Scott, Nikki & Bob discuss current trending events in the stock market to bring clarity to what’s happening, as well as to answer some questions many of us might be asking ourselves.
Scott, Nikki & Bob discuss current trending events in the stock market to bring clarity to what’s happening, as well as to answer some questions many of us might be asking ourselves.
How's it going everyone. My name is Scott Bennett.
Nikita Wolff:and I'm Nikki Wolf.
:And thanks for tuning into the 3rd Decade podcast. This is a little bit of an emergency podcast. We decided, man, there has been so much discussion and chatter around everything happened with Game Stop, Reddit, the stock market. I can't remember a time besides oh eight that had more people talking about the stock market. So with all this news we had to, we knew we had to address it with our participants and kind of talk about how it fits into our whole 3rd Decade framework. And Nikki had a great idea on how to talk about this in a way I hadn't really seen a lot of people do yet.
Nikita Wolff:Yeah. So I'm kind of coming from this as a past student perspective, I graduated from the 3rd Decade close to three years ago now at this point. So my Bob voice in my head is very strong that says, tune out what's going on. But at the same time with everybody talking about it, to the extent that they are right now, there's no way to fully ignore it. So I don't personally follow the stock market closely at all. However, I've got a very solid, diversified financial plan in place. And one of the things that I really wanna address today and we are actually joined by Bob as well today, um, is how this is gonna affect my personal financial plan.
Bob Swift:Hi Nikki. Hi Scott. Thank for inviting me. Yeah, it's been kind of a crazy week, uh, in the world of investing. And so I do have a few thoughts on this and, and, and I'm sure many people are thinking as well. Like you are Nikki. Um, if you all remember from the, the class, uh, we broke it down into three is on how to be financially secure. One of them was time that's given to you free. The second one was knowledge that's given to you free. We're given you that then, and then today a little bit, but the last one is the most important in this topic on Game Stop and that's behavior. If you'll remember, I would, as said, now behavior is up to you. We can give you, you've got the time you're gonna have the knowledge, but personal behavior is ultimately the determinant of your financial success. And it's
Nikita Wolff:One of the hardest pieces to it as well.
Bob Swift:Right? That what, what, what happens every so often in the, in the large steady solid world of investing is you get, uh, speculation going on. And all of a sudden, a few people get very wealthy very quickly, or they appear to have gotten very wealthy very quickly. And remember that behavior, usually bad behavior is caused by one of two things, fear or greed. We all make bad decisions when fear and greed get into our thinking. And I, and that's what's going on here to me, it's entertainment. I do kind of like the idea that that some hedge funds have been hurt or appear to have been hurt, uh, and that the, the revolution of a whole bunch of young investors taking it at within their own hands, that's all very exciting. I just don't wanna be a part of it that is not investing. That is gambling. If you have a part of your budget allocated to gambling, then go for it.<laugh>. But if you don't just stay out of it and observe, this has happened in real estate in'08, it happened with tech stocks in 2000. Um, so we'll give you a little more information on what's going on, but I, I just want you to know this is entertainment. This is not investing. This is gambling. It is related to the world of investing, but it is not investing.
Nikita Wolff:Yeah, this is not a means to retire on. So Scott, let's back up just real quick. And how about you give a quick cliff notes version kind of, of what's going on surrounding Game Stop, AMC, Blackberry, Reddit, Robin hood. And I'm sure more, more companies as this continues to unfold.
