OmniDivitia Wealth Management, Inc. - ODWM Blog , Financial Services Industry

Greed or Protest?

Tue, 02 Feb 2021 13:19:59 -0600

The last several days have been consumed by the GameStop battle between a Reddit message board called WallStreetBets and hedge funds, which has been fascinating to watch. The back story is that GameStop has been struggling, as more games are streamed online vs bought (or traded in) at brick-and-mortar retail stores. As GameStop was closing stores, with its profits declining, hedge funds took positions assuming the stock price would go down - selling short (borrowing stock to sell it now and then buy it back at a lower price, and pay back the shares later).

WallStreetBets apparently encouraged its followers to buy the stock to drive the price up, which would cause hedge funds shorting the stock to lose money. It worked in the short term. In 2021 alone, the stock has gone from roughly $17.25 to an intraday high of $483, and back down to $225...without any material difference in its revenues, earnings, or business outlook. As I write this, the stock is declining, coming back to earth.

I was recently among a group of people financial services asked about this phenomenon on LinkedIn. My response can be found here. The summary is that, to me, this seems to be a continuation of what we have seen in recent years in a number of forms throughout society: a group that is "unheard" wanting justice in some form. The optimist in me thinks that WallStreetBets's actions could be considered a form of protest. The pessimist thinks that it could be a more current version of a "pump & dump" scheme by someone with less than honorable intentions who is motivated by greed.

Technology is a great equalizer that has made trading easier & more accessible for the masses. They have the same right to trade as the hedge funds do, regardless of sophistication. There are some looking to make some quick money, and I'm sure that some will end up losing money in this phenomenon as the stock comes back to a reasonable level. I expect that there will be more regulation on both hedge funds and trading apps as a result of these events.

I would love to hear what you think about this, and who you consider to be right or wrong. Send an email with your thoughts, or post them on our social media pages.

Bigger Isn't Always Better

Thu, 22 Sep 2016 15:04:25 -0500

Suppose you just found out that someone recently opened a credit card account in your name. Concerned? Then you find out it was the representative at your local branch who did it without your authorization. Confused? To make it worse, you find out that he, his manager, and even the CEO of the company received bonuses to do so. Frustrated? Welcome to the underbelly of the banking and financial services industries, courtesy of Wells Fargo.

Despite the fact that the economy is still feeling the effects of the financial crisis nine years later, we have another example of a financial institution singing a familiar refrain: do whatever you have to so we can make money and hit our targets. Don't get me wrong, I understand that companies owe their shareholders the duty to grow earnings and maximize profits. I just believe that the concepts of managing risk (both financial and regulatory) and valuing relationships should be held in equal - if not greater - esteem. Most large banks and brokerage firms seem to have forgotten that in practice, despite what their advertising says.

As consumers, we often look at an institution's size as one sign of stability but forget the most important factor: people. Every organization is made up of living, breathing people with whom we interact every day. The company itself is just a series of systems with a "brand"/promise to bring something to our experience through their employees. When the systems break down or promises are broken, it's time to give your relationship a second look.

Technology has been called "the great equalizer" for a number of reasons. This is especially true for firms specializing in wealth management. Most firms have access to the technological integrations to bring you appropriate investments, monitor performance, and compare that to your financial plan on an ongoing basis. The difference is the person you choose to help you. Consider using a list of questions you may want to ask your potential advisor to help make the most of your conversation.

Your relationships with people are what matter...not the sign on the wall. If you're tired of feeling like a number, call Locker Wealth Management at 708-960-0520 to discuss your situation.