A few weeks ago, a Reddit-fueled frenzy exploded into national news when a handful of influencers created a movement to beat Wall Street hedge funds at their own game. And for a few days, they actually did.
My background in finance told me how this story was going to end for individual investors: tragically. Some people were justifiably excited to stick to the hedge fund managers, who did sustain some significant losses. But given that Gabe Plotkin—one of the fund leaders whose GameStop short was squeezed at a significant loss—made an estimated $846 million in 2020 (which was only the 15th best income for a hedge fund manager in 2020), please do not worry him or his compatriots.
While Plotkin and his peers can afford to be humbled, many of the individual investors who bought-in to the trading frenzy cannot. Many bought near the January peak of almost $500 and have seen nearly 90% of their investment evaporate in just a couple of weeks since.
Unfortunately, this is what almost always happens when amateurs go up against professionals. And it illustrates why education will always fall short of producing desired outcomes.
We have written about the failure of financial literacy efforts before. Education has an important part to play in improving lives, but the goal of universal financial literacy is as unattainable as a perfect round of golf, and far less useful.
It would take most people a few hours or days of education to understand how the markets moved the price on GameStop so violently in both directions and why individual investors were destined to lose in the end. Markets are so complex and move so fast that the average participant cannot keep up with the professionals who are literally paid to spend their working hours identifying opportunities and inefficiencies. Even the educated individual is likely to lose if they attempt to outfox the professionals.
What people need is not a course on day-trading, but a guide and advocate that can help them reach financial stability, and then show them their path to prosperity. Positive experiences with money will be far better teachers than books and classes in high school. Fresh solutions, simple steps, and human assistance that helps everyone optimize their specific resource set is what people really need, and what will create the positive outcomes employers and employees want.
Bottom line: employers can create an environment for their people where they can achieve positive outcomes regardless of their level of financial literacy. We can help.