The newly-public brokerage firm Robinhood announced its earnings last night, and the stock is down 10% as I am writing. At $36/share it is pretty much at the price of its first-ever trade, but down sharply from its one day high of $85, hit on its 5th day as a public company. Robinhood is famous as the preferred platform for “meme” traders, cryptocurrency speculators and market neophytes. Its stock was down because trading activity has dropped sharply from the heady days of last summer when names like GameStop and AMC Theaters were in the headlines daily. The company lost a ton of money.
For me, Robinhood is the poster child for securities trading that is totally divorced from fundamental analysis. People buying bitcoin (or really any coin), meme stocks and until today, Robinhood shares, don’t care much about earnings, balance sheets or value as understood by traditional economics. They are living in a casino, and their “investments” are no more rational, and no less risky, than betting on red or black on the roulette wheel.
Morgan Housel is one of the best financial writers around. If you haven’t read his book “The Psychology of Money” I would suggest you do so (easily available on Amazon and at most bookstores). Housel has a very smart way of looking at this that I mentioned in the January newsletter:
“2. Figure out what game you’re playing, then play it (and only it).
So few investors do this. Maybe they have a vague idea of their game, but they haven’t clearly defined it. And when they don’t know what game they’re playing, they’re at risk of taking their cues and advice from people playing different games, which can lead to risks they didn’t intend and outcomes they didn’t imagine.”
In other words, if your game is fundamental investing, don’t get tempted into crypto or momentum stocks or meme stocks. If your game is speculation, understand that what your doing is very different than traditional investing. Above all, don’t get the two things mixed up and think that one is like the other.
If you are reading this, you know that Baskin Wealth Management is, and has always been, a fundamentals-based investor. We buy using the kind of research and thinking taught in business schools and to financial analysts. We think that’s the right way to do our job, and we assume that most of our clients agree with us. To put it into Housel’s language, we know what game we are playing and what the rules are; we stick to it. When it comes to speculation, (as Samuel Goldwyn might or might not have said), include us out.
It is very easy to become jealous of people who have made a lot of money gambling on bitcoin or newly-public tech stocks or whatever the flavour of the week happens to be. If you recognize that those folks are playing a whole different game, with very different rules and very different outcomes, it will help you recognize that you are not competing against them, just like the Blue Jays do not compete against the Raptors. Different games, different players, different rules.
A final note. The headlines always trumpet the short-term success of speculators. Much less time is spent on the subsequent losses. Marijuana stock Tilray hit $300 in July of 2018. It is now $10. Beyond Meat hit $240 shortly after it went public about 18 months ago and is now down to $95, a drop of 60%. We had lots of clients who asked us about Zoom (we all use it) when it was at $550. Today it is almost exactly half that price. We didn’t buy any of those companies because fundamental analysis could not support the valuations we saw in the market. We refused to play the speculation game, and we will continue to do so.
David Baskin, Chairman and President
Return to In-person Meetings
With the re-opening of the province and continuing increase in the level of vaccinations, we are now accepting in-person meetings for clients or prospects who are fully vaccinated. We will continue to follow public health measures including use of masks, physical distancing and pre-screening questionnaires and to offer video or telephone meetings as alternatives.
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We look forward to seeing you!
Barry Schwartz on BNN – October 4, 2021
- I wouldn’t change my portfolio to worry about rising interest rates
Barry Schwartz on BNN – October 22, 2021
- Barry Schwartz – Top Picks & Past Picks
- Barry Schwartz – Market Outlook
- Barry Schwartz –Stock Comments