When Dumb Money was Smart Money
Comments about the movie "Dumb Money"
I just watched the Dumb Money movie and I must admit, it beat my expectations. Usually, movies like this get the story somewhat wrong or embellish too much or take liberties that skew the story one way or the other. But I’d have to say, the filmmakers stuck very close to the true storyline from what I understand. They even brought up the fact that Robinhood sells their “customers” pooled order flow information to large hedge funds. This is an important fact that I thought they would omit or gloss over.
Remember, if something is “free”...you are the product.
The movie was worthwhile even if just for infotainment purposes. But perhaps there are a few lessons to be learned.
First, a short squeeze of the GameStop magnitude will probably never happen again. GME had 140% short interest! That’s insane...and technically shouldn’t have happened at greater than 100%...which would have also been insanely high. Heck, a short interest of 40% can cause a short squeeze.
Second, large multi-billion dollar hedge funds now have ways to track pools of retail investors so they can see if they are ever at risk of being ganged up on again. Yes, they are probably scanning Reddit and other online communities with an abundance of computer power.
Third, Robinhood might, once again, prevent retail orders from executing due to “clearing house rules” or to “keep an orderly market” or for whatever reason is in their best interest and the best interests of their true clients. Yet, institutional investors (translation, hedge funds) will probably be able to trade uninhibited.
So what does this all tell us? Is the system (stock market) rigged?
One can certainly make an argument for that. Yet, I still invest in stocks, buy and sell options and take a futures position every now and again. Why? Because, although I might be at a disadvantage, I am still able to do quite well. I know the game and how it’s played and I act accordingly. You should do the same. Understand the full game – all the written rules and the unwritten ones, all the players and all the nuances, etc. Understand what’s behind the curtain and determine if it still makes sense for you. If it does, act accordingly and understand that the “rules” both written and unwritten change all the time.
For further reading: https://slate.com/business/2021/02/piggly-wiggly-short-squeeze-gamestop-wall-street-nyse.html
Enjoy and be safe.