Current events in the stock market have the nation buzzing. Never before have so many average people been involved in such investments, and some are not happy about it.
Melvin Capital, a hedge fund previously worth $ 12.5 billion, was looking for an opportunity to short-chain a stock and make some big money. This is normal practice for hedge funds and often goes unnoticed by the average American. In January, a Reddit user heard about Melvin Capital’s intentions to shorten the company Game Stop. He switched to Reddit and asked other users to buy up all the stocks they could. Players were eager to get involved and not only bought stocks but also bought more from Game Stop sites to increase stock prices. This enabled Melvin Capital to buy back the shares at a much higher price, causing them to lose a ton of money. At the end of January, the company experienced a loss of 53% in assets.
The use of the internet has enabled people like Keith Gill to share information with a large group of people. In addition, free stock market apps, in this case specifically Robinhood, allow the average Joe to invest in the stock market without having to pay a brokerage commission. After hearing about Melvin Capital’s intentions to chart Game Stop, gamers and other inexperienced investors began buying small amounts of the Game Stop stock and getting involved in the stock market.
For most of us, these events have little or no impact on our lives. But maybe it should. According to Jeffery Heinrich, an economics professor at UW-Whitewater, the stock market is not a fair representation of a free market. Instead, it represents the “inequality of the nation.”
This view was supported when the Robinhood app was restricted to limit the amount of Game Stop shares that customers could buy. This restriction lowered Melvin Capital’s losses and had no benefits for the average Joe, who even tried to make a few dollars. Another restriction was recently placed on Robinhood users, which limited the number of day transactions that users can make. Users are not allowed to make more than three days of trading in five days unless they have a portfolio of over $ 25,000. Those who are able to invest $ 25,000 or more in the stock market are free to make multiple day transactions.
“The concept is really good. You finally have a social network where the little guy is on par with big hedge funds, ”explains Clay Brandt, senior vice president of investment at Raymond James. Brandt does not like the restrictions imposed on users of Robinhood. People want to invest and they find a way to do it, maybe they are looking for another free app with no restrictions.
It’s time to start thinking about the new investor, the turn of the millennium. They have changed the look of the stock market and investment. It’s easy for the younger generation to jump on the internet or social media and gather valuable information about stocks they’re interested in.
“Social media today has made it possible for younger people to talk to each other and get some of the same information that large hedge funds have. This is a good thing, ”says Brandt.
“A couple of people broke the information bubble and shared it more broadly, and if that keeps happening, that’s fine,” Heinrich said as he talked about spreading information across platforms like Reddit. “You have other smaller investors coming in there, loosening it up and doing it justice.”
Although a number of inexperienced investors lost money during the Game Stop events, Brandt sees this as a positive opportunity for small investors to learn. Some may think that an increase in the number of small investors is bad for the stock market, but in reality it is not good for hedge funds. It is important for younger, inexperienced investors to dip their toes into the stock market.
“An advantage that thousands have right now, whether they know it or not, is that they are hip, they know what’s going on, and they know what they like. They should invest in what they like, ”Brandt recommends. Millennials are aware of what is currently trending, and make up a large part of the market and influence the success of the company. A good previous example of this would be Apple shares.
Interestingly, average people who made money on the Game Stop app spent their money and stimulated the economy. Some paid medical bills, others bought groceries. Hedge funds do not invest their money back into the economy, but store them and store them in offshore accounts where they do not even have to pay tax on it. Wouldn’t it make more sense for the money to stimulate our economy and allow the average Joe to earn an extra dollar? There should be no restrictions on a person’s ability to invest in the stock market.
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