Why The “Short Squeeze” Was Not an Investment Story
Recently a little-known struggling retail gaming store became the rage across social and legacy media. For a good week or so you simply could not turn on the news without seeing a story about Game Stop or the “Reddit Revolution”. Just as everyone became an instant medical expert during the Wuhan virus outbreak or a constitutional expert during the contested election in November, everyone now was an expert on what a short squeeze was and how the “little guy” was now in power as all the hedge funds were going to go out of business.
Young and old, people across the country were jumping into positions for companies such as Game Stop, Nokia, Blackberry and AMC. Some even jumped into commodity positions such as silver with the hopes they could catch the hedge funds at their own game and turn the table in order to cash out big returns.
CNBC, Fox Business and other legacy investment media outlets were in the middle of their “Super Bowl” as they pontificated for hours on end about what was going on and what it all meant in the world of investing.
Only they completely missed the boat. At no time was this ever about investing or investments. This was not a generational story about investing. It was a different story altogether. Maybe it was a “David vs. Goliath” story. Maybe it was an “us vs. them” or a new version of “Occupy Wall St.”. I am not sure exactly how to categorize what exactly it was but I can tell you for a fact that this was not and is not a story about investing.
Because investing is excruciatingly boring. It is not sexy. It is not exciting. It is not fast. It does not require middle of the day updates or even middle of the week updates. At least not for the average investor. The investment advisor (not the client) should be looking at markets during those times. But not in order to “pounce” on market inefficiencies, rather to be sure that the portfolios are moving in concert with the strategy that the advisor is in charge of. In other words, the advisor should be watching markets to be sure there is nothing going on that looks like markets are failing. In my experience there were only a handful of times that market failures were an actual concern: the 2000 Y2K/Dot Com burst, the 9/11 terror attacks, the 2008 financial crisis, the “flash crash” and the Covid-19 market crash. These events occurred over a 21-year time frame and were times when I was watching markets minute by minute.
But the “short squeeze” of 2021 was not a market meltdown. It was speculation pure and simple. Speculation is another word for gambling. People do it in the stock markets every minute of every day. They treat the market like a casino and that is exactly what they did during the short squeeze. Was it a market inefficiency? No. Wealth was transferred from those who had information to those who didn’t, and it happened in a very short period of time. But did that impact an investor? No. That’s because the smart money…the investors…they are allocating funds to companies and aren’t looking for returns for decades. Money that is invested across a diversified portfolio is boring. It is defensive. It’s how smart people who are disciplined and educated can created incredible returns over a long period of time. Speculators do the exact opposite and hope for the best. Sometimes they win big and sometimes they lose big. But at no point can they ever be confused for an investor.
So, what’s next? What can possibly happen to capture the media, and therefore all of our attention? NO IDEA. But there will be something. War, plague, political corruption, energy failures, it’s like the old song “We Didn’t Start the Fire” by Billy Joel. There always has been something and there always will be something that has investors and speculators alike asking the question: is this the time it crashes forever? The speculator has to actually be concerned about that possibility because a speculator CAN lose it all. But the investor? The investor can be completely unconcerned and here’s why: if it does all go to zero…then no one has anything anyway. We would all be in the same boat. But if it doesn’t all go to 0 then all the investor needs to do is to do in order to win is….NOTHING.
No, the short squeeze was not an investment story. It was a very interesting social story and maybe even a speculation story. It will probably make for a wildly entertaining movie someday. No one makes movies about real investors because, remember, investing is actually boring! So enjoy the popcorn and watch the meltdown and fanfare. But in the end, allow your investment advisor to watch out for the only real issue that is out there for an investor: market failure. In the meantime, just keep saving and watch your returns compound slowly and beautifully over the years.
Registered Representative and Financial Advisor of Park Avenue Securities LLC (PAS). OSJ: 4275 Executive Square #800 La Jolla, CA 92037 619.684.6400. Securities products and advisory services offered through PAS, member FINRA, SIPC. Financial Representative of The Guardian Life Insurance Company of America® (Guardian), New York, NY. PAS is a wholly owned subsidiary of Guardian. WestPac Wealth Partners, LLC is not an affiliate or subsidiary of PAS or Guardian. Insurance products offered through WestPac Wealth Partners and Insurance Services, LLC, a DBA of WestPac Wealth Partners, LLC.
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