The writing was on the wall with Robinhood being fined $65 Million back in December of 2020 for misleading users for the “Free Trades” they claimed to be providing. Like any good company, Robinhood fired back, claiming to still be true to its mission statement of
So, what have we learned from this whole experience of recent events of the short squeezing of stocks in order to gain a substantial profit?
First and foremost, your investment strategy should never be to rely on speculation in order to make a profit. The best way I can describe it is the people who cheated in high school may have outperformed you in your classes. But, just like investing, bad habits compound over time.
Do you think Bill Gates or Elon Musk have made their billions by speculating on good ideas? Hell no. They bought into a vision, nurtured it, and turned it into companies that people believe in more than themselves.
SO, WHAT EXACTLY IS THIS SHORT SQUEEZE EVERYONE HAS BEEN MAKING A FUSS ABOUT?
Being from Florida, let’s think of it in terms of oranges 🍊🍊🍊.
Ted thinks that a cold 🥶 winter is going to affect the 🍊 crop, so he decides to bet that prices will go down.
Jim, Amanda, Tony, Nicole, and a bunch of their friends decide they are going to bet that orange prices will rise ⬆️ and put all of their 💰 💰 💰 on 🍊 🍊 🍊 crops.
Ted, is actually related to Ted Turner and learns that his bet against oranges is going terribly wrong and the ONLY way to not lose money is to pump 💪 his money into betting that orange prices will go up!
Therefore, by playing both sides of the trade, Ted mitigates losing, artificially inflated the price, and Jim, Amanda, Tony, Nicole and company won BIG!
Morale of the story, those with the deep pockets are able to fix their trades by dumping more 💰 into the system.
Unfortunately most of us don’t have a silver 🥄 so when it comes down to it, the juice ain’t worth the squeeze!
On the flipside, Reddit users have been outraged due to the market manipulation that’s been allowed by these hedge funds in order to profit from the “common people.” Which, I’m all about rooting for the underdog, being that I don’t work for a Big Faceless Organization.
The blame here, lies in the users of Robinhood not being aware that Robinhood sells it’s data to the hedge funds. The blame also lies with Robinhood, for manipulating it’s users into thinking that investing is a game of confetti and free stocks.
All-in-all, it’s important that we all learn from this experience, make sure we have a rock solid investment strategy, and continue to move forward with our investments.