Scott Bennett:Yeah. I'll, I'll try, you know, it's, it's, it is difficult, but I'm gonna try and be as concise know I'm gonna leave some stuff out here. It, there is some kind of complicated things happening on the back end here. And, and I think that's one of the issues as well. That's, that's happened with this fervor is people, are you getting into a complicated and I think, you know, kind of dark side of investing and, and that's their first exposure to it, but yeah, you're right. Let's back up a little bit. So active traders and head hedge fund managers can, it's a legal thing to do. They can short sell a security when they think that price is going to drop. So if they say, I'm gonna continue to talk about this and I'm gonna use this Game Stop example to explain short selling as a whole. So they believe Game Stop the company, their price is going to drop because they're brick and mortar store, their business models outdated. They don't have the best customer reviews, et cetera, et cetera. So what they do and did is went to, um, broker dealers kind of acting the broker dealers kind of acts like banks in this situation just to have an easy example. And they practically borrowed or purchased the stock on layaway, kind of, um, which is called shorting the stock. So they, they, they said, Hey, we think this is gonna go down. Let us borrow it for a period of time. So when they borrowed these shares, they sold those borrowed shares on the open market, right? And then when the hypothetically, they were thinking when Game Stop actually does drop in price, we're gonna buy the same amount of shares that we borrowed and turn around and give those back to the broker dealer, say, here's, here's the amount of shares we borrowed that price dropped. We actually bought the shares. Then we give it, they give it to the broker dealer within that specified time period. And they really profit off the difference between the, the shares that they borrowed and the shares that they actually bought and sold. And so that's what shortening a stock means. What happened was game stop stock did not drop and it didn't drop for a pretty unique reason. I don't think that we've seen before that makes this so interesting. People have gotten burned by short selling before short selling is very risky, especially if you're not hedging your bets, um, which is what hedge funds are supposed to do. Kind of what they're named after is hedging their bets. But it is really risky because if the stock that you're projecting does go up instead of down, you're saying, oh, I think this sock is gonna go down. If it goes up, all of a sudden that that broker deal who you borrowed it from is gonna go, no, no, we need our shares back. I don't care what the price is. You have to buy the shares now and give us our shares back. So a bunch of people on the subreddit at wall street bets, kinda one person uncovered it that a hedge fund, primarily one big hedge fund, but they said, if one's doing it, a whole lot of them are doing it had shorted Game Stop, cuz again, they didn't think that that price was going to go up. They thought it was gonna go down. So they shorted Game Stop this group of people and this is a unique part. They said, well, hedge funds are, are kind of shady as it is they believe. And, and they have some valid points there. We are going to buy as much as we can. We're gonna inflate this price up, up, up, up, and we have a huge platform to do so. Wall street bets had over 2 million subscribers.<affirmative> now you'd have to be living under a rock to not hear about this. So when they did that, hypothetically, now that price has been raised up. A nd when, when those hedge funds have to go back to the broker dealers and give them the funds or give them the shares that they borrowed, they're gonna have to buy those shares from the people who just inflated the price through the roof.
Nikita Wolff:How much, uh, how much has that increased now at this point, what percentage?
Scott Bennett:So the, the price itself, um, has changed about 2000%, which is huge and wow. And nobody believes, I mean, it's kind of funny cuz on, on wall street, bets are talking like they really believe in Game Stop. But again, another thing that makes it unique, nobody believes Game Stop stock stock is worth$321 a share. They're just saying, Nope, we've kind of gamed the system here and, and they haven't done anything illegal.
Nikita Wolff:They're just kind of trying to stick it to the man now. Exactly.
Scott Bennett:And, and also at the same time, some people, the people got in early are gonna make a ton of money off of this. If they sell it, when they can remember whenever you buy a share, somebody has to, has to be selling that and vice versa. So whenever you share, there has to be a willing buyer right now they're saying the hedge funds have to buy our shares that they've kind of tied their, their hands behind their backs. But what happens when all those shorts shares are gone for everybody to come out on top here, a hundred percent of the stock owned would had, would've had to be shorted. And I just don't think that's the case. That would be really, really, really rare. Um, so in the end you're gonna have some people who have this really elevated security, trying to sell it with no buyers and that's gonna drive the price down. So yes, you have some hedge fund companies who have lost a ton of money. Um, and rightfully so. I look at it as they kinda caught with their hand in the cookie jar, doing something nobody ever expected would happen. This is a really, really unique case, but you know, hypothetically it could happen again. And it is AMC is another company as you brought up Nikki, that is kind of having the same thing happen. Blackberry is another one they're finding these positions that had been shorted by these big hedge funds and, and running with it.
