WEBVTT 00:00:00.000 --> 00:00:04.000 Even if you're not into investing, chances are you've heard about how a group of redditors 00:00:04.000 --> 00:00:09.240 have driven up the stock price of the venerable GameStop GME in order to troll a bunch of 00:00:09.240 --> 00:00:14.880 hedge fund managers. Although this is tech-quickie, not cash-quickie, we are going to give you a brief synopsis 00:00:14.880 --> 00:00:19.440 of the situation for some context and then talk about the tech side of things to better 00:00:19.440 --> 00:00:26.440 understand how this happened. So the reason GameStop was targeted was because it's a heavily shorted stock. 00:00:26.440 --> 00:00:32.080 Shorting a stock is a high risk but potentially high reward play that works like this. 00:00:32.080 --> 00:00:36.560 You pay a fee to borrow a stock from the owner, then immediately sell that stock, like that 00:00:36.560 --> 00:00:41.160 day. You do eventually have to return the stock to the owner, so by shorting it, you're betting 00:00:41.160 --> 00:00:46.240 that the stock will go down in value, allowing you to buy it back later for cheaper than 00:00:46.240 --> 00:00:49.720 you just sold it for, giving it back to the original owner and keeping the difference 00:00:49.720 --> 00:00:54.320 in the price you sold it for and the price you bought it back for, minus fees and interest. 00:00:54.400 --> 00:00:59.920 GameStop is often shorted because with video game distribution becoming digital, GameStop's 00:00:59.920 --> 00:01:03.840 more brick-and-mortar business model has seen as something that could fail in the near 00:01:03.840 --> 00:01:06.880 future, you know, kind of like blockbuster. 00:01:06.880 --> 00:01:13.920 But as we said, shorting is very risky, since if the stock's price goes up instead of down, 00:01:13.920 --> 00:01:19.160 you have to buy it back for more than you originally paid for it, sometimes a lot more. 00:01:19.160 --> 00:01:22.880 And as more and more people buy back a shorted stock because they're panicked about the 00:01:22.880 --> 00:01:28.040 price rising even more, it just keeps driving the price up even more. 00:01:28.040 --> 00:01:32.160 Because of this risk, stock shorting has become associated with hedge funds, which typically 00:01:32.160 --> 00:01:36.960 make high risk but potentially lucrative investments for organizations or for wealthy 00:01:36.960 --> 00:01:43.160 individuals. And some of the risky plays they've made have hurt the US economy, meaning that they're 00:01:43.160 --> 00:01:49.560 not very well liked. Combine that sentiment with a feeling that GameStop might be undervalued and the rush 00:01:49.560 --> 00:01:54.600 was on to buy GameStop shares, drive up the price, and force short sellers to buy the 00:01:54.600 --> 00:01:59.560 stock back in a panic, making GameStop an even more lucrative investment, at least for the 00:01:59.560 --> 00:02:04.840 short term. Okay, so we've explained a bit about how short selling works, but how were a bunch 00:02:04.840 --> 00:02:10.120 of individual investors on Reddit able to beat these powerful hedge funds with millions 00:02:10.120 --> 00:02:18.600 dollars even bankrupting one of them? A huge part of it is how online services and apps have made investing far more accessible. 00:02:18.600 --> 00:02:22.840 Instead of calling up a broker and using traditional trading software that assumes the user is already 00:02:22.840 --> 00:02:27.720 familiar with investing, newer financial tech, or fintech firms such as Robinhood, which 00:02:27.720 --> 00:02:30.960 we'll talk about more in a little minute here, have tried to make opening up investing 00:02:30.960 --> 00:02:35.600 to the masses with easy to understand interfaces a core part of their business models. 00:02:35.600 --> 00:02:40.800 There are also companies that specialize in what's called robo-advising, an algorithm-based 00:02:40.800 --> 00:02:44.360 approach to investing for those who don't know much about investments or simply don't 00:02:44.360 --> 00:02:51.440 want to have to manage the details themselves. Typically, you tell a robo-advising service such as Betterment or Wealthfront what your 00:02:51.440 --> 00:02:55.360 investing goals are and how much risk you're willing to take on. 00:02:55.360 --> 00:02:59.600 And then the algorithms invest your money for you, rejiggering things on the fly depending 00:02:59.600 --> 00:03:04.320 on what the market's doing and oftentimes even making tweaks that can reduce your liability 00:03:04.320 --> 00:03:09.720 come tax time. Robo-advisors also have cheaper fees than traditional brokerages due to lower overhead, 00:03:09.720 --> 00:03:14.320 helping these services take off big time over the last few years, with many managing tens 00:03:14.320 --> 00:03:17.600 of billions of dollars in combined assets. 00:03:17.600 --> 00:03:21.800 And even though the aforementioned Robinhood doesn't offer robo-advising, it's easy interface 00:03:21.800 --> 00:03:25.240 and no commission trades have made it very popular. 00:03:25.240 --> 00:03:31.160 But you might also have heard that Robinhood has had a lot of ire directed at it recently. 00:03:31.160 --> 00:03:35.840 After the game stopped short squeeze we described, Robinhood made the decision to restrict trades 00:03:35.840 --> 00:03:41.640 involving GameStop stonks, as well as other stocks redditors were targeting. 00:03:41.640 --> 00:03:47.120 Robinhood reportedly did this to limit its own risk in the event GameStop's price collapsed. 00:03:47.120 --> 00:03:51.440 But the move was extremely unpopular, triggering lawsuits, accusations from investors that they 00:03:51.440 --> 00:03:55.840 were colluding with hedge funds, and even statements from both Republican and Democratic 00:03:55.840 --> 00:04:00.840 politicians wondering why hedge funds were able to trade securities that individual investors 00:04:00.840 --> 00:04:06.040 suddenly couldn't. Wow. It looks like activist investing actually did something. 00:04:06.040 --> 00:04:12.600 I wonder if we can rally tech quickies fanbase to pump up the value of lttstore.com, but first 00:04:12.600 --> 00:04:18.240 we need to go public. So thanks for watching guys, if you liked this video hit like, hit subscribe, and hit 00:04:18.240 --> 00:04:22.160 us up in the comments section with your suggestions for topics that we should cover in the future.