Former TD Ameritrade CEO Fred Tomczyk told CNBC on Friday that he believes retail stock market investors have never been better when it comes to competing with Wall Street professionals.
“When you think about what the retail investor has today, he has free trade, free research, free investor education and faster and better business execution than ever,” said Tomczyk in an interview on “Squawk on the Street “.
“The playing field between retail and the institutional investor is more level than ever,” added Tomczyk, who led the brokerage as president and chief executive from 2008 to 2016. He is now on the board of Cboe Global Markets.
Tomczyk’s comments came a day after the United States House’s Financial Services Committee held a hearing focused on the GameStop’s small squeeze that began in late January. The trading frenzy fueled by Reddit was another critical point in a long debate over fairness in the stock market and whether small investors have equal access to generate returns.
One of the participants in Thursday’s hearing was Keith Gill, the user of Reddit and YouTuber who played a key role in promoting GameStop shares. In his testimony, Gill defended his decision to publicly disclose his investment thesis at GameStop, noting what he considered long-standing imbalances for retailers.
“Hedge funds and other Wall Street firms have teams of analysts working together to compile research and analyze company stocks,” said Gill, whose last post on Reddit showed that he made $ 7.8 million with GameStop. “Individual investors don’t have these resources. Social media platforms like Reddit, YouTube and Twitter are leveling the playing field.”
In August, Gill posted a video on his YouTube channel that argued that the video game retailer’s shares were undervalued and vulnerable to tightening due to so many pessimistic bets made against them.
Tomczyk said he considers the success of individual investors during the meteoric rise of GameStop shares – which rose from less than $ 20 in early January to an intraday high of $ 483 on January 28, noteworthy.
“The ironic part, when you stay behind and look at all of this, is that the part that seems to have lost the most in GameStop trading was actually a hedge fund. It was not a retail investor,” said Tomczyk. “Many retail investors did very well, so in my opinion, they did very well and have never been better based on smart regulation and the use of technology today.”
Other participants in the committee’s hearing on Thursday were Gabe Plotkin, who runs the hedge fund Melvin Capital, and Ken Griffin, the billionaire founder of market maker Citadel Securities. Griffin is also CEO of a similarly named hedge fund, Citadel.
Melvin Capital took a huge loss during the GameStop frenzy after it closed its short on January 26. Short sellers borrow shares of a stock and sell them promptly, with the aim of buying them back later at a lower price. They then return the borrowed shares and make money from the difference. But when the opposite happens, as in the case of GameStop, short sellers can buy shares at the current highest price in an attempt to minimize losses.
Plotkin told Congress on Thursday that his hedge fund will adapt its short selling approach, now that it has seen the impact that social media can have when taken advantage of by retail traders. “This was a risk factor that, until recently, we had never seen,” he said.
In an interview on CNBC on Friday, Griffin was asked by “Squawk Box” co-host Andrew Ross Sorkin whether he and individual investors would have “the same opportunity” to make money in the stock market.
“It all comes down to a question of horizon and strategy,” said Griffin. “It’s like asking, ‘If I were to play golf this weekend with Tiger Woods, would I win? Of course not, but there are lots of ways to compete with Tiger Woods off a golf course and do great. I’m not going to. play with him in his game on his course. “
For example, Griffin said people with technology experience may see opportunities to invest in publicly traded companies that are disrupting a particular industry. Or, he said, someone who bought Tesla shares five years ago believing electric vehicles were the future of the automotive industry “would have made a lot more money than we did at Citadel.”
Tesla’s shares have risen more than 2,200% over the past five years.
“I never underestimate the ability of the American retail investor to understand the emerging trends where real wealth is created and their ability to take advantage of this wealth transformation,” added Griffin.