Bob Swift:Scott, one of the things, um, to remember on there is the, that Game Stop or AMC you're right. The, the individual stock is irrelevant. There is no fundamental analysis of this company's future going on. They, they both have reasons to go down. The difference this time was everybody would love to, uh, you know, make the short sellers pay, but it takes a lot of money to do it. And by the size of the crowd, so to speak the crowd funding, maybe you a whole lot of 2 million people were buying a hundred to 200 shares, not having that much individual risk, but collectively they put the pressure on, on the hedge fund, the reason they have to buy the shares back is because when t heir position is going the wrong direction, they using borrowed money. So they have to add more money or sell the stock. So they are forced to it's called a margin call. And, and so this is really a mechanical situation going on, has nothing to do with the future of Game Stop or AMC.
Nikita Wolff:So I kinda wanna jump into one of my first questions then speaking from a participant perspective, I mean, or I guess just a young investor's perspective, should I be concerned about the long term implications for the stock market with behaviors like this right now?
Bob Swift:No, not at all. The, the, the yang and the yang of the stock market is the yang is it's a wonderful place for wealth accumulation. The yang is that you're gonna have like anything excesses that show up every once in a while. And the salute is not regulation. Usually the solution is let, let market forces figure this out because one of the best benefits of the United States stock market is liquidity. The fact that you can buy or sell something in 10 seconds is major. And one of the reasons for that is there are, there's a lot of movement of stocks because of the speculators. So the speculators are a necessary, I would call them evil in the system and the speculators, some people very few will make tons of money, but as the, as you know, people win the lottery too. But they usually that type of behavior usually will come back to haunt them down the road. Anyway. So bottom line is no, the stock market will return itself. I'm very confident in that. I don't like a ton of regulation. The one regulation I would put in here is one that's been out there forever. Hedge funds, themself get a preferred tax advantage, uh, treatment. And neither, uh, party in our political system has ever addressed it because they write very large lobbying checks. Mm-hmm<affirmative>. So if you want something, you can really do make sure your Congress, people understand that you do not want hedge funds getting a tax advantage, uh, on the public, they get, uh, they get short term trading gets taxed as long term capital gains and it's called carried interest. And so they can buy and sell in minutes and get taxed favorably. That is absolutely not fair. Everyone knows it. It's never been fixed.
Scott Bennett:Yeah.
Nikita Wolff:It's a lot of corruption wrapped up into that.
Scott Bennett:Yeah. I think, I think that's, that's where this, this fervor has come from. I mean, quite frankly, our 3rd Decade, my generation, I think, and even younger is kind of leading just this charge and everybody remembers'08 and things like that. And there has always been a mistrust of the market and rightfully so, I think hedge fund has kind of been been the hedge fund managers and the different things that they do have, have kind of been the, uh, the face of that. And, and so you have a lot of people kind of trying to stick it to the man. And, I think that that's kind of a cool thing to see how they've been able to, to kinda use against him as Bob said, you know, the problem also is when, when people are playing by different rules as well, which is another complaint that people have had about hedge funds for a long time. So in terms of the overall stock market changing, we could see some changes in terms of how maybe there is some more regulation. I kind of doubt it with Bob as well, unless you start talking about taxing them more. But, um, cuz I think now too many people know about this and, and things like that, but the mechanics of how, especially hedge funds, which are a huge, huge, they manage a ton of money, uh, do their business, I think will change some, I mean, it's crazy. I, I think they already are. They, they probably have whole teams of people watching the red at wall street bets, uh, subreddit now. And they're definitely not making their shorted shorted positions, publicly known things like that because this is now a real concern. So like anything else when a new technology or somebody figures out a new way to profit off of something that has kind of always been, there will be some correction and, but long term it, you know, the, the market itself at the end of the day, we're talking about a handful of companies, a very small portion of the market. The overall mechanics might affect some day traders, but, uh, I don't think it will. We'll see anything to you. Huge here,
Bob Swift:Scott, one of the, one of the things Nikki as well is that, remember, you're not gonna hear about the people that accumulate wealth over 40 years by long term solid diversification, low cost index approach.
Nikita Wolff:Right cause it's not as exciting.
