Remember, Remember, the 27th of January
“People should not be afraid of their governments; governments should be afraid of their people.” - V, V for Vendetta
I don’t need to rehash the endless coverage that GameStop received this week. Google it and you can get lots of excited or extremely negative responses. In summary, though, an epic short-squeeze took place, which propelled GameStop stock +761% in the last two weeks. Wall Street, the financial media, and “value” investors (they call themselves value investors, but real value investing hasn’t existed in decades; see P/E Ratio).
“I think that what you’re seeing is essentially a pushback against the establishment in a really important way.” - Chamath Palihapitiya
What is more relevant than identifying those who lost a lot of money (hedge funds) and those who made a lot of money (r/WallStreetBets millennials)? Looking to the future to determine what the ever-bloated federal government may do as a result. What was largely lost in the discussion this week was what regulation may come about. I have a sincere worry that an option on the table, whether it is pursued by the SEC (Securities Exchange Commission) or the CFPB (Consumer Financial Protection Bureau, thanks Elizabeth Warren), is to further reduce the ability of retail investors to participate in investing. More specifically, I worry that investing in the stock market would be limited to only accredited investors. For context, you are considered an accredited investor if you (a) make at least $200,000 per year or (b) are worth at least $1 million.
Government is constantly pushed by numerous vested interests to “do something.” Sometimes it’s the public, sometimes it’s institutions, sometimes it’s nefarious actors. “No, they would never do that.” Really? The following laws were passed by Congress in order to “protect us”:
The PATRIOT Act [2001; everyone knows that we need this because of terrorism!]
The Sarbanes-Oxley Act [2002; everyone knows that we need this because of Enron!]
Even the fact that “accredited investor” status exists should be offensive to the American public. Don’t we supposedly live in a free country? Freedom, as it turns out, is about freedom, not tyrannical governments dictating what individuals are permitted to do. This is something extremely important that was largely missed this week.
On top of that, we got to witness a hyper-version of the greater-fool theory, which rests on the idea that you can always make money in a position as long as a ‘greater fool’ comes along and buys at a higher price than you. This is not a good strategy. My favorite question to pose to anyone that is willing to listen these days is the following: what is your exit strategy? Most people don’t have one. They buy, hold, and wait… then watch their position decline, decline, decline… and then eventually sell at a huge loss and pretend it never happened.
“There are some little guys who are getting rich, but believe me, the vast majority of the little guys are going to be a lot smaller after they finish losing all this money on these BS stocks that they’ve been buying.” - Peter Schiff
I’m pleased any time that we are able to stick it to the man. It is a moment to celebrate, and a reminder that things can change and they do change. Sadly, the nature of government is for it to grow, and for its mission to creep. In case you are unaware, the Democrats now have the House, the Senate, and the Executive Branch. How do you suppose this plays out? We move on and pretend nothing happened this week? Wall Street says, ‘Oops, good for those kids’? Please.
Regards,
John
P.S. It is worth mentioning that since I started the paid version of this newsletter (in October 2020), I’ve recommended an options trade on GameStop 5 times. Each trade has expired worthless (this is good). Sequentially, per options contract, we made $15, $20, $23, $23, and $35, which equates to over 1% per trade. As a reminder, the goal is to return 1% per week — that equals a 52% annual return, heftily beating what Wall Street refers to as “the market.” Just saying.