GameStop! ….or Stop the Game?
This winter GameStop went from a long-fading, electronic games retailer to the talk of the financial world as it routinely rose or fell 50% or more on a single day. The primary reason for these giant moves had next to nothing to do with the fortunes of GameStop the company but instead GameStop the stock.
The ‘little guy’ investors discovered they were powerful by using internet chatrooms to influence the price of targeted stocks such as GameStop. I’m certainly not one to defend the giant financial institutions that found themselves on the ‘bad side’ of these GameStop trades (for example, if they were shorting the stock and had to scramble out of those positions before their losses worsened). However, I do not think it is healthy for the markets to see these types of giant, short term swings in value of companies by market manipulation rather valuing businesses based on tangible and measurable elements.
The stock market is first and foremost a place for companies to raise capital to fund growth or other monetary needs. It also is a place for investors to try to grow their money by investing in companies whose stock price increases over time through company growth. A sudden stratospheric rise of a fading company’s stock price for no operational reason does not serve the markets well. Some people made a lot of money investing in GameStop the past couple months and others, who invested in the same company just a few weeks later, may have experienced significant losses as GameStop came back to Earth. I think, in a way, all investors lose by this type of irrational market activity.
This is not to say I’m not for the little investor having greater power and control. I am a BIG fan of the average person becoming an investor in the stock market and hopefully reaping its rewards over time while being willing to risk shorter term market gyrations. But these chatroom forums seem more like an internet video game but with real life results. It is reminiscent of the investment clubs from twenty years ago where friends, co-workers and neighbors would form ‘clubs’ to talk about investing and what to buy in the booming stock market. Most everyone won as the markets kept going up….until they didn’t anymore. Then these clubs experienced some eye-opening losses in their accounts and ultimately losses of participants and members.
These groups, whether investment clubs or internet chatrooms, seem to be a by-product of a frothy market where casual observes want to get in on the action. To me, this very well be as good a sign as any that markets are probably over-valued, particularly the stocks at the far end of the ‘growth’ and speculative spectrum.
Experts Were Wrong as the Flu Flew
As Covid-19 and its variants continue to sweep through the world, an odd and apparently related phenomenon has occurred: the cases of the more ‘traditional’ seasonal influenza we see each winter have plummeted. In February, the CDC stated that U.S. cases of influenza compared to 2020 were down over 99%! It is not clear what all is causing this amazing reduction in cases, but masks and social distancing must have a big effect.
In late autumn last year, the experts were very worried about a big ‘second wave’ due to rising Covid cases with the colder weather AND the expected influenza influx creating a perfect storm of medical need. Well, as bad as Covid has been, particularly in certain spots and at certain times, the double-whammy of Covid and influenza has not materialized. Were the experts wrong to worry? No. Were they ultimately wrong in their prediction? Yes. Experts aren’t always right, but they are still worth listening to because the chances of them being wrong are less than those not as experienced or aware.
This is true for investing as well. Many would consider me an expert in the investment world, but I can still be wrong– whether it’s a particular stock, the timing of a purchase or sale, or the market’s short-term direction. These are things that cannot consistently be predicted. That is why I try to qualify my statements and opinions. As an ‘expert’, I’ll likely be right more often (or maybe wrong less often) than the casual investor, but it is not for certain on any particular issue. Chance plays a big role in many shorter-term market circumstances. I factor that into my approach to investing and you should too. Things that can be predicted and controlled are what a professional investor should focus their time and energies upon, on behalf of their clients or themselves.
These elements include questions such as ‘how aggressive or defensive should I be?’ or ‘should I buy or sell in a falling market?’ or ‘how much do I need to save for retirement?’. These areas are where a good financial advisor can likely best be of help. And the answers are not the same for every client – it depends on the client’s mindset for risk, their financial circumstances and their goals. The investment cart should not be put ahead of the goals and objectives horse (that’s my mane point).
Why Is Ethics Such a Problem??
You regularly see and read about it in politics and sports – well known, well-paid people ignoring clear and obvious ethics violations where there is no question what they should do….yet they don’t do it. Politicians often won’t call out another if they feel it will hurt their political aspirations, regardless of the issue. It is why retiring politicians are more outspoken and appear more reasonable and honest – they have less to lose by speaking up.
College sports leaders, with their opaque billions sloshing around, generally look the other way as long as their teams win. Apparently, wealth and power are hard for the human condition to handle.
Of course, there are similarly sad and sometimes almost unbelievable stories of financial advisors doing terrible things, which is particularly shocking to me as a fellow advisor. This goes beyond the all-too regular stories of big financial firms paying big fines because they overcharged clients or steer them in the wrong direction.
Though those stories are bad enough, there are worse, shocking stories of advisors being entirely reckless with client’s money and in some cases simply stealing it. One advisor had a plan to avoid the FBI by getting in a lake and using an oxygen tank and an underwater jet to whisk him away from the authorities. Really.
I believe being a financial advisor is critical job where you must earn and keep the trust of your clients. You can’t control the markets but you can control your actions and decisions. When managing clients’ money, you must respect that you are entrusted with money from years and decades of hard work, plus client goals, hopes and fears of the future.
Brian Weisman, CFA,CPA,CFP,CMA