Weekend Reading: Not Another GameStop Explainer Edition

Not Another GameStop Explainer Edition

The internet was all atwitter about the stock market this week, more specifically about the performance of GameStop stock, short-selling, hedge funds, and Robinhood (a free stock trading app in the U.S.). Financial journalists, pundits, and amateur investors all offered their hot takes on this ‘Reddit-fuelled’ market frenzy. My inbox also lit up with friends and blog readers wondering just what the heck was going on.

Many of these explainers were bad or flat-out wrong – a reminder that not everyone needs to have an opinion on the news of the day. The GameStop story is a fun distraction from the mundane stay-at-home routine. The stock is up 8000% over the last six months, causing short-selling hedge funds to take a huge bath on their trade.

Meanwhile, passive investors like me watch from the sideline with great amusement.

Rob Carrick summed up the story nicely when he said:

“But if you’re wondering what the GameStop story means to your future investing, the answer is nothing. Enjoy the show – but don’t take notes.”

If you’re simply curious about what exactly happened with GameStop stock and how it affected Wall Street hedge funds who were betting against the company, watch Preet Banerjee’s excellent explainer on the GameStop short squeeze:

And what exactly is Robinhood’s role in the GameStop saga? Vox explains why the popular stock trading app restricted trading on GameStop, Blackberry, AMC, and other supposed ‘meme-stocks’. Robinhood now faces a class-action lawsuit saying it manipulated the market by restricting trades.

Think the GameStop short-squeeze is the greatest ever? Not even close. Of Dollars and Data blogger Nick Magguilli tells the story of Piggly Wiggly and how one man took on Wall Street all alone.

Wealthsimple Trade

Here in Canada, our only zero-commission trading platform is Wealthsimple Trade. They took a different approach than Robinhood – rather than gamifying stock and option trading (only to restrict those trades due to ‘volatility concerns’), Wealthsimple allowed its users to trade GameStop and other meme stocks freely.

They sent out an education email with a useful explainer and warning about trading volatile stocks. They also included pop-up warnings to users through the app when they searched for GameStop and other volatile stocks.

Wealthsimple Trade became the number one app on Apple’s App Store this week as the company saw a 50% increase in sign-ups. My Wealthsimple Trade review was the number one visited article on the blog this week.

This Week’s Recap:

No new posts from me here this week as I caught up on financial planning work and freelance writing projects.

I’ve also changed email delivery providers, so if you subscribe and receive new posts by email please double-check that this article was delivered to your inbox on Saturday. If you want to join 10,000+ email subscribers and get notified whenever I get around to publishing a new article, you can enter your email in the subscription box located at the top-right of the website.

Over on Young & Thrifty I shared the best blue-chip stocks to buy in 2021.

From the archives: So you’ve made an RRSP contribution. Now what?

Promo of the Week:

I’ll beat this drum again – stop parking your cash in your big bank chequing or savings account. You can find decent high interest savings at online banks and credit unions.

Here’s the biggest no-brainer move to make with your emergency fund money right now. The big banks pay nothing on your savings deposits. EQ Bank’s Savings Plus Account consistently offers an everyday high interest rate at or near the top of the market (currently 1.5%) with no hassles. Open an account here and fund it with $100 within 30 days and you’ll get a $20 cash bonus for free.

Weekend Reading:

Believe it or not there were other, non-GameStop related articles published this week. Here’s what I was reading:

Erica Alini explains how the pandemic housing craze is fuelling another boom – reverse mortgages:

“Many borrowers take out a reverse mortgage loan to pay off other debts, a strategy that allows them to eliminate debt repayments and free up some cash flow. Seniors have also traditionally used these loans to provide a regular, tax-free income supplement.

But in recent months, Ziomecki says she’s noticed an increase in the number of applicants who want to borrow against their home to help their children or grandchildren get into the real estate market.”

Jason Heath says TFSAs may be a no-brainer but don’t fall into the trap of neglecting your RRSP.

Here’s Millionaire Teacher Andrew Hallam on why you might not want a higher paying job. Couldn’t agree more.

Academic research on thematic ETFs shows their average returns underperform the market by about 4% per year.

Here’s Squawkfox Kerry Taylor on opportunity costs and trade-offs:

My Own Advisor Mark Seed and Findependence Hub’s Jon Chevreau discuss whether you should speculate with your retirement portfolio

Can a rule of thumb be a short-cut to financial well-being? Morningstar research explores how financial rules of thumb can help or hold back investors.

Rewards Canada’s Patrick Sojka explains why earning 5x points with one credit card isn’t the same as earning 5x points with another credit card. It’s all about the earn and the burn.

Michael James on Money shares a good review of Ramit Sethi’s book, I Will Teach You To Be Rich. I used to find Ramit’s approach to be off-putting but I’ve mostly come around.

Life expectancy is one of the greatest unknowns in retirement planning. Jason Heath offers strategies for both a long and short retirement.

Finally, here’s a cool story from a local Lethbridge entrepreneur who is building a luxury playhouse cottage resort in Alberta’s Crowsnest Pass.

Have a great weekend, everyone!

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  1. Gary on January 30, 2021 at 1:21 pm

    Thanks for the links Robb; there are some pretty smart people trying to figure out how to beat the system. Quick question: when you short a stock is there a deadline when you have to give it back?

    • Robb Engen on January 30, 2021 at 2:34 pm

      Hi Gary, my pleasure. You can maintain a short-position as long as you:

      1.) Honour the margin requirements
      2.) Pay the required interest, and;
      3.) The broker lending the shares allows them to be borrowed

      This brings to mind the famous Keynes quote: “the markets can remain irrational longer than you can remain solvent.”

  2. Ron Sigal on January 30, 2021 at 3:47 pm

    Robb, do you know of any checking or savings accounts that offer a good interest rate for which small businesses are eligible? I believe EQ bank only offers personal accounts, not small business accounts.

  3. Big Cajun Man (Alan W.) on February 3, 2021 at 9:07 am

    This kind of herd behaviour worries me. I am not worried about the manipulation aspect, but the fact that a lot of folks are going to be left holding the bag when the market “corrects” this issue. Another great week, hope it is not too cold on the prairies.

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