There are specific things the poor do differently that beat themselves up financially and make it harder for them to become wise wealthy investors as all should strive to become.
They play the lottery, gamble, use social media too much, believe everything they read, gamble and let Reddit make decisions for them instead of fundamentals on what stocks should realistically be soaring. Gambling is pure day trading, if you havenât figured that out already and can easily sway market activity and lead to immense volatility where everyone is effected. Last week shouldâve strengthened that argument for you.
The thing with day trading is that no matter how much experience you have, there is no certainty that you will earn a hefty profit anytime. Any investor is better off investing in the long term through following broad indexes such as the S&P 500 for several years consistently growing earnings through dividends, not paying attention to intra day ups and downs and investing in companies that go through stock splits and have a profitable future instead of meticulously betting and shorting stocks simply because random Reddit investors are doing so on WallStreetBets.
This is exactly what happened in the past couple of weeks. Whether or not you are interested in finance, you have to know about this story because every reader on here will and has no reason not to take part in the market eventually to grow supplemental income and become financially free!
We all want to find alternative ways to make money. Thatâs part of our nature living in this world. Money doesnât buy happiness per se but it does bring freedom and opportunity to do things that those without money cannot. This includes attending fancy networking brunches for $600 an hour to meet other famous people and up your chances for either making a deal with them in the future, possibly working for or with them, attending another dinner with them meeting more success folks or even living with them one day leading to a possible fulfilling life. Money can buy connections to an extent.
Who knows, but the bottom line is never be afraid of making money the slow long term approached way, which is what all retail investors despise due to their grouchy limited attention spans. No wonder they are dealing with headaches, have no life timing the markets all day every day and barely seeing any return in the interim. Most of us assume day trading meticulously timing the market and betting against the hedge funds will let you to control the market and win. In this unusual case we are mimicking the dot-com bubble of the 2000s when investors were betting on companies that were never profitable and had no foreseen future, leading hedge funds to win and retail investors to loose. In this case, it is the opposite.
Thereâs Always A Cost To Free Things
Iâve never day traded in my life. I have made more not fiddling with my investments for 3 years than my friends who spend every waking hour guessing their next shorts. I couldâve easily picked it up during quarantine since Robinhood is the top grossing and most popular app of this generation and there is no better investment than educating yourself on personal finance, something Robinhood sneakily promotes in the most fake way. But this doesnât count and there are many reasons Robinhood is the worst place to stash your money because you are almost guaranteed to either loose it through your speculative trades, have Robinhood haul trading on your behalf when they run out of money to fund operations and especially when listening to Reddit in the long term.
Am I concerned that this will have a drastic effect on the markets and lead to a bust? For all I know, I donât believe this will last because regulars will eventually need to come into the picture and bored retail investors are already changing their positions in more GDP aggregate based stocks such as Silver this Monday morning that actually have a chance of surviving. As investors say, âhigh valuations alone donât necessarily mean the rally is near its endâŚHistory has shown that markets have often been able to climb far longer than thought possible, be it the dot-com boom in the late 1990s or the dizzying rise in Japanese stocks in the 1980s.â
Why and How Robinhood Lost Itâs Competitive Edge
Robinhood was attractive when it was bootstrapping itself its early startup days fresh out of Silicon Valley back in 2013. It marketed itself and still is a 0% free commission trade platform, but not the only one anymore. No brokerages at the time had that appealing incentive and this was Robinhoodâs time to shine and lure millions of retail investors into getting into the market.
Along with this appealing deal, Robinhood started marketing itself heavily at tech shows to conventions at the right time in late 2019. More often than not, timing matters most. At the start of the pandemic back in March 2020, as we all got locked up in our homes, people wanted to resort to different more adventurous outlets they could get their sticky uneducated fingers on. Because how many books can you really read? So GenZers and Millennials with extra time on their hands, ventured to TikTok and Robinhood while adults seemingly got busier with WFH all day long.
Currently Robinhood has more users than the top brokerages combined and has seen its all time high of new users now at roughly 20 million since the GameStop frenzy last week. But it doesnât seem like it will last long.
Everyone thought it was a great idea to join Robinhood because paying even a small 2% commissions on placing trades can add up quick. Once Robinhood gained immense traction especially amongst the more gullible, uneducated investors-which they took advantage of, other notable brokerages that have been in far longer existence of more than 100 years followed. These included, Charles Swab, Fidelity and Vanguard.
Too High
Yet towards the start of the pandemic when high trading volumes were cast and Robinhood was set to become the leading brokerage, their system crashed several times every few weeks and halted trading as they needed to raise more billions by hedge funds, that of course are on their side. To make matters worse for Robinhood with anticipation for an IPO launch in early 2021, now it is either postponed or never looking to happen as Robinhood is in a liquidity crisis needing to raise billions from hedge funds that are all loosing in this short squeeze gambling match since they betted stocks that looked dumped ended up going up due to the revolt of retail investors stuck on Reddit. Due to allegations Robinhood had with the SEC for selling userâs behavior, there is no prosperous outlook for Robinhood as they see user rates plummet since January 28th when they halted trading because these gamblers were affecting the market so much. In essence, thereâs no reason for you to use Robinhood anymore, unless you want to loose money, deal with halted trading due to Robinhood needing to perform actions in their best interest to not go bankrupt as a firm to serve hedge funds and be a part of the stupid social media Reddit user revolt to control the market.
