I suspect, like me, you first heard about the amateur ‘Reddit’ share speculators either on Twitter, or ANOTHER social media, or if you were really late to the ‘party’ then you heard it on a news programme of your choosing.
For those who still have no clue what I’m talking about, this was a (media) tale of David investor versus Goliath hedge funds, where retail investors joined forces to buy shares – notably Gamestop – which had been heavily shorted by those same hedge funds.
The combined buying power of this group effectively sent the price of some stocks soaring, which resulted in some hedge funds losing billions. It was supposedly a tale to warm the heart, with some of these investors making big profits, although just how big will depend on when they actually got out of those trades themselves.
Of course, the media excitement around this, will undoubtedly have added fuel to the fire, drawing in many more amateur investors, with the result that many will have already lost their shirts on their trades. For example, while Gamestop was just $17.69 on the 8th of January, at its high it was pushed up to $483, but (as I write) it is down at around $51.
So, if you bought in early January, you’ll still be sitting on a profit. I suspect however that many of those who were late to this, and sensed quick money could be made, did not. After all, someone did buy at $483 – let’s hope they’re losses were not too crippling because the likelihood of them ever reaching that price again seem slim in the extreme.
There was much trumpeting of this being a democratisation of investing, the little guy kicking the big corporates in the pants, and admittedly there will be few tears shed for hedge funds losing money.
But the number of winners is likely to be small, and those who did jump on the bandwagon towards the tail-end of this pump and dump, may well be regretting the day they ever heard of the Reddit group. So, what can we take from this?
Well, firstly, if you’re hearing about this sort of ‘action’ and the ‘profits that are being made’ through the mainstream media, then it’s already too late.
In a way it reminds me of the period in our own mortgage/housing sector, prior to 2008. Here we had amateur speculators, fuelled by ‘property club’s and ‘get rich quick’ property scans, all trying to ride the house price wave to quick profits.
How many episodes of Property Ladder do you remember back then which involved ‘developers’ spending a fortune on property, only to find that having renovated (often badly), the property was still being valued far in excess of its original value plus the cost of the work.
Like in this Gamestop example, that was only going to be achievable for so long, and when it looks so easy to do, there were plenty willing to follow the example being set, buying property with huge loans, having done little or no research, or believing the lies peddled by those property clubs selling an ‘easy money’ idea. They invested their hard-won cash seemingly certain of the ‘sure bet’ they were placing on the market, and were just about to cash out their winnings before the whole edifice crashed around them.
Even now, 12/13 years on, you sense there are some who believe property investment is a ‘no risk’ endeavour and that huge profits can be achieved without having to do much for it. Those days have gone – which is why I suspect those speculator types are looking much more at shares and the like.
However, occasionally you as advisers will no doubt spot those who think a get rich quick scheme starts with a buy-to-let mortgage. Perhaps when told they’ll need at least 20/25% deposit to get going they’ll soon get bored and look elsewhere but it is important to guard against this type of complacency or sheer ignorance. Property investment remains a long-term ‘game’ – indeed, all investment tends to be the same.
There may be an exception however to this rule, and it could come in the form of Bitcoin right now, although again how long this might last is anyone’s guess. I recently saw an image of an advert on a bus which said, ‘If you’re seeing bitcoin on a bus, then it’s time to buy’.
To which my answer would normally be, ‘No it’s not’. In fact, it’s probably the worst time to buy, except that I’d have been wrong. At least I would have been over the last month or so.
The bus image was posted on Twitter at the end of December when one bitcoin was worth just over £21k. As I write this, one bitcoin is over £34.7k, which the analysts tell me is much to do with Elon Musk’s enthusiasm for the crypto-currency and the news that Tesla bought $1.5 billion of bitcoin in January.
What this does to bitcoin in the future is anyone’s guess, but I guarantee those who don’t take any investment seriously whether property, share or currency; those who don’t carry out their due diligence; and those don’t have at least a medium-term investment horizon in mind, are more likely to be counting losses than ‘big wins’.
Bob Young is CEO at Fleet Mortgages