Bob Swift:No, they're all out there. And hopefully they're all doing what I'm doing, which is just watching this with you do hear about the great lottery winners or the great losses. I'm always reminded of a famous wall street saying, and it's coming true right now, which is be careful when you poke the bear. So all of these people that are currently think they're winning, they have poked a really big bear. The hedge fund industry will figure out how they need to operate and the less experienced people, ultimately there's gonna be a lot of them lose a lot of money. I'm sorry to say, but they're speculating and hopefully they understand their risk. It's it's it's like just cuz my friend takes a risk and jumps off a three story building. I said, I'll give you a thousand dollars if you do that and live and he does it and he lives is that a good idea? Should I go do that too? Just because he took a risk and won on that particular instance, does that mean everyone else is gonna win? No, not at all. So big risk c ome w ith big reward to a very few people.
Nikita Wolff:That's true. So for people that are strongly advising just to play it safe and to pull your money out, what would you say?
Bob Swift:No, this, this doesn't change any of your l ong t erm investing plans. I think that, u h, u h, and I'm not a forecaster as you know, but I do think we're probably gonna have slower times in the market for a year or two. U m, but that's perfect, frankly, for all you people who are accumulating wealth, you want cheaper shares right now. You're the buyers right now.
Nikita Wolff:Right. And we've been in a bull market for so many years at this point that part of this cycle is that, you know, it does go into a, um, a bear market. Yep. And that's when you get to keep with your normal investing plan. Like for myself, I have like monthly contributions. So even though this little part of me is like a little bit scared right now, I'm also not gonna go into Vanguard and change that. And that if we do end up hitting a recession, I'm gonna continue investing that money each month. And it's at that point, if we are in a recession or, you know, heading that way, I'm buying cheaper shares and sticking with the plan long term.
Bob Swift:They will, they will return you're you should actually be rooting for a bear market for the next five years<laugh> while you should accumulate.
Nikita Wolff:I know I feel wrong doing that, but I have, I've been kinda crossing my fingers for a couple years.
Bob Swift:I t's g onna h appen. We've h ad a lot of t hings g oing o n where a n economic slowdown seems appropriate. So if there is a market correction, it won't be because of Game Stop. It'll be because of an economic slowdown due to the pandemic, due to the unemployment, due to some administration, some, u h, legislation, u h, as the new administration figures out the best ways to, get through the pandemic and then start growing the economy again.
Nikita Wolff:So do you, do you really see something like this affecting an investor like me who is highly diversified?
Bob Swift:No, not, not financially. I think it's great entertainment. Yeah. And right now, you know, we're all a little bored. Well this is kind of fun to watch, right?
Scott Bennett:Yeah. Bob's point of, of COVID and where we are like it. I, I think it just shows kind of the absurdity of saying something like this as, as you I've read articles about it already that, oh, this is going to collapse the stock market. So I'm not saying anybody's absurd for, for maybe being scared about that, but, but the absurdity of those who know better saying that this is gonna collapse. The stock market fact of the matter is we're in the middle of the worst pandemic, the worst economic numbers we've seen as an industrialized world. Um, and if you would've said that nine months ago, nobody would say that the markets are where they are now, even this pandemic, you cannot predict what the mark are gonna do. Yes. It will there be a slowdown probably because of it. Probably we don't know when, or we don't know for sure if that's gonna happen, but then to turn around and say, oh, I can predict because four or five companies or a few pen or a few, uh, hedge funds have had to pay a lot of money. I can predict that the markets, this is gonna cause a market collapse. It just it's, it sounds pretty absurd. And, and saying that, yeah, COVID 19, hasn't hasn't crashed our market yet, but uh, this game stock, uh, thing will.
Nikita Wolff:Right. It's putting too much weight in a handful of companies when we're looking at, I mean, thousands. Yeah.
Scott Bennett:Yeah.
Nikita Wolff:So do you guys foresee behaviors like this specifically with this almost mob mentality that has been, uh, spurred on by Reddit users? Um, do you foresee behaviors like this gaining traction and potentially harming that overall normal and expected function of the stock market?
Scott Bennett:I mean, I think for that to happen, there would have to be no adjustments, right? Like the hedge funds would have to not learn from this and I guarantee you, they already have, um,
Nikita Wolff:Yeah, a very painful, expensive lesson.
