GameStop: It Is Time To Tell Our Story
WallStreetBets, GameStop, and short squeezes were almost assuredly not topics of conversation in your Zoom meetings just three short weeks ago. Now, no one can stop talking about them. Which side are you on? Taking down the establishment? Or are you concerned about a new age of coordinated attacks by rogue bands of retail investors?
I have been following the story with amusement, amazement, and anguish.
I am amused by the WSB community and its crusade against the establishment. The stories, memes, and even sea shanties (yes, bizarre, I know) have been fun to follow. We have certainly started 2021 off with a bang.
I am amazed by the commitment to the trade on both sides. Many people both short and long have stuck with their gut and had the conviction, arrogance, and perhaps short-sightedness to maintain their positions. This has become something more than a simple trade or investment. It is personal and political for many people.
Finally, I am in anguish watching the whole thing play out. It troubles me on two levels. First, there is only one conclusion to this story. At some point (don't ask me when) GME will come tumbling down. Over the long run, stock prices reflect the fundamentals underlying the business. That is not to say that GameStop is necessarily a bad business. For example, what would you say if I offered you an In-N-Out burger for $30? Likely you would reject it because my price was way too high, but that would not necessarily mean that you thought it was a bad burger. Even if GameStop is a good business, there is no question that it is overvalued. This price inefficiency means that many people with get-rich-quick dreams will be left holding the bag as the GameStop loses 90%+ of its peak value.
The Wrong Stories are Being Told
The second and possibly even more troubling aspect of this story is the fact that it is a story. The story as portrayed through the mainstream media has captured the imagination of the country. It is an easy story to sell: join a community, put in a few thousand dollars, depart as a triumphant millionaire. To further juice the story, it is a fight against the Wall Street Establishment. This short squeeze has become a movement where the average American can push back against "the suits" in an arguably more effective manner than the "Occupy Wall Street" movement. Melvin Capital, the major short-seller in the crosshairs, reportedly lost 53% of the value of its fund in January alone, a devastating blow.
Financial stories that go mainstream almost always have one of two factors. It is either a "get-rich-quick" story (a la the 2017 cryptocurrency craze), or it is a story about how the markets are rigged (2007/2008 financial crisis). With GameStop, the WallStreetBets community, and the decisions made by many financial institutions, the story is a menacing blend of both.
It upsets me that much of the world only sees the stories of get-rich-quick schemes and institutional financial malfeasance. Investing and the stock market can (and should) be for everyone, but the stories that are told influence people into believing that the financial markets are nothing more than a glorified casino.
I love the stock market, and I love that we live in a society where individuals can now invest in the best companies in the world commission-free with any amount of money. It boggles my mind that I can become a part-owner in companies like Apple, Disney, Square, Fiverr, and so many others that are changing the world. With my limited resources, I can purchase shares and lay claim to the future earnings of innovative companies.
We need to tell more stories of the sustainable wealth creation that is possible through the stock market. Since its inception, the S&P 500 (a collection of the 500 largest companies in the US) has returned around 10% annually. To many people outside of finance, that might not seem like much, but let me give you an example.
If you were able to invest the Roth IRA limit of $6,500 annually for 30 years and earn a 10% return, you would be a millionaire. That's less than $200,000 invested cumulatively during that period turning into over $1,000,000. That's life altering, especially considering its only $250 out of each biweekly paycheck.
More people need to hear these types of stories. Share your story of long-term success in investing. People do not need to hear more about the crazy, speculative position that happened to pay off. They need to see the sustainable roadmap to success. If you have a story of financial freedom, tell it so people can hear it. We have a responsibility to defend the honor of the capital markets and share the power of investing with the world. Will you stand with me?