Rebels vs. the Establishment On Wall Street
We’re all familiar with the account of David versus Goliath in the Bible. A similar story has been taking place on Wall Street but with millions of Davids. Followers of Reddit, a social media discussion site, are buying up shares of troubled companies by the truckload and are causing a panic on Wall Street. Today, Kingdom Advisors President Rob West has the details.
• On the one hand you have a very large group of young, upstart day traders, many of whom are millennials and younger people even down to Generation Z. On the other hand, you have the establishment—professionals who manage large funds also hedge fund operators and “short sellers.” This last group are people who basically bet on a company’s stock price falling. But these two groups don’t get along. Up until now, the “old timers” probably haven’t paid much attention to the youngsters. But these young day traders have always had it in for the Wall Street professionals whom they blame for causing big market downturns like we saw in 2008. So they feel they’re finally getting some pay back.
• This is all taking place on a certain Reddit page called WallStreetBets which has two million followers. They’re able to communicate with each other and to identify struggling companies that are likely targets of the short sellers. The day traders then buy options for those stocks. Options are essentially bets investors put on a stock, allowing them to buy or sell at a certain price. When that happens in large volume it can force the price of a stock up or down. Short sellers are investors who essentially borrow shares at one price hoping the stock’s value will fall. When it does, they settle the account at the lower price, keeping the difference as profit. But if the stock’s value climbs higher they lose money.
• So the hedge fund guys and the short sellers are losing their shirts right now and driving those stock prices even higher. They have to buy shares themselves to “hedge their bets” and minimize their losses.
• This is happening right now because of technology. Stock trading has undergone a revolutionary, major change by technology. No-fee apps like Robinhood allow armchair investors to use sophisticated tools like options that were once only available to the Wall Street elite. When you add in a platform like Reddit with millions of followers, suddenly a single post can affect the price of a stock.
On today’s program we also answer your questions:
• I have a savings account at my bank but hear good things about online banks instead brick-and-mortar ones. I want to improve my yield. What do you think?
• How can I help convince my husband to stick to our budget and to not so frivolously spend the money?
• In case I become disabled or go into a nursing home, what’s the best way to enable someone else to manage my CD, for example, or my checking or savings accounts?
• My husband recently passed away. Our house is now in my name due to his death. However, the mortgage is in his name. Since my credit’s not good, I know I’ll be turned down to refinance. Income is tight. What’s my option?
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