Taking Stock of the Situation

Even if you’re not an investor or trader in the stock market, you’re probably aware of the big kerfuffle taking place right now between Wall Street hedge funds and a group of irreverent Reddit users. If you have no earthly idea what I’m talking about, Google “GameStop Reddit.”

I’m not a gambler, games of chance aren’t my bag. I prefer to have a little more control over the destiny of my hard-earned money and throwing it into a flashy machine in a casino, hoping for its mercy, is not something that’s ever been a big attraction.

When I was eight years old, my mother would take me to Hollywood Park race track in Inglewood, California (we lived not far away) to bet on the horses. She wasn’t a chronic gambler. I can remember a handful of trips to the track and one very long car ride to Las Vegas back in the 70s, but it was an occasional bit of excitement that was no-doubt fueled by the promise of hitting it big. She’d give me $20 each time and let me try my hand at the game, which was a lotta dough for an eight-year old back then. You could still buy a candy bar for 25 cents at that point and that was pretty much the only attractive thing about somehow magically acquiring more money. Candy bars and movie tickets. And theme park passes. That’s it.

We’d walk through the front gates and pick up a copy of The Daily Racing Form, with all of the info on horses, jockeys and their past performances, information that could be leveraged into a cash win. I quickly learned to also pick up some of the other forms with names like RED’S PICKS and TOM’S TRIFECTA, scouring their pages for results of the horses that interested me. My mom watched in amusement as I’d check the horse’s last five finishes, compared them across a number of racing forms and pick-sheets, and then would calmly place an order with her.

“$5 on Jacklin Klugman to place.”

She looked at me askance. “Don’t you want the horse to win?”

“Jacklin Klugman came in second the last four times on the track. I’d lose money if I bet on her to win.”

When Jacklin Klugman crossed the finish line second that day, my mom started asking me who I liked in the next race. I didn’t make a load of money off of that $5 safe bet due to the low odds, but I sure had a lot more than $20 after the fact. Funny thing is, I haven’t been to a horse track since those weekend playdates. Our one trip to Vegas was a bit different in that she gave me $40 and I couldn’t obviously play any games of skill at the tables (this was before the Strip turned into a sort of neon Disney World) so i pumped that money into nickel slots and keno machines, very quickly winning a bit and then losing it all. There was no deduction, no research, no insider knowledge, just drop a coin and hope for the best.

I didn’t like it. Still don’t. Jae and I will sometimes find ourselves near a casino in our travels and we’ll go in briefly, usually to eat, but will each budget $40 to play the machines. If we win, awesome. If we lose, we don’t re-up and gamble more. Sometimes, we leave the casino with our collective $80 intact. Sometimes, we leave with a little more. Other times, we’ve left with nothing but a little head-rush from the adrenalin flow.

I’ve learned to get those kicks on rollercoasters. Adrenalin flow isn’t something I’m necessarily looking for when it comes to my hard-earned cash.

My investing journey began in 2003 after I sold the Los Angeles house that I shared with my mom in those formative years. Some of those funds were placed into stocks, which I knew next to nothing about, but was aware of at least one company that I knew ran a decent business and that was Disney. So I bought a ton of shares (like, 20, okay?) and also put money into AT&T, which was my carrier at the time and still is. I invested in what I knew and I still own the stocks to this day.

Funnily enough, I didn’t invest in any other stock for 17 years, largely due to the fact that I was still trying to make ends meet while pursuing a career as a full-time musician and producer. Once that actually happened and took hold for a few years, I found myself in the position of being able to keep money in a savings account instead of living from stipend to stipend. Touring nationally brought in lots of income, though it kept me on the road for weeks at a time. When the coronavirus pandemic shut that all down in March of 2020, there was plenty of time to sit on the deck in the backyard with Jae and have discussions about potential revenue streams going forward.

We’ve talked about investing in real estate, becoming landlords, just pied-in-the-sky about getting some kind of side-hustle going on. So many people nowadays have got one. Work for the man five days a week, work for yourself two days a week with hopes of switching the ratio. I know people who are bankers by day and house cleaners at night, teachers on the payroll and professional dog-walkers on their own time and terms. One bartender friend even developed, and is marketing, his own line of bloody mary mix. Times are tougher right now than they’ve been for a very long time, and when the feds are arguing about whether or not to dole out stimulus checks, or loan forgiveness or unemployment benefits, people have realized that we’re pretty much on our own when it comes to financial freedom. It’s up to us if we want to come up.

