The GameStop saga continued this morning as major brokerages restricted buying of the stock and others due to extreme volatility. There is currently major pushback from retail and institutional traders and media outlets that are arguing this goes against free markets. Here's the backstory...
GameStop and other small cap stocks are heavily "shorted," meaning that big hedge funds are betting against the stocks and will profit if these stocks go lower. This is common in the industry and a lot of money has been made by shorting stocks or companies that are struggling. However, if the stock goes higher, these funds risk losing a lot of money.
This exact scenario happened this week as GameStop went from $20 per share to over $100 then over $200 and then to over $300 per share. The gains were part of a social media movement of small, retail traders who saw an opportunity and went after it, together. The big money on Wall Street lost BILLIONS and cried "foul." They claim that retail investors are colluding against them. Somehow and remarkably, they convinced the major brokerages to restrict any more buying in these stocks, thereby ensuring they would not lose any more money and would in fact start making money as the stocks went back down. Note, it's impossible for a stock to go up if there's no buying or if buying has been banned.
This has created major drama in markets this week and especially today. This is a fast moving issue that won't be resolved anytime soon, but more importantly it shines a light on the difference between trading and investing.
In Mashups, we do a lot of trading in speculative stocks like GameStop. We didn't get into #GME specifically, but we did buy #AMC, which was another stock that rose 300% just yesterday. We also hold #RIOT, a bitcoin/blockchain company; #PLNR, a data and software company; #SPCE, a space exploration company and #ABNB, which most have heard of, Airbnb. As a portfolio, Mashups is very volatile because it is a GROWTH portfolio, full of stocks that are in a high-growth stage of their cycle. This is a great portfolio if you have the stomach for a lot of movement and fluctuation. Not so great if you don't!
For most people, Stock PRO is the more appropriate investment. We don't "trade" stocks in Stock PRO, rather we "invest" in solid companies for the long-term. There are changes and updates to the portfolio but these are mostly based on fundamental reasons or strong technical buy/sell signals. Stock PRO is full of what we call "market leaders." These are the companies that drive the economy forward, like Microsoft, Apple, Boeing, Ford, Visa, Amazon, etc.
Market leaders will tend to go up MORE than the overall market, and go down LESS when the overall market goes down. This makes Stock PRO the ideal portfolio for most investors who want to own market-beating stocks for the long term.
For those who want to more action and want to be on the cutting edge of trading in innovative companies...and can take the risk and fluctuation that comes with it, Mashups is the way to go.
Case in point: our #AMC holding went up 300% yesterday, then down 50% today. The volatility is real.
As a whole, the portfolio does outperform, at least so far. Mashups is up 26% so far this year (28 days) compared to the S&P 500 being flat. Indeed, the additional risk does offer potential rewards.
Now to the point. I've heard of people putting 50k, 100k and more into only #GME with the hopes of getting rich quick. Some people have indeed gotten rich overnight because of the massive gains. But this is not the game we play. You don't want to play this game, either. Putting a bunch of money into 1 stock is a losing bet, 99.99999% of the time.
Stick to a portfolio you are comfortable with and let time do what it does best: compound returns consistently year in and year out.
Don't bet on GameStop alone. It's a losing bet.
Now to our regularly scheduled programming of Buy/Sell Signals and a Market Update.
*Buy and Sell signals are not recommendations and are a starting point for further analysis.
Stock market volality continues due to the recent surge in heavily-shorted stocks due to retail buying. There was an outcry from some traders today after Robinhood and other brokerage firms blocked any new buying of GameStop and other targeted stocks.
Today's U.S. economic data was mixed for stocks. On the positive side, weekly initial unemployment claims fell -67,000 to 847,000, showing a stronger labor market than expectations for a decline to 875,000. Conversely, U.S. Q4 GDP rose +4.0% (q/q annualized), weaker than expectations of +4.2% as Q4 personal consumption rose +2.5%, weaker than expectations of +3.1%. Also, Dec new home sales rose +1.6% to 842,000, weaker than expectations of 870,000.
Mostly stronger-than-expected corporate earnings results are supporting gains in stock indexes today. Mastercard is up over +3% after it reported Q4 adjusted EPS of $1.64, better than the consensus of $1.51. Also, Comcast rose nearly +4% after it reported Q4 adjusted EPS of 56 cents, stronger than the consensus of 48 cents.
Stock indexes extended their gains this morning on comments from Senate Majority Leader Schumer, who called for a "bold and robust" Covid relief package and said, "the Senate as early as next week will begin the process of considering a very strong Covid relief bill."
Stocks continue to be undercut by the pandemic surge, which is forcing countries to tighten lockdowns that undercut economic growth and corporate profits. Globally, Covid infections have risen above 101.548 million, and deaths have exceeded 2.187 million.
The VIX S&P 500 Volatility Index ($VIX) this morning is down sharply by -8.00 at 29.21, falling back from Wednesday's 2-1/2 month high of 37.21. The VIX is down sharply from last March's 12-1/4 year high of 85.47 but is holding above the late-November 10-1/2 month low of 19.51.