Scott Bennett:A very painful and expensive lesson. So, you know, maybe, but I actually look at it and might potentially boost, uh, and, and help the overall health of the less speculation kind of going on. Yes. As Bob said, speculators are necessary. There will always be speculators. That that is just something that's going, it's human nature that will always happen. The problem is, is when these speculators manage a lot of money and, and, and that, that becomes a problem. Or when, as, as Bob said, in his co comparison in 1929, when the everyday a person, every single person becomes a speculator, then that's an issue. I don't look at these wall street bets, people as speculators, um, in the hole. I mean maybe, maybe the people who are really dedicated to that subreddit are speculators, but the people who have kind of jumped on the bandwagon here, I don't think there's a lasting effect. Again, it's of fun, it's entertaining. And, and hopefully the people who are signing up are not throwing their entire mortgage money at Game Stop stock because that's people are gonna get hurt. It's the people who put put$500 or a thousand dollars, much like they would, if they wouldn't to Vegas to buy some Game Stop stock and see if that, you know, pays off. But at the end of the day, you know, there will be some correction here in terms of what the hedge funds do and what speculators do. Uh, but for all intents and purposes, the market is gonna continue to do what it does.
Bob Swift:The real issue here is the, uh, uh, the market will remember, we're only talking about two or three and the world has 7,000 stocks. So the amount of money relative to the entire stock market is micro what's going on. So the world is going to exist with 3M and, General Motors and IBM and Microsoft and Amazon, they're gonna be, they'll have their own level of speculation, but nothing like this. So everything will, uh, continue as is what will happen is all the people that ultimately come out of this that made a lot of money. They will become experts and they will start selling newsletters and podcasts. And then sometime they'll make another big decision, a, a big financial play and they'll get killed. That has happened every time too. Today's hero is five years loser.
Nikita Wolff:And I mean, it is exactly like gambling truly. Yeah. That's what that keeps people coming back is they have one big win and then they lose so many times that they end up with a net zero.
Scott Bennett:I there's one, I just saw an article on t his g uy. S o i t's, I forget his name, but there's, there's a really famous guy because h e he's on a bunch of articles and, a nd news stories, the guy who predicted 2 008, right. Who predicted the real estate level, when this came out, his first interview, he was furious because he's like, well, this is not okay. He'd k ind of got his hand c ut in the cookie jar. Yeah. He had some money invested in these hedge funds< laugh> and, a nd now, u h, that money has, has gone down quite a lot. So yeah, i t it's g onna, it's g onna happen. U h, speculators are going to speculate. I, I do worry out this being somebody's first exposure to really the stock market and understanding how it works. I think that's, that's an issue here. And I, it makes me believe t hat i n more in the work we're doing at the 3rd Decade, but that is an issue here. A nd, I also think that, you know, overall, you know, people are thinking about t his a s 500, a thousand bucks to throw at something and not mortgageing their future, you know, to, fo r G ame Stop.
Nikita Wolff:Right. I worry a lot about my peers because I'm seeing so many friends posting about this. And I think that for a lot of people, this is peaking their interest. A nd they're wondering if they, you know, maybe I should buy a few s top a nd t hink about my retirement. And I think it's a really good distinction to make that this playing with stocks, you can do it if you want to, but that is not your retirement plan. It's your gambling money. And like Bob said, if you decide you wanna have a little bit of money, that you don't care if you lose each month i n your budget, but you're hitting all of your other goals, you're paying all of your bills. You're investing whatever percent of your income you need to invest to hit your retirement goals in a diversified portfolio. Then sure. If you w anna throw 500 bucks a month towards stocks, that you might lose all of go for it, but it's not a replacement to actual retirement investing. So what are your g uys' thoughts on Robin Hood's choice to suspend access, to investing in these stocks?
