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The Lessons and Blessings from the GameStop Short Squeeze

Welcome to The Investing for Beginners podcast, and on today’s show we discuss the recent market volatility regarding the situation with GameStop. We have George Papazov from Tradepro Academy with us to help educate everyone on what happened with GameStop, Robinhood, and w/Street Traders.

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Announcer (00:02):

I love this podcast because it crushes your dreams and getting rich quick. They actually got me into reading stats for anything you’re tuned in to the Investing for Beginners podcast led by Andrew Sather and Dave Ahern with step-by-step premium investing guidance for beginners, your path to financial freedom starts now.

Dave (00:32):

All right, folks, we’ll welcome to The Investing for Beginners podcast. Tonight. We have a special guest in light of all the craziness that’s been going on in the market. We thought we would have a special guest on to talk about some of the goings on in the market, as well as some other things. So I’m going to do shoot to everyone. To George. George is from the trade pro Academy and he is the CEO. And he’s got an interesting story that he’s going to share with us right now. And then we’re going to talk. So, so Georgia say hello and tell us a little bit about yourself.

George (01:02):

Hi Dave.Hello, Andrew. All the listeners of the podcast. Uthanks for having me on, I’m really excited to talk about this topic. I know it’s getting a lot of traction and, you know, through my career, just to kick it off, I started trading as a licensed trader at Scotia bank in Canada. I was on a trading desk through the 2008 fiasco saw a lot of stories of people getting hurt. Uyou know, at the time I had a blog, I was putting out a lot of warning messages about this and, you know, I hate to say it, I did end up being right, but it didn’t feel good afterward. I felt like all the clients whose calls those taking, I let down because I didn’t really get my message out. Uand that really propelled us to start our business for online trading education. It’s been the drivers since I’ve been trading since 2001 and you know, one model, I guess it’s even relevant to the discussion today that I always live by is there are old traders and there are bold traders, but there are no old and bold traders. And so, you know, this past year I became a father. So I considered myself to hinge on the territory of old trader. And,you know, I think these are some topics we can bring up throughout this.

Andrew (02:05):

I love that. I feel like I hinge a bit on that side too. So hopefully we’ll have to try to represent the younger side as well. So let’s talk about GameStop for a little bit. Maybe in case anybody is been living under a hole lately, maybe give us a synopsis. We’re recording this February 2nd, 2021. So by the time this goes live in a couple of days, this whole story is probably all old news anyways, but it’s been probably the most fascinating thing I’ve seen in the market. I’ve been in the market since 2012. So what’s been going on, how do you give us the quick summary and maybe some of the inner workings of what’s happened with this game stop thing.

George (02:53):

You know, it’s been, I’ve been investing a long time and you know, over 20 years now, and this kind of last two weeks been very exhausting for us as well. The workflow’s gone up, you know, and the, you know, this thing, if we take it back to the beginning, it started in November on wall street bets to subreddit on Reddit, right? And the idea there was, look, there’s going to be a new, [inaudible] a new X-Box console coming out. This is a really good investment opportunity for the holiday season as a sales increase, right? The stock generates more revenues valued higher, and that’s where it started. That was the inception and really this trade, it wasn’t ever planned to become what it did. Right. And what ended up happening is more people started piling on it and information surfaced that there was a lot of short interest.

George (03:37):

Now short interest is basically a speculative play where you’re betting on the downside of a company. So you make money as a drops and, you know, hedge funds, a lot of people who trade both sides of the market, see the short opportunities as an opportunity for themselves to generate a return as the markets or company pulls back. Now, what’s fascinating is the hedge funds. If we even look at the movie, the big short, and that came out, you know, after the housing bubble collapsed at the time they were sort of the heroes, right? They went against the system. You know, they shorted an asset class that was really generating tremendous returns, but on the back of a really weak foundation. So fast forward to where we are now, you know, the news came out, the hedge funds are short, a lot of money, and there were short 122%, which means they were short, more stocks than the company had issued.

George (04:29):

Theoretically, if you could continue to push that price higher and higher, you know, these hedge funds will not be able to get out because there aren’t enough shares to cover their shorts. And really the idea became, you know, it became a crowdsourced squeeze, what we call a short squeezes when we force somebody. So if you short an asset, something that has value the play there is that you sell it at a higher price. And when it drops, you buy it back at a lower price. And the difference is whatever the movement was, that’s your profit. But if you sell something and it goes up in value, you now have to purchase it at a larger amount. Theoretically on that trade, the risk is unlimited. You could lose, I mean, GameStop could have went to 6 million per share. And so what ended up happening is there was a mania of retail consumers who, you know, obviously all of us at the end of the day just want to do well for our family.

