Yahoo Finance’s Alexis Christoforous and Kevin O’Leary, chairman of O’Shares ETFs, discuss Robinhood and the short-press madness.
Video transcription
ALEXIS CHRISTOFOROUS: Okay, welcome back to Yahoo Finance Live. The so-called Reddit short print, the insane trading we saw last week in stocks like GameStop and AMC, has attracted the attention of regulators and legislators. What needs to be done about it? ‘Shark Tank”s Kevin O’Leary joins me now to discuss this and more. He is also chairman of O’Shares ETFs.
Kevin, always good to see you. So look, what happened last week, some people say it is dangerous for the general market. Do you think that it does highlight some of the pain points that we need to address?
KEVIN O’LEARY: No not at all. Every time there is volatility in the markets, you get a call from many politicians looking for airtime on social media and television. I do not blame them. They are constantly raising money, and that is a wonderful problem. The fact is, however, that the market has to be a very broad and wide vehicle. Because for some people, investing means a millisecond, and for others it means a decade. And we must all accommodate.
The best thing we can do and keep doing, and we get along very well with it as a market – we are the envy of the world, the New York Stock Exchange and the NASDAQ – is to just stay transparent in positions. And now there is a new risk in the market. If you fall short – and of course, under certain circumstances, you have to reveal it – you will be chased by social media, let’s call them vigilantes, whatever you want to call them. This is just a new risk right now.
And it is very difficult to be short, because your disadvantage is unlimited. You buy a stock at $ 100, it goes to 0 and you lose $ 100. You have a stock of 100 and it is 1000. This is just the beginning of your pain. It can keep going. And so the whole point is that the players in the market know this.
I do think what we learn, which I think is really important, is that the assumption that the Reddit crowd and the Robinhood crowd were idiots and did not know what they were doing and were stupid is wrong. Read the blogs. These are smart people. And they actually organized together and followed these shorts and caused severe pain – I mean severe pain.
On Wall Street there is money, it’s important if you want to define power. And if you have a billion dollar disadvantage in any institution, you have power. And now this group has power.
ALEXIS CHRISTOFOROUS: However, should the issue of a shortfall in a share not only be addressed for the large hedge funds, not for the small amateur investors, but also for everyone in general?
KEVIN O’LEARY: No. Short is an important aspect for the market. It always has been. Some people call it distasteful or evil. This is irrelevant. I actually like it when I disclose a company and I see a short position build up. This is just delayed purchase. It is going well with me. And you need to be able to hedge your position. You can shorten Schlumberger and become Chevron. There are all kinds of short circuit strategies.
The fact is that no one saw it coming. No one saw two things come up. They were on parallel roads, and then suddenly they merged. One was the fact that this entity, Robinhood, had done something extraordinary. And let’s discuss this for a moment, because for decades we ignored people who did not have a significant amount of capital to put in an online brokerage or a money center bank. They do not want the bills. It is not profitable.
And Robinhood comes along saying: I’m going to democratize it. If you have $ 200 to invest, come on in. We will help you. Now that’s why it’s important – and I know everyone’s trying to vilify the Robinhood platform, but I am not. I think it’s fantastic. We have 100 million Americans who have nothing available for retirement. And along with a platform that says: I’ll help you learn how to do it.
Now, you may not like day trading, but you may think it’s bad to learn that way. But the fact is that we now have 16 million accounts that teach something about the market. And the real opportunity for Robinhood is to take a share of these day traders and make it into long-term investors by taking maybe 10% of their profits and indexing them in the long run and starting saving for themselves for the road. Because if you set aside only $ 400 per month and your average salary is only $ 56,000, you will have a million and a half dollars in the bank if you retire if the market remains 6 to 8% per year over the long term give. , which I think it will do.
But what happened was the surprise, at the same time Robinhood was building this extraordinary base of accounts, and Reddit and Wall Street Bets were evolving as a powerhouse in communication between people who wanted to trade ideas and stocks. They merged. They caused an explosion of the atom in size. And now, who is the new sophisticated investor?
ALEXIS CHRISTOFOROUS: Exactly.
KEVIN O’LEARY: I think it’s really amazing.
ALEXIS CHRISTOFOROUS: You know, of course, that Robinhood and a few other brokers, including Interactive Brokers and a few others, had to limit trading in some of these strongly shortened stocks. There was a big setback. Many people said they were going to leave the platform. However, this did not really happen, as the downloads of Robinhood’s app reached a record high in the midst of all this last week. If you had money in Robinhood, if you had an account there, Kevin, would you take it out because of what happened?
KEVIN O’LEARY: No, I think Robinhood is a brand to stay here and the envy of every money center bank, every wire house and every online broker. No one has ever gotten 16 million bills so fast. I mean, it’s extraordinary. They just came out of the blue and are doing something very important. And I know everyone and their dog are trying to make them bad. But they did something very important for America. They will be able to sustain over time. They have a wonderful brand.
And they’re going to start – the opportunity to really add value is to take those accounts and start building other products and services, like ETFs, and maybe mutual funds and maybe money market funds. So the AUN builds up, and you get real investors for 10% or 20% of the 16 million plus growing accounts. I mean, if one of the big banks could have done it, they would have done it. They are envious. And all of a sudden you are going to see Robinhood as a major player competing against them in a way that no one thought was possible.
That’s what I like about democratization. This is what I like about the internet. This is what I like about social media. Just shine the light of transparency on it and may the best competitors win. It has always been the nicest to financial markets. And because we are very regulated – and I participate in it – I really want transparency. I want investors to feel that it is not being fixed, because it is not. And the last thing we need is another politician who says: I have the solution. Hello, I’m here from the government and I’m here to help you. No thank you. Let the markets be the markets.
ALEXIS CHRISTOFOROUS: Okay, listen, you’re on fire. I love it.