dangerous. Retirement planning should be a slow, long-term cautious approach that won't be affected by momentary market swings.
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