George (05:23):

So I’m not knocking anyone. I love to see young people and new people jump in these markets, but they really started to chase that idea of a short squeeze. It started out as let’s see how [inaudible] sales do, and you know, let’s ride it out for a play that’s reasonably based. And it turned into this, the retail trader versus get the bad guys back. Let’s bring down this market, you know, like it became a movement and the danger with anything becoming a movement, is it invokes a lot of emotion in your investment decisions. And if it’s one thing that doesn’t mix, it’s investing in emotions, you know, I actually have on a daily basis, when I trade, I have a way of measure my mental capital. And when my mental capital slips below a seven, I stopped investing in trading because clearly, no matter what the market’s doing, I’m not alert enough.

George (06:12):

I’m not disciplined. I’m not prepared enough to take advantage. And so we kind of in this trade, we lost the idea of how the trade started or the opportunity and everyone piled in on the long side. But anyone that’s a professional trader will tell you that it’s extremely easy to build the long position. Every market, the hard part is finding a seller. And so what fast forward to where we are today on February 2nd, it’s down a ton. The news came out that hedge funds had gone out and actually bought back their short positions to a large degree. We went from 122% share of short shares, the 39. So what does the market need to go up? It needs buyers. If everybody who wants to buy the stock is already in. If the hedge funds who are short have already back or bought the close out their positions, now all you have is people that are already long, but when you’ve already bought something, you’re actually short or not as short, but a seller waiting to happen.

George (07:13):

And so this is what ended up happening today. Everyone at the end of the day, the news came out, the driver for this manic run up is gone. The catalyst is over. And so it’s all a matter of who gets to sell first and it’s a fire sale. And unfortunately the person that loses is that last person that joined Reddit, who’s now buying the all time high and selling it at enormous losses. So this is kind of just summarize in general that each person or participant of this entire move has their own viewpoint. And there’s something fascinating about them. But in a nutshell, that’s what happened. It started out as a good idea. You know, the market got irrational and emotional to Debbie combinations and it presented a short term opportunity, but it’s not about getting in. It’s about getting out the matters. You don’t have a profit so that you close the trade. And unfortunately, today we’re seeing it. There was a lot of capitulation on the retail side. So that’s just an overview.

Andrew (08:05):

Yeah, it’s a good one. And obviously there’s a lot of things that kind of fall out from that and potential for, you know, different different type of environment to look for, whether it’s you know, people who are, might be looking for a new broker. I know there is a lot of broker drama. You could see hedge funds a lot more hesitant to short, but before we kind of unpack that, maybe let’s take the case of somebody who let’s say they were this person who you talked about, who joined Reddit late, bought at an all time high. And now they see their, their position essentially went from three 50, 400, whatever it was down to like close to a hundred or 150, let’s say they spent their whole STEMI check as, as it’s on the, on these GameStop stocks. And now they’re down. What would you say to them? And what kind of lessons do you think they could bring out of an experience like this?

George (09:05):

Yeah. You know, first and foremost, I salute that person. It might feel like a difficult time right now, especially if you’re down money, right? And, but at the end of the day, it’s your introduction to the industry? One thing you could learn from this is that nobody in investing has an easy road. If something is easy, you know, it’s being done on your behalf, you’re the one that’s losing in it. So while you experienced some of the easy money and, and the part of it that made you excited about it, you know, this is a learning lesson that, Hey, this is doable. These opportunities do show up. It’s just a little bit of adjustment in the approach. And, you know, getting out of those emotional situations and having a discipline strategy and a plan and an ability to replicate that success because that easy money doesn’t come often and that easy money is the hardest money to get.

George (09:55):

Right? You always hear stories of somebody that did better. I, there was one of the guys there on Reddit who I think turned 250 K into 50 mil. But at the end of the day, what is it now? Did they sell? So I guess the learning lesson here is there’s a lot of them. Number one is know, this market is a great opportunity and kudos to anyone who jumped out and took the chance and took a shot. Because when you look at wealth distribution on individuals and the top 1%, some of their biggest holdings are equity plays in business equity. That’s the part of the drives, their growth. You see the billionaires, it’s the share ownership that they have in their own companies. It’s the business equity that they own, et cetera. So this is an introduction of sorts to the path that could get you to your goals.

George (10:37):

And while it could feel painful in the short term, the learning lessons are worth every single penny. And at the end of the day, you know, money lost, you could get it back. The opportunity is there. It’s not like there was, you know, physiological harm done. And I know how it feels to be on their water, on a position I’ve been in this a long time. And I can’t tell you that I learned lessons easily. I’m one of those hardheaded people that like you tell me not to put my hand on the stove. My grandma told me that when I was young whack, right on top of the stove, cause I want to find out why. So learning lessons are, you know, there, this is doable. There’s a lot of opportunity and, you know, welcome to the markets. They’re not always easy to navigate, but for longevity, if you want to do this for a career, not like a short-term get rich overnight, you know, it’s completely possible feasible and it’s doable on a daily basis.

