Ok so recently, millions of individual investors on an online forum banned together and decided to buy GameStop stock. Why? Because they knew through publicly available data that big hedge funds were shorting the stock. That just means the hedge fund managers were betting that the stock was going to go down. So, all of those investors on the online forum decided to invest in the stock to drive the price up...and it went way up, causing some hedge funds to lose a lot of money. In other words, these investors banned together to stick it to the man...also known as Wall Street.
Most of the investing was done through an app, which I will not name but you probably know which one I am talking about because it’s all over the news. Before all of this the app was positioned as the tool to help the average regular do it yourself investor because it offers free trades and no fees. However, as GameStop stock was soaring, this app, an others, restricted trading on the stock. I bet a lot of you were mad when that happened.
Essentially what we learned from this is that the business model of this app isn’t to help the average regular investor, it’s actually the opposite. As the Wall Street Journal Podcast mentioned, It turns out that some of the biggest clients of the app are hedge funds. Hmm. So, while they don’t charge you to place trades, they make it easy to do so because it’s free. But guess what? They make a lot of money selling their order flow to guess who...large hedge funds. The app is the middle man and the users are the product and if you really think those investors stuck it to the man, they didn’t. Plenty of other hedge funds and institutional funds made a lot of money from this...along with the makers of the app.
Alright, that’s it for this one. For you do it yourselfers out there, not everything is what it seems. You can properly invest for the long term to achieve your goals without having to stick it to anyone. And if one day you decide to stop doing it yourself, a good advisor, a good plan and a proper portfolio designed to meet your needs might just be the way to go.