Scott Bennett:Yeah, this, this was a, it blew up even more as, as I think really i t hit the national stage, you know, this wall street b ets thing. I'd been following it a little bit, but then when Elon M usk first tweeted about it a couple nights ago, that's when it really hit the national stage. And then Robin h ood, we're recording this the day after Robin hood restricted trades and that just poured gasoline on the fire now.< laugh>, I mean, people who were not t he t hink a bout i t b efore, definitely think about it. I think it's the first u nit. W e, we couldn't even unify around how to, how to beat COVID, but everybody seems to unify in this country a round that Robinhood is evil now. U m, so when I, when I first heard about it, I'm like, oh my goodness, that is terrible. You know, on, on the surface level, their explanation does make a little bit of sense, I guess, in that we're trying to protect our customers as well as Robin Hood's business as a whole, they're I think we're kind of worried about getting sued if you believe their explanation and saying, we have a bunch of people who have never invested, and now all of a sudden wanting to buy shares that are so obviously overevalued, when that drops down, those people are gonna come to us and say, Hey, you didn't warn us, uh, adequately enough, what they ended up doing again, was pouring gasoline on the fire. They, they put kind of the target on their back, you know, the flip side to their justification for doing that. However, and what has picked up the most internet traction, because it does make some sense. I mean, we, we gotta wait till, till everything comes out is that Robin hood at the end of the day makes a lot of money off of hedge funds. Uh, part of their business model is selling data, trade data to hedge funds so that the hedge funds understand the day to day movement of money. That just your average investors making, um, your kind of average day trader on wall street, bets is making, uh, Robin hood sells that data. And they also have a lot of equity bought into their company, buy some bigger hedge funds. So if it comes out that they actually stopped the trading to protect the hedge funds, I think they're gonna be in an even bigger world of hurt than they're already in right now.
Nikita Wolff:I mean, they've got a vested interest yeah. In, in helping these hedge funds, uh, come out on
Scott Bennett:Top. Yeah. Uh, it seems, it seems like on kind of on the surface level, again, you do have a lot of people kind of on the internet, just, just kind of throwing out these and then they, they get a, they make sense. So they get a lot of, a lot of fire behind them. Um, and, and, you know, at, at the surface level, it does not definitely does not look good.
Bob Swift:I would just say that, uh, relative to Robin hood, I think it's be careful what you ask for their intent was to help young and new investors and all of that. And all of a sudden, now they have a whole ton of them doing the wrong things. for, financial security. U h, and they do have a bit of a conflict with the hedge funds. So the larger custodians a nd o f TD M eritrade and Schwab and fidelity, they all put restrictions on this stuff pretty early, and that's just business as usual, they have to protect their own business. They actually have a regulation world that they have to pay attention to as well. So, yeah I think Robin h ood is got thrown i nto the big o ld v ery quickly, and they're gonna have to figure it out if they are even to survive. I'm wondering frankly, u h, if they survived this, that they, they had a wonderful, nice little vision and we'll see what happens from here.
Nikita Wolff:Right. I've always felt skeptical of them. I mean, I'm obviously skeptical of stocks in general, cause it just seems like I don't personally like gambling<laugh>, but anytime a company makes investing look sexy. I mean, essentially is it makes me just wanna run the opposite direction because this is the, the best type of investing you can do is the most boring type of investing.
Bob Swift:Yeah. Once you get hype and, and emotions going, that should be your first red flag that I need to approach this skeptically.
Nikita Wolff:Yeah. And the, the way that they advertise is so like, it's like interesting and evil feeling to me because they, they may make it look like everybody that plays as a winner. I mean, it really is exactly like a casino. Yeah.
Scott Bennett:I don't know if it's to be believed, but a really funny, quick aside is part of Robinhood, like a signup bonus that they were saying is they would give you a stock when you signed up. And it's usually a really low value stock. Um, and some people when they signed up for Robinhood actually were given a share of Game Stop.<laugh>.
Nikita Wolff:That's pretty good. Uh, yeah. Pretty funny. Pretty good. So how do you think this ends for the people participating? If, if you were somebody who jumped onto the game, stop, train, what happens next?