Dave (11:28):

Yeah, I totally agree. You know, that’s, that’s a great viewpoint. And I think one of the things that I know that as an older folk, as I’ve learned more about investing the opportunities that the younger generation has, are just staggering. And I came across a couple of interesting facts the other day. So number one Warren buffet, who is one of the richest men in the world, I did not know this, but he’s worth about $84.5 billion, which is a nice chunk of change, but he earned 81.5 of that after he turned 65, he’s now 91, I believe. So he’s earned the vast majority of his wealth later on in life. And he started investing early on. And so it’s not just about, you know, like you were saying, the big, the big hit and the big win it’s about being consistent and staying in the game and basically surviving and sticking with it. And I think that’s really where the value and the wealth really will come into it into play. And there’s so many different biases that go into all of this. And I think you are, you are kind of referencing those. So I guess, talk to us a little bit about some of those, I guess, biases and things that you’ve experienced, you know, in your decades, long time in the market and how you’ve kind of dealt with some of the ups and downs.

George (12:48):

Yeah. Before I jump into that Dave, do you mind if I just circle back to what you mentioned about Warren buffet? Cause that’s an amazing statistic. You know, like the learning lesson there is, it’s never too late to start, right? Like once things start to work, like everyone expects to start trading and then tomorrow they start making money. But at the beginning, your measuring stick, measuring stiction, be profit. It should be knowledge like, you know, the reality of this industry is it’s going to take you longer to be consistently profitable than you ever thought possible, but you’re going to generate a lot more very quickly after that. It’s like, if you just try to make $50 a day in this market, once you accomplish that goal, you have the skillset to make more because you just leverage and scale up your position sizes. So I think it’s never too late for this business.

George (13:35):

And for the younger minded listener, you are the market, you know, the older people that are investors, we’re trying to figure out what you guys are doing and where you’re spending your money. Because at the end of the day, you’re the consumption power. You’re the driver, the advantage you have over anyone else’s that you have the touch points directly in the businesses that are going to be the next Apple’s in the future, the way you spend your money. And this kind of goes into the consumption portfolio, wherever you spend your money. Those are companies that in the future have the potential to be Apple. So because you’re connected to it, you know, you’re actually driving the growth of these stocks. So that’s one of the big advantages, you know, for, as you get more seasoned in this industry, you’re looking to figure out, you know, who likes, what, how did they like it?

George (14:16):

And we’re looking for data points, but as a younger listener, you know, you’re there, you’re creating this market. And so I just wanted to mention that just as an empowering and lifting message, no matter how rough these days are, you get through it. And now you got a Stripe on your shoulder and now you can do the next trade better with more knowledge, more experience in terms of the biases. You know, there’s a lot of different biases. So when we look at stocks in today’s market and by the way, I’m of the opinion, and I’m sure Dave and Andrew, you guys would agree from a value perspective, value investing is having a harder time these days, but that’s always case when you get really inflated, you know, late stage, late cycle bullish markets, because value doesn’t matter anymore. You know, you have a federal reserve, that’s printed all this money.

George (15:01):

You have all this support on a government level, but the good times don’t go forever. And in fact, when there’s peak amount of optimism, it’s the best time to start thinking about protecting some of those profits. So through GameStop, you know, one of the big takeaways here is that, and, and you know, I mean this with all the respect, but new traders chase gains when they started in the industry, new traders always want to answer the question, how do I make money and not just money, but more money. How do I make the type of money where, you know, I retired in two weeks time and the better approaches to look at it, the professional traders, what their job is, the job description is you’re a risk manager first, and you always have to look at your risk exposure and so piling into one trade where you have so many different people on the same side of it.

George (15:50):

When you’re trading on the same side as everyone, you know, that’s one of the biggest risks in the market. And so through GameStop and through the experiences, you know, I I’ve come up with six lessons to learn. And we talked about this on YouTube today. Number one, someone unfortunately always ends up holding the bag and you know, today that might be you, or it may not have been later on. You’ll learn some more approaches on how to get paid on the way up. You always have to have a partial position. The problem is when you go all in and then all out, it’s very binary. And that puts a lot of focus on the decision making in the real time. But it’s really hard to decide something that you don’t know where it’s going to go. Anyone who tells you, they know where the market’s going is lying to themselves, let alone you.

George (16:33):

So really, you know, someone always ends up buying the top and the way to avoid it is to come up with a trading strategy that gets you in on partial positions. When you get in, start out with a small position, you don’t want to throw the whole STEMI check right at the beginning, split it into thirds, put one third in. If it goes up, put another third in scale into profitable trades and not buy into losing ones. And I think that’s one of the biggest learning lessons because I was part of GameStop. I bought call options, but I put $500 in it. It’s kind of my lotto ticket. That 500 bucks today is probably a hundred, but I lost $400. And if I’d gone up, I’m also in silver at the moment, looking for some more appreciation. It’s not that you can’t take these plays, but you got to take them with a risk management approach first.

