Last week was a big one for the retail investor.
Institutional investors were sent reeling and onlookers cheering as amateur traders, fueled by a popular subreddit, banded together to send shares of GameStop up 500% last week. Other heavily-shorted stocks like AMC were also sent soaring, leaving the hedge funds on the other side of the bets scrambling to recover -- and losing billions in the process.
The saga played out like a classic underdog story, in which the little guys finally managed to beat the establishment at its own game, and the internet wasted no time in echoing that sentiment through a myriad of memes, posts, and tweets. Indeed, there is something undeniably satisfying about the idea of “robbing the rich to feed the poor.” Just ask stock trading app Robinhood, which played a central role in the trading frenzy and is named after the iconic forest outlaw championing that philosophy (a choice that now, of course, rings hollow in light of the app’s decision to block, then sharply limit, buying of the soaring stocks, while also reportedly interfering with the user experience to impede trading in them). It’s as though Robin Hood and his merry band found themselves actually subject to the real masters of the realm, which, sadly in this case (and to the disappointment and disbelief of many), they really are.
It’s not the first time that a new-fashioned financial intermediary has disrupted the free flow of funds on their platform in the face of market pressure (see my open letter on Fundrise’s actions last year), and it isn’t likely to be the last. While Robinhood and its app peers are rightly hailed for their innovations within public market categories, they are nonetheless still subject to the rules and limitations imposed by the same old incumbent-dominated value chain that undergirds those categories. Unfortunately for the majority of us, such rules and realities don’t usually tend to swing in our favor.
Last week’s events once again lay bare the fact that public markets have long been stacked against the little guy, and that the powers that be tend to protect the wealthy at the expense of everyone else. The 2008 financial crisis and the resulting Occupy Wall Street movement, after all, weren’t that long ago. But it’s hard to feel good about the current Reddit revolution knowing that once the dust settles, while some users might strike it rich, others will lose big -- and as we know, there are no bailouts for the rest of us.
At the end of the day, semantics to the contrary, none of what occurred last week has anything to do with “investing” or building a future. Nihilism and zero-sum thinking never do.
There’s an important distinction to be made between trading and investing. Trading -- what platforms like Robinhood allow you to do, and at which the Redditors proved delightfully skillful -- exploits or manipulates the perceived value of a security on a secondary market. The best that can be said is that in the process, proper arbitrage can create value for market participants in the form of liquidity and price signals. By contrast, investing (especially in primary issues), inherently creates value, more explicitly, for more parties in more important ways. Investing supplies capital for productive entrepreneurial purposes with broad social and economic benefits. Trading mostly reallocates it.
Alternative investments like Groundfloor's business purpose real estate loans have always had an important (and lucrative) place in institutional investors’ portfolios, but until recently remained off-limits for the average person. Now, however, anyone can participate -- without needing hundreds or thousands of dollars to get started. Our minimum investment is just $10, which opens up equal access to everyone and enables hedge-fund level diversification on a vacation-fund budget.
Imagine the impact we’ll see when Redditors and Robinhood users decide to turn their collective energies towards investing in private market securities that fund real jobs, real work, and real assets, rather than setting up ephemeral public market trades. Platforms like Groundfloor allow investors to opt out of the traditional financial system, while earning exceptional risk-adjusted returns with low volatility, without giving up control over where and how their capital is put to work for a productive purpose.
To us, that’s what “sticking it to the man” really looks like.
We invite you to join us as we continue to open up access to more opportunities for everyone to build and preserve wealth. Click the button below to receive $10, on us, to try out our platform.