All the while, the value of the U.S. dollar is going down, especially in relation to other currencies in the world. In an effort to keep the economy off life support, the Federal Reserve has lowered interest rates to astronomically low levels, which is absolutely fabulous for borrowing money (and getting deeper into debt) but not so great for your money to make money. It’s to the point where you’re actually losing money if you just let it sit in a savings account.

So, one day in March of 2020, we’re sitting on the deck talking about our strategy for getting through the pinch with Covid having cancelled all of my gigs for the year. Patreon was saving my bacon with monthly support helping to cover expenses and provide income during a down-time that would last for who knows how long. Jae is semi-retired and had picked up some contractor work for her former employer, Charles Schwab. She says to me, “hey, I just invited you to Robinhood, and if you join, we both get 1 free stock.”

Oh, yeah. Stocks. I’d forgotten about those.

I had mostly liquidated my holdings long ago when the need arose, but I still had one share of AT&T remaining. So, I signed up, got my free share of Marathon Oil and then took a look at the market.

There are two basic kinds of folks in the market. The most traditional type is the investor, someone who finds value in a company, invests in that company and then leaves the money alone while it increases in value. Looking ahead 20-50 years is commonplace.

The flip side of that mentality could very well be the trader, someone who might buy into a company only to turn around and sell it when the price goes up a week later (“scalping'“) or even multiple trades over the course of a day (“day-trading.”) These people may also be investors, but don’t want to wait 20+ years to cash in, so they play the market within a shorter timeline. The plays are sometimes riskier, but the yields are far greater than some of the so-called “safe” plays.

And I say that because, unbeknownst to either of us, we were just entering one of the most astonishing bull markets of all time, an extraordinary rebound from a coronavirus market crash. Though the crash really began in February, it intensified in mid to late March with U.S. markets dropping over 28% over the course of three days, a resounding thud which rippled through international exchanges, creating even more crashes.

Boom.

The timing was nuts. I began researching stocks and trading basics, noticing pretty quickly that prices were at a rare low for many equities across the board. People spend insane amounts of effort trying to “time’ entry into the market. And neither of us really appreciated that we’d decided to resume an investment strategy at the bottom of a V-shaped recovery.

So did many others. Apps like Robinhood, thinkorswim and E*trade were making it easy for people to invest and you no longer needed to go through a big important brokerage firm. And with people locked down at home, with perhaps some stimulus money coming in and grim outlooks on future employment or income opportunities, there was suddenly a big influx of cash into the markets. Travel, tourism, restaurant and oil stocks dropped in price while technologies that flourished in a stay-at-home environment, like Amazon, Zoom, Netflix and Pelaton, soon became hot rising stocks.

When it comes to money, I do not fuck around. My old man would drive a car until the seats dropped out of it, and I’ve got the same desire to squeeze every last bit of value i can get out of a dollar. So, I spent a good deal of time studying up on investing, learning technical analysis on charts and how to watch for catalysts in stock price. Like reading the old racing forms as a kid at the track, having some knowledge about the past history of a stock, along with what could happen based on a company’s direction, makes investment more about informed decisions as opposed to outright gambling.

All of the apps very plainly state that there are risks associated with purchasing stocks, and that’s not meant to be scary, just a heads-up. There are risks associated with crossing the street, too, but most of us have learned how to watch for traffic, cross at crosswalks and otherwise proceed with caution, yet we sometimes do still get tagged by the occasional car.

In other words, shit happens, and it does. Hopefully, we proceed with life in such a way that shit happens infrequently.

So, you can choose the best stock in the world, have a fabulous performance record for the past five years, a growing company with zero moat and disruptive technologies, and still have them go tits-up because of some variable that no-one saw coming. That’s life. You take chances just by waking up.

I’m reminded of this right now as the world watches the drama unfolding around GameStop and the Reddit group r/WallStreetBets. If you’re cruising that popular social media site looking for advice on investing and trading, you may swing by r/Investing, r/StockMarket, r/pennystocks or a number of other sub-reddits with dedicated members, deep info and links plus discussions on catalysts that are a step ahead of the financial mainstream media.

And if you’re a little insane in the membrane, you’ll browse r/WallStreetBets, too.