George (17:20):

So if there’s one lesson to learn through all this, you know, the gains come to the people who manage risk the most effectively. It’s not a game of overleveraging and looking for the biggest movers, it’s a game of picking points where your risk is small. And as you become profitable on the position, adding to it in different points, because at a certain point, if you start out with, let’s say a hundred dollars, you buy small, it goes up $200. You made 200 bucks. You take that two and you add another position. So you could build a really large trading position with next to nothing and risk. And that’s kind of what we like to do at TradePro Academy, both short-term and long-term,

Andrew (18:00):

It’s, it’s a great mindset to have. And I think it’s, it’s a good way to kind of bridge the gap between being greedy and thinking of it differently. Almost like a mindset flip. And, you know, I think it’s, it’s interesting. That’s something I’m glad you, you brought up the idea of, you know, first it was GameStop. Now it’s silver. And so you have this community wall street bets. That really is the subreddit that, that drove this whole thing. But I get the sense that it’s not going away and, and this idea of crowdsourcing and of power to the people. It doesn’t seem to have moved just because GameStop has crashed. And now it seems to moved on to silver and who knows where it will be next week. So can you talk a little bit about maybe that, that change in the market, which might have longterm implications for the way the market’s going to work from here on out?

George (18:57):

Yeah. I mean, look on Sunday, we did an update and, you know, we, we gave kind of a scary stance where like, there’s, there’s the recipe here for potential disaster, because while you pump up the small stocks, the hedge funds will eventually capitulate on if you know which ones that are short, you know, you could bankrupt the hedge fund and great, you know, what? You won, you beat the hedge fund that you were out after, but guess what that does that erodes the conference or not conference a confidence and the structure of the marketplace. So now these big institutional players that aren’t speculating for the sake of short-term gains, you know, the insurance funds, the pension funds, the mutual fund managers. They get scared of that. This volatility, while few people profit from it really actually spooks the market. So you saw some of that last week, you know, these small names are up 50, 60, a hundred percent.

George (19:49):

Meanwhile, the S and P was down a lot. Apple’s down a lot. So one of the interesting things with this is that while this crowdsource behavior has short-term gains for a select number of stocks in the longterm, you know, that’s your retirement portfolio, that’s your mom’s retirement portfolio, fathers, grandfathers, people who have really been investing for a long time, who aren’t speculating in the market are the ones that are going to end up paying the price tag. And we almost saw that on Sunday. I was telling our team, look, if this short squeeze continues, especially on silver, because guess who one of the biggest players in the silver market is JP Morgan. What happened last time, a big bank failed Lehman brothers. And if you go back and study the history of these markets, because if you’re just beginning now, you’re starting in one of the, you know, you’re starting in what some would say is close to the top of a really bullish market, but you got to understand the history of how these things play out.

George (20:44):

So one of these squeeze events can have disastrous on the market, the integrity of it, the structure, you know, the backbone of it, which is the reality is that not many people are traders. They’re not short-term minded. They’re. This is an execution of a strategy for portfolios that rely on these returns to sustain a lot of pension funds. And so that’s one of the things, you know, that’s one of the real costs of this. The second cost is this mentality of crowdsourced ramps up in stocks. It works for some, but you gotta remember this. When you’re long, you have to find if you’re long a stock, how do you get out of it? You have to find somebody you’re willing to sell it to, or who’s willing to buy it off of you. And when everybody piles on this long trade, even though the chart, you look at the chart and you say, wow, 600% return.

George (21:33):

I could have done a thousand into like 60 K. But the reality of that situation is that that’s, if you got it exactly time, the a hundred percent with perfection, and no one knows when that is the people who bought on the low end of it are the ones distributing that load and offloading it, selling it on the market to the people who are coming late into the trend. So while there’s a, there’s an integration while there’s a coming together of individuals with a common goal. At the end of the day, they’re trading with each other, the losses are absorbed by that same community. The people who earned, earned it from the people who lost, who bought the top. So the behavior of it, I really like the idea of people coming together, learning, investing, you know, growing. But I think instead of crowdsourcing plays like, what should I buy?

George (22:22):

How much, you know, to the moon type of behavior, crowdsource ideas, generate ideas, generate discussion around industry. What’s doing well now where’s the future looking like in the next 10 years and build from there and investment strategy. I really think following someone’s trade idea with your own money is one of the biggest disasters. The worst thing is you lose the money and at the end of it, what did you learn? Nothing because it, wasn’t your idea to begin with. So to make this a long and fruitful career, you got to really start to look at trade ideas, generate them yourself. But I love the fact people are coming together, sharing ideas. I love to see young people, you know, taking advantage of this industry and doing well for themselves. I started myself in college trading on my laptop. I was one of 50 students in my university that was allowed to actually have an open laptop during an exam. So I told the teacher, you want to get paid your salary or not. This is how I pay tuition. So, you know, I’m all for it. But I think those are some of the big learning lessons.