Scott Bennett:Yeah, it's interesting. Um, there are, there are a few different things. I read a really cool article in Bloomberg kind of on this that I, I thought did the best job of kind of explaining some of the possible outcomes to this specific situation. And I think it is a pretty specific situation that we probably won't ever see again, because like we talked about, uh, people are gonna make changes to, to how they do things. Um, but one of those things kind of the first, when, whenever we talk about scenarios, I think putting, you know, two unlikely examples to start out with, and then meeting somewhere in the middle. But the first unlikely example is that Game Stop. This company that was a small cap company, kind of was struggling for all intents and purposes, outdated business model. They take this huge new flood of money, right? And they become a powerhouse Game Stop takes it all is actually worth the price that that people are saying it's worth. And, and really quickly turns it all around, based on this huge flood and, and, and investors are going, oh yeah, this was a good investment decision Game Stop is actually worth this amount of money that I paid for it. Um, again, very unlikely scenario, especially to have happen as quickly as the markets could react to it. It's basically impossible. The other one is we've already kind of touched on it a little bit is that this creates this huge vacuum. It topples all hedge funds, it topples investing as we know it. And all of a sudden, you know the market is doomed. That is always a scenario at time. People have been saying it forever. It is yet to happen since the market started. And it's, it's not very likely either, but it is a possible scenario. I guess my question is, what do you do about that?<laugh> if the market collapses at the end of the day, this sounds, uh, really dark, but if the market can collapses, then the economy collapses and we there's no more world. As we know it, United States, as we know it, uh, it's a free for all. And I don't care if you had money invested or you didn't, your dollar isn't worth anything.
Nikita Wolff:Right. You're just fighting to live.
:Yeah. At that point. Exactly. So, uh, those are, those are two extremes. What I think will probably happen the most plausible thing is, and we've already seen it play out some, these hedge fund companies who had shorted these stocks with Game Stop stock in particular are they're. They continue holding out, hoping that by the time they actually, those broker dealers come back to them and say, we need our shares back.
Scott Bennett:You need to buy them now, by the time that happens, the price will have dropped, um, that that obviously might happen for some of them, but it could happen that yeah, a bunch we've already seen some, some, uh, big hedge funds go bankrupt because of this. So, however, it's not a hundred percent of the shares that's that's gonna happen to. So when the majority of the people who had shorted this stock actually have to pay up and buy, all of a sudden, you have a bunch of people who bought in when it was really high right now at 300 something dollars and projected to go up even higher, who have a share of Game Stop and have nobody who's willing to buy it. Cuz right now the only people who are, who are buying Game Stop are the ones who think the price is gonna continue to rise because people have to buy them, right? The hedge funds have to buy them at this point, nobody's buying Game Stop because they believe that first scenario, that they're gonna become one of the 500 biggest companies in the us and things like that. So when, when the amount of people who have to buy their security dry out, then, uh, who's left to buy them?
Nikita Wolff:Could this potentially bankrupt these individual smalltime investors?
Scott Bennett:Depending on when they got in. Of course. Yeah. And, and it's been really, really interesting to see, you know, the, the people on wall street, bets, particularly who bought in really early and have been when they bought in and how much they're in for and how much that's turned into 50 grand turns into 13 million. You know, those stories, usually those people sell and walk away quietly. Right. But, but it's, it is this hive mentality. And it's really, really interesting to see again, it's something we haven't seen before, but at the end of the day, there's gonna need to be people who have to buy them. They're saying right now their whole end game right now is that, Hey, we're gonna continue to hold until all the hedge funds are, are out who shorted this position. We're gonna continue to hold until that happens. But you know it for, for everybody to come out on top here for their, and there has been a big transfer of wealth, right. That billions of dollars that those hedge funds lost have been going to some small individual investors who bought the stock early. I get that, but when are they gonna sell it? And as soon as some of those people start selling, you're see everybody rushing to sell. And the question is who's gonna buy.
Nikita Wolff:Right. And at the end of the day, I mean, truly everyone's primary concern is their own financial wellbeing. So yeah, I don't expect, I don't expect a hundred percent of those people to hold indefinitely the way that they're being pressured to someone. I mean, if I had the 15 million dollars, I would not be holding it. I would be retiring.
