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The "Tar & Feather" Asset Class Thumbnail

The "Tar & Feather" Asset Class

By now you've likely heard the news that stocks in some unlikely companies - primarily GameStop and AMC - have suddenly soared. The New York Times recently covered how amateur investors are "Beating Wall Street at Its Own Game" with shares of GameStop skyrocketing 1,700 percent by end of day Monday, Jan. 25, before retreating strongly, then soaring again through the end of the week. 

Much of this activity appears to be tied to social media users on Reddit.com, specifically the forum r/wallstreetbets. Other stocks, like Blackberry and Express, have been affected by this dynamic in recent days as well.

Talking with friends who got in early on the action or seeing social media shares about amateur investors doubling their money can leave anyone wondering if they are missing out.

Should you be paying more attention, or reallocating your investments in response? 

While this current drama may take some time to play out, we encourage you not to let your finances get caught up in the excitement. At the end of the day, when levels of risk-taking are this high, the players are more likely to get hurt and lose money than not.

While we've found the ongoing details of this headline news to be of high entertainment value, the situation behind these headlines, called a "short squeeze", is nothing new. Consider the drama occurring back in 1901, during the famous short squeeze for control of the Northern Pacific Railroad

Today's action is special given the cast of characters. Instead of one big market player versus another, there are many individual users mobilized as one. Coordinating together, these small players are taking positions against what they view as the entrenched interests of Wall Street. This view - of the haves versus have nots - seemed to be supported when certain trading in these positions was halted, raising accusations of market manipulation and unfair dealing in favor of the big guys holding losing "short" positions. 

While losses attributed to the "shorts" at big Wall Street hedge funds are estimated at $30 billion, small investors have also generated some $350 million in trading fees to Wall Street's market markers and "free" trading platforms while "holding the line" on their own positions. 

However, no matter how this ends, success in this instance might be defined a bit differently. Rather than measuring results just by financial gains or losses, sticking it to the elites of Wall Street might be worth the price of admission for some.

Much like the price of oil trading negative last year, the continuing saga of GameStop is a notable event. But with the drama contained to several small company stocks, this story has very little to no impact on the vast majority of investors. 

Finding a Balance

We advocate the allocation of your money according to two values - your personal values and market prices - not an overly-hyped Wall Street formula or based on the popular news of the day. 

The unusual activity we're seeing with these heavily shorted stocks like GameStop, AMC and Blackberry have created big headlines in the news, but that doesn't necessarily mean it's cause for reallocation within your own portfolio.

Before making your next move, check with someone you trust. Hopefully, they are objective and competent enough to determine if any action needs to be taken on your part in response to these changes.

If you would like to talk, we would be happy to hear from you. 

Schedule some time with us by phone, virtually, or in person.

Consider that no matter the state of the world, there are always opportunities to improve your finances, from Keeping More of What You Earn to smart homeownership and mortgage financing

If your investments didn't get the results you wanted last year, consider reviewing an updated version of our “fire drill" list of 10 investment actions to take, published while markets were tanking in in late February 2020.

For more information, consider browsing the Insights section of our website at www.openwindowFS.com/insight. You’ll find our commentary on President Biden’s proposed tax policies, an illustrated 2020-year in review, and many other items. If you’d like to be notified when new articles are available (and receive other private client commentaries) you can subscribe here.