Andrew (23:25):

I, I think the, the biggest issue and I liked the way you put it, because I hadn’t thought of it that way, where you said, when they crowd source, they’re basically trading with each other. And so the people who are making money on it, they’re just making it off of each other. And I thought that was a fascinating insight. And I guess the biggest I’ve heard from, from people who are really kind of against this movement, if that’s a way to put it is that you have potential manipulation between people who are making these ideas. And you don’t know, you don’t know if the person who’s writing this on an anonymous forum has a thousand calls, you know, and, and they’re just looking to, to post on the forum and, and see it quickly spike and then sell out for a big gain. And so there’s a huge conflict of interest there. And that’s why I like what you’re saying about the idea of kind of zoom out and look at the longterm, instead of trying to think about how am I going to make a thousand bucks tomorrow from a hundred? Why not think about how am I going to learn about the systems, the techniques, the knowledge, the wisdom, and the types of behaviors that’s going to help me build sustainable wealth over the longterm rather than a quick buck tomorrow.

George (24:43):

Yeah. And you know, Andrew, that, that’s exactly the heart of the issue, right? It’s going for those quick gains. Now there’s two sides to that, right? And any natural human being would want to maximize gains while minimizing loss. That’s, we’re animals, that’s our animal instinct. But you know, at the same time, there there’s an opportunity to look at it and take a longer term approach. One rule that I use, especially my early years of trading is if I had bought it. So imagine you’re getting into a new position. You’re looking at it’s up 200% and you’re trying to decide whether or not to get in. One of my rules is don’t look at this as if though I’m getting in for the first time, trick your mind and say, if I already own some below, because a lot of times we buy, because we’re afraid that we’re going to miss out.

George (25:26):

Not because we like the company or the idea. So you say, if I had bought $200 below what I add to this position, and if the answer is no, it’s probably a bad time to open a new one to begin with, right. And opening a position for fear of missing out or for any emotional reason is it’s a bad idea. It doesn’t work out. It might work out for a month. It might work out for a few companies, but eventually there’s a concept called borrowed money. And if you made some money and it’s borrowed money, it will return to the market. You know, the market is an instrument that loves to separate emotional people from the resources. And I don’t know anyone more efficient than, than that, than the market, other than maybe my ex-girlfriend. But, but yeah, I think that’s so fascinating, you know, discussion in itself.

George (26:13):

And one other trick that I kind of have for myself that I use often is if I’m in a position and I’m making money and I’m excited or even surprised I get out of that position right away. Like if I had a game stop position because of [inaudible] in November and GameStop went to a hundred dollars, right. I would be surprised. And I’ve been in this industry for a long time. If I’m surprised, the reason I’m surprised is because I had no realistic expectation to be here. And so if I had no realistic expectation to be here, why would I buy more? Right. It’s like surprise is a bad way to feel in the market. And a lot of people from that emotion of surprise say, wow, I know I do this. Good. Let me do some more and some more and some more. And then greed takes over. And then you end up buying the top. And unfortunately, like we’ve said, a few times every person who owns stock needs a seller and guess who’s buying it. The last person to the trend, someone always ends up holding the bag in these kinds of positions.

Announcer (27:15):

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Andrew (27:25):

Those are two really good ways to think about it. Good, good kind of visuals to get a sense of the types of emotions and how to try to handle that moving forward, as far as the whole broker fiasco, which is a whole nother story on its own. You know, if, if somebody, again, going back to this person who they made their very first stock pick, they bought GameStop, they held the bag and they’re thinking what’s next? Should I put more money into my Robin hood account? You know, how do I turn this loss into a gain? Do you think they should look at different brokers, stay with Robin hood because I’ve, I’ve heard a story for my brother. That, to me, it was, it was kind of scary to think about they were executing trades for him in the after hours, which I didn’t think, I didn’t think normal brokers did that. Especially if you just opened the account that day and also like, didn’t have a deposit to clear. So I know a lot of people have kinda gotten screwed over by Robin hood. Do you think they should find a different broker and kind of what went into all of that as far as why, why is Robin has so much of a different broker than all the other ones

George (28:46):

That that’s right. There’s a fascinating discussion. Like there’s a lot of points that deserve to be dug through, because I think in one way, you know, Robin hood, and let me say this first and foremost, I’m not a Robin hood customer, all the opinions here that of myself and I want to shield myself from liability. But the reality of the situation is that for Robin hood, they had a different business model, right. And that business model clearly was skewed towards a younger demographic. All right. And how do we know that? Number one commission free. All right. So I don’t have much money to begin with. I’m going to start out small. I don’t want to pay the broker. I just want to trade for free step. Number one, step number two, the gamification of online investing. I think that’s a trend that, you know, I’m shocked the sec or any one of the regulators.

George (29:33):

Haven’t looked deeper into this because you go on the platform, they have a little gift, get your free share, right? They’re creating this psychological process that anchors investment to free the anchors expectations that are unrealistic to the reality of the market. And so with Robin hood, their business model is so different than any other broker. I always look at it this way. If I’m not paying for a product, I am the product. That’s why I’m careful what I post on Facebook, right? Just because you’re not paying for it. How does a company become multi-billion dollar worth company? If you’re not paying for it? Look at the other side of the revenue. Robinhood, retail traders are a liability on their book because the reality is every Robin hood trade you place ultimately ends up costing the money. How do they offset the cost? Because you’re not paying for it.

