Today’s episode of the Wiser Wealth Roundtable Podcast centers on the recent investment mania surrounding GameStop. Before jumping in to explain the story to listeners – detailing investment developments, correcting misinformation, and sharing implications – Casey sets the tone well: this story makes him feel like an adult watching the antics of a group of wealthy toddlers!
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Welcome to the Wiser Wealth Management Roundtable, where we believe the best financial advice should always be conflict free! The show is hosted by Casey Smith, President of podcast sponsor Wiser Wealth Management. Two of his colleagues, Brad Lyons and Matthews Barnett, serve as co-hosts for today’s episode, which centers on the recent investment frenzy surrounding GameStop. Before jumping in to explain the story to listeners – detailing investment developments, correcting misinformation, and sharing implications – Casey sets the tone well: this story makes him feel like an adult watching the antics of a group of wealthy toddlers!
To get the ball rolling, Casey, Brad and Matthews define relevant terms for listeners: hedge funds, short selling, and short squeeze. In the case of GameStop, a group of individual investors came together on a Reddit message board called wallstreetbets (WSB) and noticed that GameStop stock (GME) was shorted 140% by large investment companies, most notably Melvin Capital, who saw GameStop approaching its demise. But WSB investors banded together under the leadership of Keith Gill and bought Gamestop stock in order to cause a short squeeze. The effort was successful, and GameStop stock prices shot upward. Hedge funds lost a lot of capital, and investors became rich. The tactics demonstrate a lack of risk management, though, and if GameStop’s new investors persist for too long as stocks normalize, they stand to lose a lot of money, themselves.
In order to help listeners understand some ramifications of these events, Casey and his co-hosts explain how ETFs work and how the GameStop situation has influenced the GAMR and XRT ETFs. Additionally, they detail ways in which Robinhood, the National Securities Clearing Corporation and TD Ameritrade have navigated the sudden upset by limited GME trading and working to restore trust-capital equilibrium between partnered firms. The aftermath of the short squeeze, which was created without any consideration of trading fundamentals, has been and will continue to be fraught. Casey, Brad and Matthews leave listeners with closing advice to avoid any such behavior and stick to the tried-and-true: focus on the long term, keep costs low and diversify their portfolios.
Learn more about Brad Lyons.
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To access the Buyer Beware white paper Casey explained and see why annuities are a dangerous choice being pushed by bad actors in the industry, go to wiserinvestor.com, scroll to the bottom, and subscribe to receive email resources.