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With news of stock market and investing making recent waves on social media, there has been an influx of younger adults interested in the world of investing.
At least, that’s been the experience of local Edward Jones Financial Advisor Adam Thiel.
“I’ve actually seen it in my office already through increased phone calls from, you know, college students; early college graduates,” he said. “It’s not uncommon, doing what I do, to not sit down with someone until they’re in their mid-40s and that’s the first time that they’ve ever sat down with a financial advisor.”
The wave of interest started a few weeks ago, with a short squeeze on stock of the retailer GameStop (NYSE: GME), which made news headlines. It resulted in certain hedge funds – which in simple terms, are investment companies – suffering large financial losses.
Thiel, who could not discuss specific stock accounts with the Daily News, said what made recent short squeezes noteworthy, was the coordinated effort behind it. The GameStop short squeeze was a coordinated effort that began on Reddit, an internet forum.
“Short sales have been happening since the market has been going on, but to have a coordinated effort like this from normal people; retail investors to try and counter what a hedge fund’s doing is just something that we really hadn’t seen before,” Thiel said.
So, what is a short squeeze? Thiel explains that a hedge fund does a short – bets a company will not do well; that the stock price will go down. These hedge funds borrow shares from those who own it, pay interest on them, and then sell them right away. The goal is to buy them back at a lower price, to replace the shares they borrowed.
The difference in price is profit for the hedge fund.
However, a hedge fund can run into trouble when a group starts buying stock, like what happened with GameStop. The collective action drove the stock price up, resulting in financial loss for the hedge funds, who had to buy the stocks again at higher prices to return what they borrowed.
This is what’s called a short-squeeze in stock market lingo.
However, Thiel doesn’t see this type of thing becoming commonplace since there are typically losers on both sides of the deal, since the stock prices trend back down when it’s over.
“My guess is that this was more of an isolated occurrence and I don’t think that it’s something we will continue to see happen,” he said. “That being said, I think some hedge funds probably learned a lesson through this that maybe they shouldn’t take as big of a bet on certain things.”
In it for the long haul
However, this recent activity has created volatility – ups and downs – in the stock market.
“There were things going on in the market that just didn’t look normal,” Thiel said. “Companies that you know, don’t have promising prospects moving forward, were going up in value at exponential rates. And that’s just something that’s abnormal.”
He said in times of volatility, it can be beneficial to focus on the long-term picture.
“As you’ve got volatility going on, it’s very easy to get caught up in the news headlines and emotions and make emotional decisions with your finances,” he said. “And that’s a lot of what I try and do with my clients – is try to help them take the emotions out of their financial decisions and look at more facts and data.”
Regardless, the talk on social media has driven some young adults to look into investing, which Thiel, who himself began investing at 12 years old, said can be beneficial. He said when it comes to investing, doing so sooner rather than later is ideal.
“It’s all about compound interest and making money on the money that you already made,” he said. “One of the sayings in this industry is, ‘it’s not timing in the market, it’s time in the market.’”
Doing a little over the course of many years can have more impact on the final number than doing a lot over a short period of time. For example, Thiel said he would rather see someone put $25 a month for a long period of time, as opposed to starting when they’re 50 and investing $1,000 a month.
He said young adults who are interested should reach out and find an expert to help teach them the ropes. He said, personally, he’s always happy to help educate people about investing, since it’s typically not something taught in public education curriculum.
Current state of the market
Even with the current volatility of the stock market, Thiel said people are staying cautious. It’s when people start acting and thinking “euphorically” – feeling like they can’t lose and investing everything – that can result in a market “crash.”
“As long as there’s still people who are nervous and cautious about things, it makes me feel like we haven’t hit euphoria yet and we still got room to run,” he said.
Thiel said most people probably think of a crash as what’s called a “bear market,” which is when it falls 20% from its peak to its trough. The last bear market was in March, amid the COVID-19 pandemic and before that, around 2008.
Since March, the stock market has fully recovered in the major indexes, but Thiel explained it’s “lopsided.” While tech companies such as Amazon and Microsoft are doing very well, hospitality, leisure and travel companies might have to wait until the second half of the year to see their rebound.
“Technology benefited because we needed to use it more or it was more convenient to use it,” Thiel said. “I think also, the pandemic kind of pushed people into adopting technology they were hesitant to adopt before.”
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