The path I’ve chosen is one of investing. I’m in it for the long haul and not in a hurry to get there. Daytrading is too stressful and time-consuming for me, plus I’m not interested in over-extending myself with options, which is basically investing with borrowed money. My portfolio is pretty well-balanced between sectors and the majority of it is in ETFs (Exchange Traded Funds), which are actively managed so I can just set them, forget them and let them do their thing. Instead of dropping a load of money into any one stock, I trickle buy into it (Dollar Cost Averaging) to shield against sudden market volatility. Happy to say I haven’t lost any money and my percentage of return for the year is much better than what it would’ve been if I’d just left my money in the savings account.

One of the things that drew me to r/WallStreetBets was the extraordinary reports of Due Diligence posted by its members. These are heavily detailed analyses of companies and their balance sheets, upcoming catalysts, projected earnings and new research and development. You should really always do your own DD (the racing forms of stocks) but it helps to begin with one created by someone much smarter than yourself. Yes, it’s a bit shocking to read through the posts if you’re not ready for a bunch of people who enjoy calling each other “retards” and posting stock charts with penises drawn on them, but at the core, they’re a fun-loving bunch with a significant collective knowledge of the stock market. If a ticker starts getting talked about, I tend to dig deeper and see if it’s something I’m interested in adding to my portfolio. Of the three times I’ve done this, everything checked out and has turned into a profitable long-term hold. So, I thought nothing of it when I purchased a few shares of GameStop (GME), AMC Entertainment (AMC) and Blackberry (BB).

Now, this blog is already turning into a light novel, and there are plenty of better-written accounts of what’s going down with r/WallStreetBets, these three stocks and short-selling hedge funds, so I’m going to cut to the chase (finally!) and do my part in being helpful during this extraordinary series of events.

If you’re thinking about getting into the stock market, I think it’s a great idea, if you go about it right. The right way is not YOLOing your life savings into a meme stock and pulling the handle on the machine. This is one of the biggest events in the history of the stock market, an unprecedented transfer of wealth on a scale never before seen and there are a lot of players in the game. Many of these players have been playing the game for a very long time, some know just enough to stay afloat and others have no clue what the rules and risks are. Those with knowledge of the game are going to come out just fine. Those who quickly opened brokerage accounts, made bank transfers and then put it all on black number seven are in for a world of hurt. Some people are going to lose everything next week. (For the record, I got in early on all three, no losses. waiting for the big squeeze.)

To their credit, the hive-mind at r/WallStreetBets is posting that to newbie traders in their own weird way, basically telling them to chill out and only invest what you can afford to lose. Don’t drop junior’s college fund into a nearly bankrupted movie theater chain. Got an extra $100? Maybe play with that first, see how it goes. And while you’re at it, go read the entirety of Investopedia.

Be informed, don’t be impulsive.

A ginormous number of people all jumped into the stock market this week and, if you’re one of them, I just have a short bullet-list of things to think about. Here’s where I put the obligatory statement that I am not an investment professional or employed with any brokerage firm or exchange and everything I’ve learned has been from the internet, amen.

• Only invest what you can afford to lose. Don’t use your rent money, hoping to double your money in a couple of weeks.

• Yes, those cute little apps are fun and easily accessible, but, as we’ve found out this week, they come with their own pitfalls. Take the time to get into a long-standing brokerage firm with excellent customer service.

• Buy stock from companies that you already have a relationship with. Chances are, if you like them enough to purchase their products, you know enough about them to invest in their future. Don’t just drop a wad of cash on gourd futures unless you really know gourd farming.

• Play it safe with ETFs. They offer balanced exposure to a number of equities, minimizing risk at a moderate rate of return. They aren’t crash-proof, but provide more of a buffer than individual securities.

• Use DCA (Dollar Cost Averaging) when you purchase stock. Trickle in, don’t buy all at once. Whether you’re averaging down (if the stock price drops) or averaging up (when the stock price rises), you’ll be averaging your cost per share and again minimizing risk in case of volatility.

• Buy low, sell high. BTFD. Buy The Fucking Dip.

• Investing carries less risk than trading. A popular saying is, “time in the market beats timing the market.” The longer you hold your shares, the easier it is to remain green on the red days.

• Stocks do not always go up. Generally, if you’ve chosen good companies, they do tend to move in an upwards direction. But they also sometimes go down and often go sideways.

Again, I’m not a professional investor. Just another one of us out here trying to secure finances for an uncertain future. This week’s extraordinary events have led to millions of new players to the stock market or, as members of Wall Street Bets like to call it, casino. Luck has nothing to do with it and chance, yes, you’re taking a chance if you get in. We all are. But if you’ve got the racing form handy, and know how to pick a winner, you have a better chance than most.

F in the chat for the uninformed.