The biggest story on the internet a week before the Super Bowl is GameStop stock.
Since it is a fairly complex chess game that certainly has a foundation in the gambling world, we wanted to find someone who could simplify everything.
That man is Tom Sosnoff, founder and co-CEO of TastyTrade, a financial network tied to a trading platform that recently sold for $ 1 billion.
Tom took part in a Q-and-A with The Action Network to cover the biggest issues of the week’s news on the stock market.
Some questions and answers have been edited for brevity.
Darren Rovell: According to the Securities and Exchange Commission, there is nothing wrong with taking an empty jar of a stock that isn’t profit related and pumping that stock up as long as it’s not fraudulent. Is that what makes this uncomfortable?
Tom Sosnoff: You have to look at the entirety of the markets, and the reason the SEC doesn’t – or shouldn’t – get involved in such a situation is because its only job is to make sure that the markets are fair and efficient and that the markets are act based on what is public. That is, no intangible inside information has been leaked.
This is not an everyday occurrence at GameStop. This is probably the perfect storm. They had a share – everyone hated it. The short interest was greater than the actual float. There was a situation where the few institutional investors were really strong hands.
Well, the individual investors have finally “woken up the F,” as they say. We finally have a social wave. A crowd. And they found the perfect stock in the perfect storm in the perfect speculative setting. Anyone at home, with lots of people, could trade it because it was cheap stock and it worked.
I don’t think you will see it again. I don’t think this will change the way we act. It was just a crazy, perfect storm.
Rovell: Why did it happen now?
Sosnoff: Everyone has been to this store before. It’s a dull place. You are afraid to put your feet on the carpet. It’s like a pawn shop. When you think about it as an institutional investor, you say, “GameStop? I am not buying a share of this stock. “
None of the big players want to own a GameStop. So a bunch of big, speculatively strong hands owned most of the long holdings. The short stock belonged to every junkie hedge fund in the world who thought, “Hey, you know what, this stock isn’t going anywhere but out of business.” And that suddenly led to a very flammable situation where basically someone just started a fire and the whole thing exploded.
I’m telling you, you can’t recreate this tomorrow. This is something that is unique. It will be really hard to ever find that again.
Rovell: Robinhood and TD Ameritrade caused a stir when, despite the ongoing market, trading for their customers was suspended. Did that surprise you?
Sosnoff: First, I don’t think the game is against individual investors. I think that’s bullshit. But when big companies like Robinhood or TD or (Charles) Schwab close their platform for risk reasons and don’t give customers access to trading, they have a problem with it. If you want to be a brokerage firm, stay open. The market-making companies created markets. The markets were liquid; They were efficient. Aside from one regulatory issue, there was no reason to close the period.
Rovell: The fact that people stocked up makes no sense. This has nothing to do with GameStop as a company. How do people get out who participated?
Sosnoff: That is the problem with this type of situation. The stock trades for $ 20 and the next thing you know is its highest two weeks later at $ 500. Obviously, GameStop isn’t worth $ 50 billion. It’s probably not worth $ 2 billion. So at some point you will find yourself playing in a house of cards pyramid scheme unless you are completely insane. And at some point, if you go into forcing shorts to apply a quick squeeze, if you don’t sell out far before you hit the ultimate climax, you are insane. That’s up to you. But if you want to play this game, you will know the game you are playing. I don’t think there is a person in the world who doesn’t believe GameStop is back under $ 50. The question is when? And do I have a chance to get higher faster? It’s a game.
Rovell:: Does what happened trigger someone to say, “This is not the game I want to play?”
Sosnoff: In fact, I’ll tell you it’s just the opposite.
Rovell: Get out.
Sosnoff: This is to trade what fantasy football was to sports games. Whether you like Robinhood or not. Whether you like this type of activity in the markets or not. We opened funding for a whole generation.
Last night I phoned my son between 27-28 for an hour and for the first time we talked trade all night. We opened the world to funding a whole new generation. And it’s exciting.
This is what happens when you call it democratize, a commodity, an industry. It’s time the finances were no longer in the hands of old folks in suits and country club investment advisors and all that kind of shit. Now we’re in the hands of the people it should be in.
Rovell: It may be a one-off situation, but is this a paradigm shift?
Sosnoff: I think it is. If you are not introduced to finance early, you will be 25 and one day you will wake up and you will be 50. They say, “Where has my life gone and I don’t know what to do now. I’m 50. “
When I was 22 I went to Vegas and blew a few grand in sports betting at Caesars or played blackjack. Now they’re blowing a few grand on GameStop stocks or AMC or something else. You’re forever better off.
Rovell: Because they actually learned something. You didn’t.
Sosnoff: I just learned that when the dealer has aces he doesn’t split them, just draws a “9” for a 21.
Rovell: How do you rate the stock market compared to sport in terms of fairness?
Sosnoff: I claim that the stock market is 1000 times fairer than sport just because of the narrower spread between the bid and ask prices. The bid-ask differential in finance is therefore a tenth of a cent. The bid-ask difference in sports is 10 percent. That is 1000 times better.
Rovell: Law. Because you automatically lose more when you start.
Sosnoff: That particular event was Leicester City, which won the Premier League by 5000-1. GameStop was a 5000-1 Leicester City game.
Rovell: Do you think Wall Street is still beating sports betting in terms of regulation?
Sosnoff: Sports betting are overregulated in my opinion. But I understand the size restrictions because sports betting is relatively small. And in the financial world everything is massive. But every now and then you come across a little market subordinate like GameStop. And when you get a ton of money into it, that’s exactly what happens. What would have happened to Leicester City (odds) if every kid in the world had taken the 5000-1 shot? It would have dropped to 2-1.
Rovell: What happened here do you think is a net positive?
Sosnoff: I think the market is overall better for all of these participants talking about the market. Because I believe that finance essentially had to be made a commodity. I believe it has to be part of my child’s life, your child’s life. I don’t think everyone should wait until their 50s and 60s to find out what a bond or a stock is. How do I use this technology? That stuff is too cool today. The content is too good.