Alexis Christoforous of Yahoo Finance and Kevin O’Leary, president of O’Shares ETFs, discuss Robinhood and the short-squeeze frenzy.
Video transcription
ALEXIS CHRISTOFOROUS: Okay, welcome back to Yahoo Finance Live. Reddit’s so-called “short squeeze”, the frantic trading we saw last week in heavily sold stocks like GameStop and AMC caught the attention of regulators and legislators. So, what should be done about it? Joining me now to discuss this and more is Kevin O’Leary of “Shark Tank”. He is also president of O’Shares ETFs.
Kevin, it’s always nice to see you. So look, what happened last week, some people are saying that this is dangerous for the general market. Do you think it highlights some pain points that we need to address?
KEVIN O’LEARY: No, anyway. Whenever there is volatility in the markets, you receive protests from many politicians who seek airtime on social networks and on television. I don’t blame them. They are constantly in a way of raising money, and this is a big problem. The fact is, however, that the market has to be a very broad and broad vehicle. Because for some people, investing means a millisecond, and for others, a decade. And we need to accommodate all of them.
The best thing we can do and continue to do and we are becoming very good at it as a market – we are the envy of the world, the New York Stock Exchange and the NASDAQ – is just to continue to shine through positions transparently. And now there is a new risk in the market. If you trade sold – and obviously, under certain circumstances, you will have to advertise – you will be chased by social media, let’s call them vigilantes, whatever you want to call them. It is just a new risk now.
So, being short is very difficult because your disadvantage is unlimited. You buy a share at $ 100, it goes to 0 and you lose $ 100. You are sold in a share at 100, and it goes to 1,000. This is just the beginning of your pain. He can keep going up. And the whole point is that market participants know this.
I think what we learned, though, what I think is really important, is that the assumption that the Reddit guys and Robinhood guys were stupid and didn’t know what they were doing and were stupid is incorrect. Read these blogs. These are smart people. And they really got together and went after those shorts and caused a lot of pain – I mean, a lot of pain.
On Wall Street, what matters, if you want to define power, is money. And when you cause a billion dollar loss to any institution, you have power. And now this cohort has power.
ALEXIS CHRISTOFOROUS: The issue of short selling, however, needs to be addressed, not only for large hedge funds, not for small amateur investors, but for everyone in general?
KEVIN O’LEARY: No. Short is an important aspect for the market. Was always. Some people find this unpleasant or bad. It is irrelevant. In fact, I like it when I go public and see a short position growing. This is just a delayed purchase. I’m fine with that. And you have to be able to protect your position. You can sell Schlumberger and buy Chevron. There are all kinds of strategies for short trading.
The fact is that nobody predicted this. No one saw two things come up. They were on parallel paths and, suddenly, they merged. One of them was the fact that this entity called Robinhood did something extraordinary. And let’s talk about this for a second because, for decades, we’ve been ignoring people who didn’t have a significant amount of capital to put in an online brokerage or financial center bank. They don’t want those bills. They are not profitable.
And here comes Robinhood who speaks, I’m going to democratize that. If you have $ 200 to invest, enter. We will help you. Now, why is this important – and I know everyone is trying to defame the Robinhood platform, but I’m not. I think this is fantastic. We have 100 million Americans who have nothing reserved for retirement. And a platform appears that says: I will help you learn how to do this.
Now you may not like day trading, but you may find it bad to learn that way. But the fact is that we now have 16 million accounts that are learning something about the market. And the real opportunity for Robinhood is to actually take a portion of these day traders and turn them into long-term investors, perhaps taking 10% of their earnings and indexing them in the long run and starting to save for themselves in the future. Because if you put only $ 400 a month aside and your average salary is $ 56,000, you will have a million and a half dollars in the bank when you retire if the market continues to give 6% to 8% per year in the long run, that I think will.
But what happened was the surprise, at the same time that Robinhood was building this extraordinary account base, Reddit and Wall Street Bets were emerging as a powerhouse in the communication between people who wanted to trade – trading ideas and stock ideas. They merged. They caused an explosion of atomic size. And now, who is the new sophisticated investor?
ALEXIS CHRISTOFOROUS: Exactly.
KEVIN O’LEARY: I just think it’s really incredible.
ALEXIS CHRISTOFOROUS: You know, of course, Robinhood and some other brokers, Interactive Brokers as well and some others, had to restrict the trading of some of these heavily shorted stocks. There was a big reaction. Many people said they were going to leave the platform. That didn’t really work, though, because Robinhood’s app downloads hit a record last week amid all of that. If you had your money at Robinhood, if you had an account there, Kevin, would you take it out now because of what happened?
KEVIN O’LEARY: No, I think Robinhood is a brand that is here to stay and the envy of all central money banks, all exchange offices and all online brokers. No one has ever landed 16 million accounts so quickly. I mean, it’s extraordinary. They just came out of nowhere and are doing something very important. And I know that everyone and their dogs are trying to defame them. But they did something very important for America. They will be able to sustain over time. They have an incredible brand.
And they’re going to start – the opportunity to really add value is to actually take those accounts and start building other products and services, like ETFs and maybe mutual funds and maybe money market funds. So, AUN increases and you get real investors for 10% or 20% of those 16 million growing accounts. I mean, if any of the big banks could have done that, they would have done it. They are jealous. And suddenly, in a few years, you will see Robinhood as a great player competing against them in a way that no one thought was possible.
That’s what I love about democratization. That’s what I love about the internet. That’s what I love about social media. Just shine the light of transparency and the best competitors win. This has always been what is great in the financial markets. And because we are highly regulated – and I participate in that – I really want transparency. I want investors to feel that it is not defrauded because it is not. And the last thing we need is another politician saying: I have the solution. Hi, I’m 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 excited. I love it.