In Focus: WallStreetBets, the Real Robin Hood
In English folklore Robin Hood is a heroic outlaw, a headache to the establishment, and a legend to the people.
Understanding the story of Robin Hood and what it represents makes everyone take note when a new brokerage firm names itself after the folk hero. We know Wall Street for many things, but helping out the poor is not one of them.
Robinhood, the brokerage firm appeared to be as closely related to the folk hero's way of life as a smartphone brokerage app could be. It made access to the stock market easy for everyone. It taught a generation of people that you don't have to be rich to participate in the stock market. It simplified, some say gamified, buying and selling investments. It gave the people access to cryptocurrencies and minor banking capabilities, and it did all of this for almost free.
Discount brokerages were still charging customers $9.99 per trade when Robinhood appeared with commission free trading, which became a game changer on Wall Street and forced the hands of other discount brokerages to adopt commission free trading.
Robinhood made all of the right moves and collected a demographic of customers that major Wall Street firms didn't want, or didn't know they wanted. And then in one day, it ruined everything it had built.
"It takes 20 years to build a reputation and five minutes to ruin it. If you think about that, you'll do things differently." - Warren Buffett
As the trade on GameStop's (GME) stock played out last week, the world saw an unprecedented transfer of money from Wall Street to Main Street. A group of people who use Reddit, read the WallStreetBets subReddit, and invest with Robinhood had caught the trade of a lifetime with GameStop, and on Thursday Robinhood stopped the party by not allowing traders to buy GameStop and several other stocks that were being discussed in the WallStBets subReddit. What we learned on Thursday is Robinhood is nothing like the English folk hero Robin Hood.
The Real Robin Hood
WallStreetBets, whether they want the title or not, it is the platform of the people, it is the new Robin Hood.
As the losses piled up for big Wall Street firms that were short GameStop, AMC (AMC), and other companies, the trading accounts of Reddit users grew, with some WallStBets followers showing six figure profits from their GameStop positions. A massive transfer of money from the rich to the poor, and not one arrow was spared.
The Village of Knowledge
The biggest misconception about WallStreetBets by CNBC, Big Wall Street, and others through the entire GameStop trade is that WallStreetBets' users and those on Reddit are a bunch of unsophisticated investors just throwing spaghetti at the wall when it comes to investing. Nothing could be further from the truth, and the GameStop trade proves this.
Whether CNBC or Big Wall Street wants to admit it or not, the logic behind the GameStop trade is sound. Over 100% of the GameStop float is short, and with the right push in the stock, short sellers were going to be at a breaking point where they would bid the stock price up in an attempt to close their positions and cut their losses. Anyone who has been on Wall Street long enough or has studied the markets long enough has seen this trade before, it's nothing new, it's a short-squeeze.
What seems to bother Big Wall Street and others, is that the research was conducted and given away for free on Reddit, and that Reddit users were savvy enough to understand the logic and put their money up.
Assumptions are a terrible thing, and the GameStop trade has exposed that many people assume the worst of Reddit. In reality we don't know who is behind a screen name or any post on Reddit. A Reddit poster could be a high school student who studies the stock market or a former hedge fund analyst, or anything in-between. As I've gotten deeper into coding, I've become extremely dependent on Reddit to get past hurdles I've come across. It is a village of knowledge, open to anyone who wants to learn.
Wall Street and the Wall Street Media
I was one of those people that saw GameStop in the $60 per share range and said, "This is going to end badly," but then I wised up. Because every trade since the beginning of trading has ended badly for someone, and it was ignorant of me to believe that it would end badly for the little guy as a collective.
The Wall Street Media has not been enlightened, and still believes that it's going to end badly for the Reddit user slash Robinhood trader, but so far it's been Melvin Capital, Robinhood, and other Wall Street titans that have found themselves on the wrong end of the trade. And a trade is what this is. It's a momentum trade kick started by a little bit of fundamental analysis on the stock's short position.
The people who are fighting against WallStreetBets and against the GameStop trade and against the retail investor winning are very hypocritical. This trade should be celebrated, the winners of this trade should be celebrated, because this trade shows for all the financial crisis caused by big Wall Street, and for all the Bernie Madoffs, the market can still work for the little guy.