As far as the stock markets go this week was historic. Retail investors (known as the Redditors) apparently took down some sizable hedge funds. It was an online version of occupy Wall Street. While the war is not over, it appears that the Redditors won the first battle. That was the lead story for my weekly MoneySense column. After hundreds of hours or research and writing, my bitcoin post is now also live on MoneySense.
From that MoneySense post, here’s the outline of what went down with those Redditors taking on the big boy hedge funds.
Reddit is an online chat platform with a strong bent to personal finance and investing topics. The topics are organized in forums. One such forum is WallStreetBets, now known as WSB for short. Many members of WSB decided to take on hedge funds that will bet against stocks—it’s calling shorting. When you short a stock you profit when the stock price goes down.
That army of Redditors targeted a few stocks such as the struggling retailer GameStop. They bought that stock en masse and drove the stock price to ridiculous levels. Yes of course, that is pure stock price manipulation.
Here’s a chart from Seeking Alpha.
Of course, that price increases squeezes the crap out of the hedge funds who are short, as they are forced to buy back that stock at those higher prices. It’s called a short squeeze. And squeeze they did. It was reported that some of the hedge funds closed out their short positions losing billions of dollars.
Stock market gambling.
I offered a few thoughts on the subject for this Global News piece.
Investing with the crowd to artificially drive up prices is pure gambling of course. It’s dangerous. In the end, many investors may end up with a $1000 stock that is worth $20. It will likely be the retail investor that is left holding the bag.
What I offered to Erica Alini for that article (but not printed) was that if you own a stock that is targeted by the Redditors, and the price is going haywire to the upside – consider selling out and count your blessings. Those are artificial gains. You may decide to sell out in stages hoping for even higher and ridiculously surreal prices. I’ll leave that to you.
What the hedge fund guys say.
This is one of my favourite video podcasts of the last few months. A very honest take on the attack on hedge fund shorts as told by hedge fund managers. An interview with Bill Fleckenstein, courtesy of the Resolve Asset Management Riff podcast …
You will also hear some good commentary on inflation and MMT – Modern Monetary Theory. Enjoy.
What is bitcoin? Should I add that to my portfolio?
Here’s my post on MoneySense – Should you invest in cryptocurrency?
That post is an attempt to clearly define what is bitcoin and the blockchain technology where bitcoin lives and breathes. You will likely do more research, and it is a personal decision whether you want to use bitcoin as a portfolio asset. While the volatility and the risks are great I find bitcoin to offer an incredible risk-return proposition. I have embraced bitcoin at a 5% portfolio weight (to be rebalanced on schedule). I continue to hold my gold ETFs.
The degree that a modest allocation to bitcoin improves risk-adjusted returns (historically) is astounding. I’ll take on that risk for the potential of much better portfolio returns. I do see it as digital gold .
Jonathan Chevreau also goes over his experience, dabbling in crypto.
I soon experienced just how volatile these can be. ETHE quickly doubled but—preferring not to trigger taxable gains—I stood pat, only to watch it plunge below my original cost. Still, I kept holding and continued researching the field, and it eventually reached the level it is right now, well above cost.
More Weekend Reads.
In the Financial Post financial planner Jason Heath – retirement planning for the great unknowns.
On My Own Advisor, here’s Mark’s Weekend Reads. You’ll read some thoughts on the GameStop short frenzy, plus there are a host of great links and reads.
On stocktrades.ca Mathieu Litalien offers the top Canadian gold stocks. I see my Franco Nevada at the top of that list 🙂
There are a few new posts on Savvy New Canadians including a BMO Robo review and a look at Canadian savings accounts.
On that Robo front here’s my review of BMO Smartfolio.
Here’s a look at the 2020 goals and resolutions on the TawCan blog. That is a great investment success story to follow.
The Sunday Newsletter.
The Sunday Investor Newsletter might have some insights on the Canadian stocks that could be a target of those hedge fund shorts. He offers a list of the most shorted stocks in Canada. As you may know BlackBerry was target by shorts and then supported by an army of Redditors. And that newsletter always offers a wonderful wrap of the important numbers for the week, including stock returns by sector.
Here’s a very thoughtful piece from Banker On Wheels – how to slow down time.
And checking in with some dividend investor pals here’s Matthew with his first dividend increase of 2021. That increase was delivered by rail. You can also see what Matt was up to for the month of January.
Rob at Passive Canadian Income delivers his 2020 summary and targets for 2021.
Have a look at indexology where the first post says the current stock market enthusiasm is a different kind of bubble.
This week on Seeking Alpha I looked at the returns for our US and Canadian stock portfolios. The US stock portfolio delivered close to 30% in 2020. The Canadian stocks (with a dividend focus) underperformed the market. That said, we experienced no dividend cuts in 2020, and we were treated to many dividend increases.
I will continue to hold the Canadian dividend payers – the dividend income will mostly go to the risk off assets. I have set sell limit trades for many of the high flying US stocks. Those sale proceeds will go to the bonds and gold and other risk managers.
Thanks for reading. We’ll see you in the comment section. Use that subscribe button to follow this blog.
Cut your fees, support Cut The Crap Investing.
While I do not accept monies for feature blog posts please click here on the mission and ‘how I might get paid’ disclosures. Affiliate partnerships help me pay the bills for this site. That will allow me to keep this site free of ads and easy to read.
Check out EQ Bank for those who want to make their cash work a lot harder. The current high interest savings account rate is 1.5%. EQ Bank recently introduced RRSP and TFSA accounts with a rate of 2.3%. You’ll also find GICs.
At Questrade, Canadians can buy ETFs for free.