Headlines recently exploded on the topic of hedge funds and stock trading, as a group of day traders on the social media platform called “reddit” drove up stock prices for GameStop, Bed Bath & Beyond, AMC, Nokia and other historically-unloved stocks. GameStop gained as much as 1,000% in just two weeks. The volatile market action resulted in massive losses for some hedge funds.
Brokerages, including Robinhood, Interactive Brokers, TD Ameritrade and others, reacted by restricting users’ ability to trade certain stocks on Thursday amid the extreme volatility.
This caused public outrage, especially toward Robinhood, an online brokerage app named after a folk hero who steals from the rich to give to the poor and whose mission is to “democratize finance for all.”
Zach Abraham Comments
In an article titled, “Critics view Robinhood restricting GameStop trades as ‘an absolute travesty’,” featured on several news sites (including CNBC and MSN), Zach Abraham is featured prominently.
“Robinhood’s decision underscores some people’s belief that the deck is stacked against them,” says Zach Abraham, founder and chief investment officer of Bulwark Capital Management, where he advises retail investors.
Abraham characterizes platforms restricting trades for retail investors as “an absolute travesty,” noting that many of the Redditors’ moves weren’t just some “troll,” but calculated based on their own research. The hedge funds made “bad calls,” he says, and retail investors caught them on it.
“This is only going to perpetuate the wealth gap, and that the rich play by different rules,” says Abraham, whose firm sold its positions in GameStop last week. “If the roles were reversed, nobody would be saying a thing.”
At the same time, the situation has morphed into a dangerous game for other retail investors who read into the recent hype but don’t understand the risks involved in trading, Abraham says.
The stocks are currently “way over-priced,” says Abraham. Getting in now on the news-making names of the past few days would be akin to gambling.
“I could not emphasize more clearly for retail investors: Take those names off your screen and look elsewhere,” Abraham says. He predicts GameStop and other stocks will “blow up” in the coming days. “You just don’t want to be messing around with these names today.”
Original story links:
Watch Zach’s Appearance on Cheddar, a video news website covering Wall Street issues:
“In our view, they’re delivering a shot of democracy to the markets.” – Zach Abraham