Our stock market has made major headlines over the past few weeks.
For Country Day students and others around the world, this stock market frenzy has produced endless opportunities.
A primary cause for this dramatic fluctuation has been the influence of online communities on the stock market. The most notable one being an online Reddit community: WallStreetBets comprising amateur investors targeting short-sellers to create a profit for themselves.
In turn, these short-sellers practically bet on different companies to fail, which is why the failing company Gamestop, seemed like an easy target for most notable stock traders.
However, if the stock doesn’t fail, short-sellers are forced to do what is called short-covering, buying more stocks to make up for their losses, which is exactly what happened in mid-January.
Starting in mid-January, the amateur Reddit investors surged the Gamestop stock, finishing at a 134% increase, and short-sellers losing around $23.6 billion, according to a post by Business Insider on Feb. 18.
Consequently, new online groups started going against short-sellers and investing in different dying companies, including AMC, Blockbuster and Blackberry. This terrorized elite investors and practically crashed the market.
Although it seems good to most, the recent stock market news leaves some Country Day students scared for the future.
For junior Dylan Breen, the stock market has always been a way to have some fun while making some money.
Although he hasn’t joined any online stock trading communities yet, the recent success they’ve been acquiring has spiked his interest.
Unlike the Reddit stock traders, Breen decided not to invest in these dying companies because they were “too risky.”
“I may end up investing into them if this trend of investing in these types of companies continues, but I think I was a little late to the table,” he said. “If I would’ve gotten to them quicker, I could be sitting on a nice pile of cash, but I’m happy with the profits I’ve got”
Currently, Breen invests in five different companies, including Tesla, Nokia, Unity Software, Genentech and Toyota.
Breen invests through a financial advisor but started his trading career two years ago through the Rally Rd. app, where he could buy and sell equity shares in collectible assets like cars, which he still does today.
Breen says he likes investing in these companies because they’re stable and unstressful, so he doesn’t have to continuously check his phone.
However, he has some fears about his future in stocks.
“With the extreme unpredictability of what’s going on right now, I’m scared my reliable stocks could somehow end up badly,” he said.
But this stock market chaos hasn’t scared Breen away completely, as he continues to invest and plans to make it a bigger part of his life in the future.
Jim Coffin, a financial advisor for Morgan Stanley, fears for the worst during this stock market crash.
Coffin said he’s never seen short-coverings to this extent throughout his 33-year career.
“The market was extremely outrageous to an unimaginable point,” he said. “I’ve seen some short-sellers capitulate and have to buy to make up for their debts and those stocks take off, but this was a whole different ballgame.”
Possible upcoming legislative changes could be good to ensure people won’t be taken advantage of, he said. However, he doesn’t know how to fix the damage already done.
Coffin said that the recent events will have dramatic near-term consequences as Reddit communities continue to grow.
“Short term, I think this really scared retail investors and makes them fearful that the system is rigged against them,” Coffin said. “I also think a lot of the amateur investors think they’re geniuses because they profited extremely over the past couple of weeks. But in actuality, all this has really done is tainted the mind of a lot of new investors because they think this is what true investing is really like, making me wary of the future of stocks.”
For the long-term future of investing, Coffin said that major changes will definitely be present.
“The online investing community will only get bigger after this, and it’s really going to alter how people think about what to invest in,” he said.
“I don’t think this will kill out most short-sellers, but their profession is going to be undergoing a lot more stress in these upcoming years.”
— By Jacob Chand
Originally published in the March 9 edition of the Octagon.