Gambling versus Investing
The morning of January 8 th , 2021 marked a historical day in the stock market. For many of us, it
will be ingrained in our memories as “David versus Goliath” on Wall Street. A group of retail
investors formed a popular alliance on the Reddit forum Wallstreetbets (WSB) with the aim of
taking down the mighty Wall Street hedge fund managers. The showdown took place on the
stock exchange, with most of the initial action centered around a company named Game Stop
(GME).
Game Stop is a video game retailer with an aging business model and hedge funds were
massively shorting the stock — wagering that the retail chain was headed for bankruptcy. If the
hedge fund bets paid off, they stood to earn a fortune. However, Reddit users suddenly entered
the fray and went to war against the hedge funds.
The retail investors formed a group to throw their hard-earned money into GME in a bid to
inflate the stock price as high as possible — to the moon! — hoping the hedge fund companies
would lose a ton of money by having to unwind their short. Some traders even bet on GME by
digging into their emergency funds, taking out loans and risking their family’s hard-earned
retirement funds.
This created a frenzy in the stock market and as the news poured out, more and more retail
investors joined the alliance and inflated the price to as high as $481.99 per share. It was a
“short squeeze” of truly epic proportions. Those early speculators who got into GME and then
jumped out again made a killing — unfortunately, many of the late players to the game wound
up losing a big chunk of change in what ended up being an extremely risky proposition.
After the dust finally settled after two weeks of stock market frenzy, no one could have
predicted that ordinary posters on a public message board would have helped create such an
upheaval. However, there is one thing that all investment experts can agree on: This was not
“investing” in any way, shape, or form. It was gambling, pure and simple. For those that made a
profit on GME and other highly shorted stocks, congratulations, your bets paid off!
Sadly, for many others, their ill-advised speculation ended only in misery, and a hard lesson has
been learned. Investing – whether it’s in stocks, investment funds, ETFs, or anything else –
should only be done in a strategic matter. All investors need to understand their personal risk
tolerance, time horizon, and objective. And people should only ever invest within their financial
means and capabilities.
At Prometheus Private Advisory Group, we stand ready to offer our help with our knowledge
and experience. Would you like to learn more about how to invest wisely and profitably? We
warmly welcome you to book a complimentary consultation with one of our advisors to discover
what type of investment strategy is suitable for you!