George (30:22):

They take your orders and sell it to the very same hedge funds that this Reddit crowd was trying to blow up. Citadel virtue. You look at their balance sheets, all of their assets are the flow or the orders that they sell of their retail clients to these firms. What are these firms? Do they grab those orders? Grab it at a bit of, let’s say, you know, for example, 10 Oh one for a stock seller, an offer of 10 Oh two, they make 1 cent on millions of transactions. So really, you know, this expectation that here’s a free brokerage, you know, everything’s fine. Everything’s awesome. They really did cater with excellence to millennials. Like Robin Hood’s platform is like the Juul. You guys remember the Juul to young kids. It was it’s optimally designed to hook in some of the younger demographic. Now here’s where I don’t think is fair because you market it that way.

George (31:13):

But the reality on the backend is it’s just another brokerage. They’re just sourcing the revenue from a different place. And when you look at it, restricting shares you don’t, we, we get everyone had an outrage about that. And what we were talking about is they had to, they had to restrict shares because if you have a margin account, you don’t own the shares that are held in a broker that shocks a lot of people. They have a clearing company and Robin hood owns the shares. It’s just your name and trust. And if you have a margin account and you’re trading with Robin hood and they didn’t have enough liquidity, if they didn’t get this extra funds, they would’ve went bankrupt. You would’ve lost everything. There are protection funds. I think it’s 500,000 in the U S two 50 of it is in stock positions, two 50 Cassius protected. But for some people that wouldn’t have been enough. So what happened with Robin hood was because everyone was buying the same small securities. And I’m not saying the securities are small, but the same small basket of these securities, Robin hood, when they go to their clearing company that actually puts the trades through to the market. The clearing company says you guys are concentrated very heavily in a few names of stocks. What that means is my money and my clearing Company is now on the line. I need you to put Up more capital to guarantee these positions, because what happened today?

George (32:33):

If it happened on Friday, Robin hood would have blown up. I hear there’s a CEO saying, I, we don’t have any liquidity issues. Six hours later on Bloomberg on my terminal. I get it. Notification Robin hood raises a billion dollars of cash. Why do you need a billion dollars of cash if you’re not having liquidity issues? So what happened there was because the demand was so concentrated on a few positions. Robin hood had to give more cash to their clearing corporations to guarantee these positions because the risk is, if it goes down Robin hood, can’t blow out the positions in time. And they’re left with the boss. That’s a bankruptcy. So out of this movement as a whole and concentration in small positions, it was necessary for them to take that action to survive.

George (33:18):

And I know that’s not easy to hear because you know, I’m going to be honest with you. I’m going to open up here on a more emotional level. You know, COVID has been tough. This COVID stuff for a social personal, I mean, it’s been really hard. We all have inner, inner, not negativity, but inner sadness. If we can’t connect the same way, we haven’t been out as much, right? We’ve been socially impaired the last year. You know, we’re looking for somebody to point the finger out, to and take out her emotional. It’s just natural, it’s happening worldwide. And I think that was a manifestation of that attempt in the market for newer traders. But you know, I understand their position for Robin hood. I understand why they had to do it. I think to answer your question here, Andrew, the long-winded approach, I’ve had three cups of coffee.

George (34:03):

It probably should have had less, but if you’re with Robin hood, find a broker that you actually pay money to the people you pay money to will work for you. At the end of the day, that’s a lifelong concept. It’s been around with that for thousands of years, you know, find a broker that you don’t value cheap. You get what you pay for Warren buffet, quote, values, what you price is what you pay. Value’s what you get, but it’s not cheap. You’ll have to pay per trade. But when you need the most, there’ll be there for you. I have an interactive brokers account and, and futures. I could shout them out because I use them. None of those went down for me on any of those days. However, there’s a cost of business. If you’re going to trade, it’s like running a business and you’re going to have to pay for those transactions.

George (34:49):

That’s my advice. You know, when the model came out for Robin hood and I read it, I’m like, these guys are absolutely nuts. How is this model gonna work? Who’s going to sign up to this account and savvy. A lot of people did. And when they announced that they were selling order flow information of their retail clients to these big firms that would front run them and make pennies on millions of shares, I was like, how is this legal, like, how is nobody talking about this? But sadly, you got adopted it. It’s the model. It became the norm fast forward a few years, this kind of highlights that flaw with the free commissioned business model.

Andrew (35:26):

And I think, you know, we should be careful not to throw the baby out with the bath water too, because Dave, as you’re familiar, and I think you could probably explain the Schwab business model lot more eloquently than I could, but you know, like the Schwabs of the world, the allies of the world and the E-Trade, which he traded, just got bought by Morgan Stanley, at least in Schwab, in Morgan Stanley’s point of view, they’re not going to make money selling or their flow, but they have basically for lack of a better word, like banking segments that are going to make money on interest payments versus a, whatever the cash is in the, in the brokerage statement. Does that, does that sound somewhat close?

