02 Feb Market Happenings – The Short Squeeze
The markets have certainly been interesting this year with no shortage of suspense and drama. While the major indices are at or near their all-time highs, recently we have seen a handful of stocks come to national attention. What began as chatroom buzz on a Reddit blog thread, wallstreetbets (and others), has led to a short-squeeze on Wall Street’s hedge funds like Melvin Capital and Citron. Social media became abuzz with posts to buy Gamestop, AMC Theatres and even Blackberry and Blockbuster, in efforts to squeeze institutional investors on their short investments (betting these stock prices would fall), forcing them to close out their short position and lock in their losses. This week we see this same chatroom buzz refocus on silver, biotech, and small cap company prices as well.
As a result, large custodians such as Robinhood, TD Ameritrade and Schwab decided to limit and even halt trading on these positions due to their spike in volatility. While the justification for these actions has caused mixed emotions; it highlights to the public the sensitivity of our complex system of trading and market making.
We at Bridge Advisory want to remind you that we always remain focused on the goals of our clients and the benefits of long-term investing. We remain committed to the portfolio strategies we have in place to mitigate risks and maximize returns over time. Certainly these crazed investment trends and stock specific hype are not new to the world; in fact, examples can be seen in the “Tulip Mania” during the Dutch Golden Age of the 1630s, the dot com bubble of the early 2000s, “fat finger” trades and more. These trends and bouts of volatility will come and go; however, we want to reinforce our commitment to each of you to manage your portfolios with prudence, process, and consistency as we have for the last 40+ years.
We would be happy to discuss your financial plans, portfolios, and the markets with you anytime. Please do not hesitate to reach out.