You might have heard about the Gamestop saga where “retail investors played on Hedge funds”. But what actually happened?. Who was the real winner? Zerodha’s Nithin Kamath has tweeted about the whole episode and there are takeaways for retailers from it. The tweet goes as below
- In the Gamestop saga, the media has loved telling the story of how Retail made a lot of money from Hedge funds. The reality is entirely different, almost everyone apart from retail has probably made money or benefited from this
- Firstly, yes, a couple of Hedge funds were sitting on large losses on Gamestop shorts. Now that stock is at $50, the losses also would be a fraction, if the shorts still held. What no one is talking about are other hedge funds who made billions in the retail frenzy.
- Almost everyone and their parents seem to have wanted to participate in some form. Not only the brokerage firms who added a record number of accounts benefited, but News/TV/Social media itself must have gained a lot of views and hence earned handsomely.
- A second-order effect, Robinhood had to raise money quickly to address their liquidity issues due to Gamestop. Institutional investors who put the $3billion got a 30% discount on Robonhood’s IPO price, so even they will most likely make at least a billion dollars.
- Billionaires who acted irresponsibly by egging retail to trade Gamestop without understanding the risk appetite of individuals had nothing to lose. They got a lot of prime time for as long as it lasted, & the play was anyways to become silent if the trade didn’t work out well.
- The lesson in this for retail, remember if something seems too good to be true, it usually is. Stock markets are the toughest place in the world to make easy money. Stay away when there is excessive speculation, and if you can’t resist, take as small a bet as possible.
- And, trading is like playing a professional sport, it is the survival of the fittest. Imagine waking up one day and saying I will compete in the Olympics tomorrow. Thinking that you will easily make a lot of money trading in quick time is as ludicrous an idea as that.
Nithin had put a bunch of pointers that can help retailers to improve the odds of winning when trading. Here is the link.