Short Squeezeeee
Letâs first understand how markets move. Unlike in regular times, markets provide away for capital to flow to parts of the economy that can best put it to use. When you invest in a stock(company), you hope for it to become prosperous, what these retail investors stupidly thought GameStop (purchase physical CDs and disks), AMC (Movie theatre) and BlackBerry (extinct phone due to modern tech) making these stocks rise higher and higher.
Yet this theory has been turned around in the past couple of weeks as this random Reddit group WalStreetBets have been seemingly dazed and confused interested in playing games with hedge funds who made the rational choice betting these laggard, bankrupt prone stocks will tank which they inevitably and realistically should as they are either unprofitable, on the brink of bankruptcy or simply not in demand anymore. But instead these Reddit gamblers have been âdelighted in buying flaky companies so rising prices forced hedge funds to retreat, stock-price jumps have sent the wrong signal for where capital should go.â (WSJ)
Action Frenzy
So why have some unprofitable random stocks and assets been flying high these past few weeks and overall activity up?
Due to an accommodative Federal Reserve with bottom low interest rates and optimism towards steps on the economy and coronavirus vaccine actions, much of this has activated more buying in the markets.
As the WSJ writes, âMany Americans built up their savings during the pandemicâââand stand to gain even more if Congress follows through on another stimulus package. And the prospect of low returns in most other assets has driven investors to buy stocks more aggressivelyâ making no sense into what direction the markets will take next yet for all we know is that more idnivudal investors are trading more than ever before.
Burst?
Should we be concerned about the bubble in the foreseeable future?
Although many argue GameStop, AMC and other highflying unrealistic stocks are taking over the market and replicating actions in the 2000s, these stocks are small compared to the overall market and represent their own bubbles so they donât pose a major threat in teh png term and the entire financial ecosystem. According to analysts at Goldman Sachs, unprofitable stocks only make up about 5% of the overall market, posing little risk. With low interest rates continuing to stay for at least a few more months and earnings on the horizon for blue chip mega cap stocks, the level looks less concerning.
Regulation
After the crash of 1929 and the Great Depression, Congress set up the SEC (Securities and Exchange Commission), same people who have to deal with Robinhood for the stealing and manipulation of userâs data and behavior, to ensure a fair and orderly market. These days calls for more market regulation than ever and although markets have always attracted gamblers, they have never had this big of say in moving the whole market. The rest of publicly traded stocks are on track for their 2021 gains, while these stocks are causing volatility, cautious and annoyance to the rest of us investors who donât want this speculation a part of the market anymore, even if these unprofitable stocks make up only 5% of the overall market.
Toughen Up
One popular idea among left-leaning economists is to put grit in the wheels of the markets, making it harder or more expensive to trade in order to discourage gambling. Economist James Tobin advocated a small transaction tax, something European countries have agreed to in principle but have failed to implement, exactly the opposite of what drew Robinhood retail gamblers into placing trades in the first place.
Some basic financial literacy would be keen to have as well instead of spending all day rebelling against billions dollar hedge funds pretending this is all a game. Hopefully one day the market will move according to profits again instead of social media trends, another way social media is infiltrating our lives, thoughts, relationships and now big money on the line.
Donât Touch Just Leave It
The goal of investing is to make money in a way so you never have to work for your time, time the market or spend every waking hour shorting and longing stocks again. Investing isnât supposed to be a day thing, itâs supposed to be a month to month supplement to your regular job so you have 2+ income streams to live off of incase you loose your main income. Cut yourself some slack and donât work one of the most stressful jobs out there as a day trader while earning minimum wage.
Donât let Robinhood let you steal from the poor (retail investors and gamblers) and gives to the rich( hedge funds). When Robinhood decided to shut down the trading of 13 names on January 28, 2021, it lead to millions of angry investors to lose billions of dollars in total in order for Robinhood not to go bankrupt and the largest hedge funds which includes the owner of Citadel, who owns a large portion of Robinhood to not to get angry. Your interests shouldnât be in helping hedge fund managers build up their $1+ billion payouts. Quit the site and move on.
Investing is easy if you have realistic intentions about goal setting instead of making rich quick money in a day. No one deserves to go through this hell when we are already enduring enough stress with cabin fever. Although we shouldnât be concerned about these unprofitable stocks since they donât make up the bulk of the stock market, it is important to understand that teaming up with Reddit strangers on a free commission platform that provides less benefits than a subscription app for fun is never a smart idea for the long haul.