Dave (36:12):

Yeah. Yep. Yep, exactly. Yeah. So the, the money that you weave, the, any money that you don’t use to trade, they have, they have a a swap account. And so they will transfer the money and use that for short-term interest loans or any sort of debt that they can buy the origin of interest. And of course the money is there. So if you need it, it’s there to use, but then that’s how the bank does. It. It’s very similar to what banks do with, with the deposits that they gather.

George (36:42):

Yeah. And that, when I worked at Scotia bank, one third of our revenue was commission. The other third was margin lending and other third was FX transactions, currency conversion. So, you know, it’s and Andrew, it’s a good point cause I’m not here to slander anybody. I’m here to just shed light on it because the end of the day, Robin hood is a good model. You know, it’s a good model. And if you open an account, you accepted that way of doing business. And so while they were built for a certain type of trading, what they were being used for was that was the risk to that type of business approach. So at the end of the day, you have to do the research and decide what’s the right solution for you. You know, as you get larger portfolio size and you build wealth and assets, you know, you’re not looking for cheap. And I think in my career, I’ve found out the numerous times more mistakes than I’ve had to make. But like I said, I’m, hard-headed, you know, the free is the most expensive thing you get in life. And so, you know, that’s just my outlook on it.

Andrew (37:40):

I, yeah, it’s a great outlet to share. And so, you know, you mentioned wanting to learn everything the hard way, putting yourself in the shoes of somebody, okay. We’ve decided what we’ve learned. We pay their tuition on, on this game, something we want to take more of a long-term approach and we want to do it sustainably. And that’s something we’re willing to put an effort towards. Now, from there, you have a whole world of just so many different paths. You could go down, things you can learn about. And then, you know, maybe even talking about the BR, even choosing a broker, makes people feel overwhelmed to make your eyes gloss over. If it was you starting over and trying to minimize those mistakes, you had to make the hard way. How, how would you maybe try to direct somebody? What would be a few options would be pushing them in this direction or push them in that direction and let them kind of build off of that.

George (38:35):

Yeah, Andrew. So Again, like I’ve gone through a lot of this myself, the only way that I understand what, like what people are feeling and what’s going on at the moment is because I’ve been through it myself. Right? And so to the people we’re going through today, it’s like fresh. It’s still emotional, but understand in 10 years time looking back, this could have been the biggest opportunity for you, these learning lessons. So, you know, if I was to start out again, when I started, I started like a new investor, new trader trying to make as much money as possible. Right. And the reality of that is that you’re actually taking as much risk as possible. You just don’t know about it yet. So, you know, when you’re starting out at the beginning, everybody wants those quick gains. But what I would tell you is whatever you do at the beginning, you’re going to dictate the price tag of what you’re going for.

George (39:22):

So if you’re going for big gains, you’re going to have big losses. There’s nobody in there. But if I had two traders that I had to fund and we were close to launching a prop firm, but regulation, Canada’s really tough. So fun. Two traders, one guy that was up a million, then down 100 K up 4 million, you know, down two and a half the next day. And another person just made her another female guy, girl, whatever it is is making a hundred thousand dollars a day. I don’t care how much trader has got in their portfolio. You could have a billion dollars. Why are you coming for funding? I would always go with the slow, steady, consistent risk adjusted returns. So if I was, again, I would start with the understanding that I’m not sure doing this for money. I’m doing this to learn the industry.

George (40:04):

And the money comes as a result of the knowledge, because at the beginning, trading small is not exciting. It’s not sexy. You can’t post pictures of your Lambo tomorrow on Instagram, right? But you’re going to be in the industry long enough that you’ll get the Lambo and you won’t have to post it on Instagram. So when you start out, if you’re trading small, the best part about trading small at the beginning is that you’re learning for cheap. This is one of those businesses where you get to decide how much tuition you pay. You know, when you go to college and say here’s 50 K for a year, and then you’re going to get a marketing degree and you accept that and trading, it doesn’t have to be that way. It could be a million dollars education, or it could be 5,000. The reality is you choose what costs you’re willing to pay.

George (40:47):

And the way to minimize that cost is to start out small, do a little bit of research around other companies, diversify your portfolio. Don’t sink more than 10% of all your capital in one stock. Sure. You’re not going to be able to buy a hundred shares, but you’re going to have the other capital to diversify. So on a day where GameStop is down, but S and P 500 is up like today. You’re going to balance those returns out, and you’re not going to have a wild ride, but that’s the best ride. That’s most enjoyable. You know, that the way some people trade the average span in our trading firm was around four years, right? Because people go nuts. They’re going for these returns. But again, it kind of goes back to where we started. There’s old traders and bold traders, but there are no old and bolt traders.

