They didn't see it coming.
This is not only about Wall Street, but America in general. We no longer live in one cohesive country where anybody, never mind everybody, can know what is going on, and it's not only in politics, but in every business/walk of life. Look at the music business, it thought it conquered the internet with the authorization of Spotify, et al, and then TikTok came along, never mind the additional platforms being sued for rights on a regular basis. Bottom line? There are more ways of consuming music than just listening passively on a linear basis to recordings via a traditional distributor. Opportunities abound.
And music was the canary in the coal mine for digital disruption. Because people wanted the product and files were small. Other media? They still haven't figured it out. Hollywood doesn't know whether to release films simultaneously on the flat screen, and there are a plethora of streaming outlets/platforms/companies, whereas you can get everything from one company for one low price in music. As for news? They keep bitching about the death of local newspapers while the three big kahunas, the NYT, WaPo and WSJ, get ever bigger. What did Jeff Bezos say? You don't want to bet against the future, because the future always wins.
And the new future is always more power in the hands of individuals. And an inability to control them, never mind not knowing about their actions until way too late.
So the bottom line is Robinhood made trading free. It didn't used to be, but all the other brokers had to fall in line, to compete. You used to have to pay for every trade. And Robinhood made trading easy, you could comprehend and execute on their simple platform with essentially no learning curve. Was there a cost to this? Of course! You got people with little money making insane bets and putting their savings at risk, when everybody knows Wall Street is a controlled game played by experts. But then the punters organized on Reddit's wallstreetbets and rewrote the rules, based on organization and a different set of principles.
How often do you think a Wall Street trader goes on Reddit? I'd argue NEVER! Therefore they had no idea what was going on. And when GameStop started to go up... The analysts who follow the stock couldn't understand it, it made no sense, according to the rules. But a mob of retail investors, who are ignored by most because each has so little to invest, turned the Street on its head.
They organized and stuck together. You wanted to have "Diamond Hands." If you sold out and took your winnings you were excoriated. This was not only about investing, but being a member of a club, and the power was in the mass, so you had to stick with the group. Therefore, stock valuations went wild and the Street had to compensate. But in the process a hedge fund shorting GameStop had to get an infusion of billions to stay alive.
And the platforms, Robinhood has a competitor, Webull, broke the system, there was so much money involved that their intermediaries, who actually traded the stock, didn't have enough cash to cover/protect themselves and trading had to be halted. Robinhood didn't have enough assets! And therefore you couldn't purchase GameStop stock and it crashed.
I followed this story pretty closely, but this podcast does a great job of putting it all in context. It's an easy listen, and also a fascinating one. It's only five half hour episodes and it's anything but dry. And despite being a "Wall Street Journal" podcast, it's available on all platforms.
Everything's the same today, politics, business, real life. Everyone has blind spots, but these blind spots can come back and bite you in the ass. If you're looking backward you're going to be disrupted. If you're living in the present you're going to be disrupted. You must always scour the landscape, taking the temperature of the future, because there's someone somewhere who wants to change your business. It's your job to recognize it. And we've learned in the last twenty years you never try to kill it, you try to co-opt it, buy it, improve it, supersede it.
This is today.
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