Afford Anything - PSA Thursday Part II: Let the People Trade!

Episode Date: January 28, 2021

This morning, almost every major brokerage halted trading on the most volatile stocks, including GameStop, BlackBerry, Bed Bath & Beyond, Nokia, and AMC Theaters. We're in a situation where major trading platforms are blocking retail investors - us - from placing trades, while allowing hedge funds and institutional investors to drive prices. That is not a free market. When you don't let people buy, and you don't let people sell, you're locking people out of the game entirely. Yesterday, I was worried that grandma and grandpa would make the wrong investment choices and irrationally bet their life savings away. Now, they're prohibited from making any choice. 🤯 We deserve the right to make our own trading decisions. For the latest updates, follow me on Instagram (https://instagram.com/paulapant) Learn more about your ad choices. Visit podcastchoices.com/adchoices

Hey there, we're doing PSA Thursday Part 2 because this is absolutely nuts. Yesterday, Wednesday, when I recorded the PSA Thursday episode, my concern was grandma and grandpa getting in over their head, losing their shirts. I am still concerned about that as I'm recording this on Thursday at 1130 a.m. Eastern time. The market has been open for two hours. In the time since the market has been open, GameStop went from 300 a share all the way up $470 a share and then cratered down to $126 a share. And now, as of the time that I'm recording this, were at like $2.10.

So all of that's happened in the last two hours. There's a ton of volatility going on. It is for that reason that I am worried about individual investors, grandma, grandpa, people who don't know what they're doing, people who have never traded a stock before, betting their life savings on this, betting more than they can afford to lose. That was the main idea of PSA Thursday Part 1, and I stand by it. But there's another element to this story, and it is the ugly fallout, the market manipulation from institutional investors at the expense of individual investors.

This morning, Thursday morning, almost every major brokerage halted trading on the most volatile stocks, including GameStop, Blackberry, Bed Bath and Beyond, Nokia, AMC theaters. We are in a situation where major trading platforms are blocking retail investors, you and me, from placing trades while allowing hedge funds and institutional investors to drive prices. That is not a free market. When you don't let people buy and you don't let people sell, when you literally lock people out of the game. Yesterday I was worried that grandma and grandpa were going to make the wrong choice.

Today, at least in the first two hours of trading on Thursday, grandma and grandpa are prohibited from making a choice. The situation went from weird to, I don't even have a word. If I were writing, this is where I would put in a head exploding emoji. In the last two hours, my second. sentiment has gone from, wow, this is such high trading volume that it broke the system, to, wow, the system is broken. Yesterday, my thinking was, as a voice in the finance space, my job is to educate the public

about not taking outsized risks, about not facing the risk of ruin, about either maintaining the common sense long-term thinking strategy, or if you absolutely must get in the game, do so only with your vacation money, do so only such that the worst case scenario is that you got to miss out on that trip to the lake with your buddies this year. If that's the worst that happens, all right, that's a worst case you can live with. Yesterday, that was where my head was at when it came to investor education and financial education. Today, today watching the platforms block investors from being able to place trades, today it's

shifted to, we deserve the freedom to be stupid. Let the people trade. A couple of things are clear. First of all, this is not your ordinary run-of-the-mill irrational exuberance. Yes, there have been plenty of meme stocks in the past. There's been Hertz. There's been Kodak. and before the internet existed,

there were, at various points throughout history, groups of individual investors who've banded together to try to drive price movements in the market. Believe it or not, that did predate the internet. It's just that the internet has allowed us to do it more effectively, and that's why the story, as of yesterday, was social media versus Wall Street, the sweatpants versus the suits.

That was the story as it came to market manipulation. That was the story as it came to driving prices. and given the high trading volumes and the enthusiasm around that, my message felt very much like the predictable message that you would expect from somebody in the fire community, the fire take on Wall Street bets, which is if you absolutely cannot resist getting in on the action, confine it to only a very, very small portion of your investable cash,

keep the rest of it, keep the overwhelming majority in long-term buy-and-hold. That is, that's the fire take on Wall Street bets. But now, the game has changed. When trading gets halted, people who have holdings and want to sell, want to cash out of their holdings, can't do so. They face unexpected restrictions. And the price fluctuates while they are forced to hold an asset that they may want to sell. And when trading is unhalted, there are platforms that will allow only sales but not purchases.

Literally, the platforms are driving people to dump the stock because that is the only possible option. It isn't that a group of investors, like I said in the PSA Thursday Part 1, I was concerned that some 34-year-old living in his mom's basement would decide to dump the stock so that he could use that money to rent a nice apartment. As it turns out, Robin Hood and other major platforms are forcing a stock dump. by alternately restricting trade altogether, or when they do allow trade,

only allowing sales but not allowing purchases. And if the only available option is to sell, then the platform is forcing people to dump the stock or to hold, one of the two, which means inevitably the stock price is going to drop. But that drop in price is not a result of the actions of a collective group of people on Reddit, that shift in prices is not the result of the actions of individual investors

or even small institutional investors like small pensions. It's the result of platforms restricting trading. And that is something that sets this particular era in history apart from all other meme stocks and all other episodes in history in which individual investors have banded together to try to move prices. Never, never in history has it happened before that platforms would restrict individual investors from placing trades on not just one stock, but on every stock that they have indicated interest in.

GameStop, Nokia, Blackberry, AMC theaters. And to be fair, nobody knows why they're doing this. It may or a lot of people online are saying, hey, this is collusion. They're intentionally protecting the big guys, quite possibly. But it could also be the case that they fear a regulatory crackdown. Maybe this is something their lawyers have advised them to do. I don't know. I would hesitate to ascribe intention to their actions.

What we know is what their actions are. what we do not know is what the intention behind those actions are. And that's something that will come out in later days, in later weeks. We do not know the intention behind the action, but we do know the action. And the action is that people like you and me right now cannot place trades on many stocks. And again, that's where we come down to PSA Thursday Part 1's message was, please don't be stupid. PSA Thursday Part 2 message is

we deserve the freedom to be stupid. I do not advise getting in on this action, but I will defend your right to do it. You deserve the right to be dumb. So that's where we are with this. Obviously, this is a story that morphs every hour as new things come out. So for the latest takes on what's going on

to make some, have some context and make some sense of this madness. I'm obsessed right now with Twitter. Twitter and my Instagram stories. Those are the two most frequently updated places where I'm responding on the hour to everything that's happening. On Twitter, I'm at Afford Anything. And on Instagram, I'm at Paula Pant, P-A-U-L-A-P-A-N-T. Again, that's Twitter at Afford Anything, Instagram at Paula Pant. So my Twitter feed and my Instagram stories are where you will see responses, context, updates, as all of this unfolds.

I'll see you there. And in the meantime, remember, the key takeaway is, please don't be dumb, but also you should be allowed to be dumb if you want to be. Thank you for tuning in. My name is Paula Pant. This is PSA Thursday, which is a special bonus as-needed segment of the Afford- Anything podcast. I'll catch you in the next episode.