I was on my way back from a retreat with a small group of business owners in Florida. There were 8 of us. We spent time getting to know each other better and working on both our personal and business challenges as a group. It is such a great way to spend a few days. On my way home I was obviously super motivated to get back to my team. I thought I would take it easy on the plane and watch a movie. The movie I selected did not make me relax, however. I watched Dumb Money.
The Average Investor vs. The Wall Street Pro
Dumb Money refers to normal everyday investors, probably like you and me, trying to invest in the stock market. Hedge funds and wall street pros consider our investments dumb money because we are uneducated and unaware of the high-level investing, they do day in and day out. The movie is a true story about Keith Gill, a young man with a young family just trying to get by. He is a financial analyst by day and a YouTuber at night. His YouTube channel gained popularity as a go to channel for young investors seeking stock advice. He was relatable being a normal guy just trying to make money. During the height of the pandemic Gill notices something about the stock GameStop. The stock was tanking and he saw an opportunity. The stock was losing value because several institutional investors were shorting it. Shorting a stock is a bet that the value will go down and enough short positions can actually drive the stock down. Gill makes his investment and then goes to work to increase the value of the stock. This is done by persuading investors to buy it. He touts the stock to his YouTube audience, and it begins to work. GameStop investors start to make a fortune while the institutional short investors lose millions.
The story takes a dramatic turn when Robinhood, a platform to trade the stock, shut down the stock. This helped the institutional investors as it created panic in the market. It also bought them time. The end result was a large transfer of wealth. There were obvious winners and losers in the entire ordeal. This included individual investors buying into the hype and individual investors that invested in the funds that were shorting the stock. Trusting their money to a professional manager. Melven Capital folded for example after losing $12.5 billion in investor capital!
As I was watching this movie I started to think about my current portfolio and how the heck I could keep my money safe. So, what did I learn?
Greed Is A Real Problem With Investing
Obviously, greed for money, but greed is not only about the money. Some people can get greedy for recognition and fame. In either case, greed will influence people’s decisions and could create situations where they justify hurting other people as long as they get what they want. This makes it hard to win as a passive stock investor. Although present, I don’t see this as a major problem in real estate. I see investors working together to benefit everyone far more than I see a “win / lose” scenario that was so well depicted in the movie. Watching this movie strengthened my opinion that real estate is the best investment there is.
Possibility To Artificially Manipulate Stock Value
With greed comes the possibility to manipulate the market or a specific stock. As the large money began to pour into the short position of GameStop, the value of the stock decreased. This was a planned scheme that would have worked if not for Gill. Any investor investing in the individual stock or in a fund that owned that stock would have been hurt by the tanking value. On the flip side, the stock was artificially influenced in a positive way by the individual investors, mostly through the Robinhood app, buying the stock. It was a tug of war between the big wall street money and the Dumb Money. This created a tremendous amount of volatility making it necessary to time the market. As the stock went up in value, you would want to sell before your peers so that you can maximize your returns. Not too early as the stock was increasing in value but not too late. If you sold too late, or after a sell off began, you could lose a significant amount of money. Many investors did!
Timing A Market
Trying to time a market is never a good idea. You might as well take your money and throw it on red. There is no skill or real strategy to tilt the odds in your favor. And with outside influences that you cannot control, it makes it almost impossible to time the market with success. This really is a recipe for disaster.
Avoid Win-Lose Scenarios By Investing In Real Estate
Again, this is why I choose to invest in real estate. These are local assets that I can gain a great understanding of and it does not have the same level of greed and manipulation in my opinion. I am also a long-term investor trying to stack assets for financial security so timing the market is not in my thought process. I personally invest in real estate, and through Pine we invest in real estate in a more passive and secure way. Let’s avoid the win-lose scenarios. Give us a call and let’s create a win-win relationship!