George (41:32):

And I had my early experience. I had my game stop moment with gold. When gold broke a thousand, 2009, I was doing extremely well. You know, I kept buying. And I knew at the height of it when I’d made so much money at that time as a young kid, cause you know, my family immigrated, we didn’t have much money. I’ve always had the hustle. When I had the peak amount of profits, I’ve had an uneasy feeling down deep and things that when the lights were out, when I was in my bed going to sleep, I wasn’t thinking about what I do with this money. I was concerned because I wasn’t prepared to work with that money cause I hadn’t earned it because what I did was I got away with bad habits. The good news is you’ve learned the lesson now. It’s how do you move forward?

George (42:14):

Building a plant, start out with some capital money you could afford to lose. Don’t use money that you got to pay your rent with the put in GameStop. Hopefully you can buy the house, you know, and just take the money to start out, split it up, find some good quality trade opportunities. Go on a simulation mode, test out your strategy. First, just buying a stock to somebody else that isn’t a strategy. If that’s the case, just give them your money and let them manage it for you. If you’re going to follow somebody, come up with an idea, pick some stocks. I would recommend using a screener fin. This is a good one. It’s free. You could find out you could screen for different opportunities. And the biggest lesson I would say is never put all your money in a single stock. It sounds corny. Don’t put all your eggs in one basket until you’re on the learning experience of that.

George (43:01):

It’s one thing to say. It’s another thing to understand that. And I think this is a great opportunity for anyone like, look, if you’re down, you might be down capital, but that doesn’t affect you as a person. If 30 years down the road, you’re going to be successful at investing. You’re already that version of the person today, all you got to do is just take the learning lesson and push forward. And that’s the only message that we can really share. I understand how these things happen. I understand how it feels, but having done this for a long time, I also understand how to get to that next step and how to look at this type of event. Not game stop for me. It was gold and say, look that needed to happen. That was a blessing. It just took me six years to discover that that was awesome. Thanks David.

Andrew (43:46):

It’s, it’s such a great way to put it in. I liked that you laid out those steps for people and hopefully they are looking at this the right way. I like the way you frame it too, as a blessing. And you know, hopefully nobody sunk their life savings into this and they have time and the ability to recover. And I think there’s a good path for that forward. Now, George, you’ve got some cool resources online. You have a popular YouTube channel and you also have a book on Amazon. Tell us a little bit about those.

George (44:14):

Yeah, absolutely. On YouTube, we do a free morning market update. And through the whole game stop situation, you know, we were taking a cautionary tone. We were talking a lot about a lot of these lessons. We go live at 9:00 AM, every single morning, it’s a completely free resource. I, you know, my is in helping independent investors and traders and that’s one of the ways that we give an update. So it’s 15 minutes. We focus on key market movers, drivers, breaking news that retail doesn’t have access to some of the reports that we subscribed to. We really just give them a shortened version of what you got to watch out for on every daily basis. And you know, on the days where there’s a cautionary tone, we’ll have that hard conversation, you know, and that’s one thing that we do on YouTube every morning.

George (44:58):

It’s a Tradepro Academy on YouTube. You can find us there. And then my book is called the Path to Profit the Trader’s Journey and a detail’s not how to trade because I think that information is important. But I think the more important part is knowing a story of somebody who has succeeded. Who’s had a longer career in this and the book aims to explain to you where I came from, the challenges I overcame, some of the trades that went against me, my experience of getting on the trading desk. But the biggest value from my story is at the end of the chapter, I asked a few questions for you to craft yours. So it’s like a workbook. It’s like, here’s my story. Here’s what you could learn from it and apply these lessons, answer these questions for the way you want yours to be. So it’s like a story book, but also a story creation for the reader. And so those are two resources that I could share that have helped traders, but YouTube by far is the one has the least commitment. It’s free.

Dave (45:55):

Awesome. Thank you very much for sharing all that. And I, I personally want to thank you for your time and your insight today. Those were fantastic insights. And I learned a lot listening to you talk about the, the time horizon and all your different biases and your ideas and, and everything. It’s, it’s fascinating. And it’s a fascinating story. So I appreciate you spending the time with us to talk about those things and helping people because that’s what we’re all here to do is try to help people.

George (46:23):

Yeah. Then the day like that, that’s our only goal. So yeah. Thank you, Dave. For it was a great chat. Hopefully you guys got value out of it and you hope the listener will enjoy it. But it was fun for me. I love chatting with you guys about this stuff.

Dave (46:34):

All right, folks. Well, that is going to wrap up our conversation for this evening. I wanted to thank George again for taking the time to come talk to us today and share his insights about GameStop and all the goings on with the market recently. So that was some fantastic knowledge and I really appreciate him sharing that with us and our listeners. So without any further ado, I’m going to go ahead and sign us off, go out there and invest with a margin of safety emphasis on the safety. Have a great week. We’ll talk to you all next week.

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