Scott Bennett:Yeah. Yeah. And, and again, it's, I think there's gonna, obviously there will be financial papers written about this forever. There's gonna be psychological papers written about this, about the hive mentality and things like that. Cuz it, it is really, really interesting to see people willing to lose that kind of money for, you know, I, I see it as kind of internet fame and being an internet hero. Uh, so we'll see.
Bob Swift:Yeah. The, uh, right now the, if you were gonna short the stock, now's the time to short it<laugh> Because they're gonna run outta buyers here real quick. And um, then there'll be the story cuz when there's no buyers, it goes back down to 10 or 20 bucks.
Scott Bennett:Yep. And I know Bob was joking about right now is the time to, to short it. But mark, my words are people doing that right now, as, as crazy as it sounds, there are hedge fund managers and other people who think that, oh, I, I can beat this who are shorting it now because they're thinking what, what goes up must come down. It's logical, but you better make sure that nobody hears about you shorting it. And, and that, you know, cuz you don't know how long this is gonna last for how long are these people gonna continue to hold?
Bob Swift:Well, it's not, it's not. Yeah. It's not just that. They'll, they'll be some of the people that are looking at 12 million will start selling some of it slowly and then it'll go. Um, but the interesting thing about short selling is you have an unlimited loss. On a short sale. Whereas if you're the buyer, your loss is all you can lose is what you invested, which sounds weird. But yeah, you can go to zero, but it, you can't, you don't have to put up any more money. The short sellers have an infinite, if this thing goes to a thousand or$2,000, the, the short sellers continue with that risk. So they've always had their speculation on turbo when you're a short seller, you are speculating with a turbo engine.
Nikita Wolff:OK. So when people are going bankrupt, it's because they're actually borrowing money to do that, and then owing it.
Scott Bennett:Yeah. Or they're, or they're shorting, you know, you know, stocks or the other side to that. Um, w hen people short securities or, o r speculate in that, it's not just h ead f unds, they're the ones who do it the most and, and, a nd really have, manipulated the system a little bit in their own ways, but people can do it as well and gets really, really interesting. So to Bob's point a nd, a nd to carry out this game, Game Stop example, the, the hedge fund who, y ou know, h as reported lost$ 3 billion in one day, they didn't have$ 3 billion worth of short, contracts that they were trading on. What happened was that's stock c ontinued to rise in price and, a nd it's, again, their loss is unlimited. If it continues to go up, t hey, their loss is unlimited. So that's, that's the scary part. I think for the average investor, they think just like that question you a sked N ikki, u m, you know, I can only lose w hat I put in. Yeah. If you're just buying shares, but if you get into that speculative world, and more and more people are because of, again, the wall street bets and things like that, you better be really, really careful c uz that's where you can lose much more than you even put i n.
Nikita Wolff:Well, I feel like that's a good stopping point guys.
Bob Swift:Yeah. I, that kind of an anxious call going on here. So if you're good, I'm gonna get off. Is that okay?
Scott Bennett:Yeah. Sure.
Nikita Wolff:Thanks for joining us today. Bob. Appreciate your perspective.
Scott Bennett:So thanks everybody for tuning in. I, I feel like that was a little bit abrupt at the end with Bob signing off, but that was real in terms of, uh, he does work as a financial advisory. He probably had a client. Who's wondering some of the questions we just went over and uh, was a little bit anxious, but you know, this was a, a podcast we decided to throw together last night because we've gotten questions about it and it is such a big story. So I hope we, we were able to answer some questions. We, in no way, you know want to, to say, this is what you have to do. Obviously we're, we're dealing in a new playing field here. We're dealing with something that we haven't seen before. It can be scary. And we don't wanna downplay that, uh, either that emotion of okay. I'm but you know, again, Bob said fear and greed other two, I think for everybody who's scared. There's a few people who are kind of licking their chops and we wanna, you know, caution against rash decisions in either direction. So hopefully you got a lot out of it, Nikki. Thanks so much for putting the questions together that you had. Cuz if you have'em I guarantee everybody else has'em.
:Yeah, absolutely. I appreciate you and Bob, both sharing your perspectives. Cool. Talk soon. Bye.