TD Ameritrade’s chief market strategist, JJ Kinahan, joins Yahoo Finance Live to discuss the latest score from the Investor Movement Index (IMX), which rose amid unprecedented retail investor activity in January – including the most popular shares that investors bought and sold – as well as news that Tesla invested $ 1.5 billion in bitcoin.
Video transcription
JJ KINAHAN: Going back to what we saw last month, quite incredible, and the fact that we saw our customers having more exposure to the market than we have seen in a long, long time. We launched our Investor Movement Index, which measures our clients’ exposure to the market in general. Our customers came out of the gate swinging, so to speak, in 2021, buying many shares that you would expect them to buy.
Apple enters all-time highs, AT&T, AMV. But some of them can be interesting, you know, Lemonade led by our millennial customers, the insurance company. So I found that one very interesting. You know, GameStop, AMC, of course, the ones that everyone wants to talk about, they didn’t really show up in the month, because you have to remember, it started in the last week of January.
So while trading for two weeks there was absolutely incredible, overall, not enough to undermine the overall monthly survey. But of course, you know, our customers were very interested in changing these two names, which is no surprise to anyone.
What I would say is that although they were a little more net buyers of AMC than GameStop, and I think it has to do with pure stock prices, but with a lot of fun, so to speak, I don’t like people just staying and staying a long time, which I also think was obviously, in retrospect, a very good thing.
BRIAN SOZZI: JJ, Tesla has always been one of the most traded names on his platform. How should trade move forward in light of Bitcoin news? Should you trade in sync with Bitcoin prices? Should you trade with Tesla’s cash flow over the next five years? Should you negotiate when they launch a new car? Because I would say that Elon Musk just made the story a lot more complicated for the average investor.
JJ KINAHAN: I totally agree with you, Brian. I think it becomes very complex, because, let’s face it, I think one of the big problems that we will see that a lot of people had to get into this was whether I should switch Tesla as a technology company? Should I treat Tesla like an auto company? As it should. Do I think about it going forward?
And I think now, as an investment in Bitcoin, I thought you indicated wisely, that changes, in my opinion and obviously yours, as you see Bitcoin itself in terms of where it will start to fit into the balance sheets of large corporations as everyday life.
And the other thing is, I think a lot of us think of Tesla more as a technology company in many ways, because if you think about it, its real strength was in batteries that no one else could replicate. They had a little advantage in terms of their battery life. They made cars around these batteries. But the strength of the company seemed to be there.
So now, what does this mean in general? I think it will take a while to find out. And again, as you said earlier, how does their advice and etc. and do the big shareholders feel about it? It will be interesting to see all the parties that have a voice in the coming months, when they weigh in, and if that philosophy changes for Tesla, a little more.
But again, in many ways, I think people will say that’s why they invest in Tesla, that’s why they invest in Elon Musk. He sees that there is nowhere else to really get a big return on his capital and finds one and sends it to a new record. So this is going to be a very interesting story as it unfolds in the coming weeks.
JULIE HYMAN: And you could argue, JJ, that Elon Musk probably understands the type of investment memorization as well, if not better than anyone out there. I mean, he was making memes and watching this stuff long before that kind of GameStop frenzy.
How are meme stocks on your platform? I know you mentioned GameStop and AMC specifically. But I’m curious, more generally, it’s a topic that you were watching collectively, as a group. Are you trying to find these actions as they arise?
JJ KINAHAN: Yes, I think, Julie, you have to do this, because you owe it to your customers, and the company, and even the industry, to make sure that the risk is right for all of them. We were thrown into a group of companies that restricted trade. We never restrict trade.
We now raise some negotiation requirements. But if you had capital, you could always go in and buy it. You could sell what you were buying. The only reason you can’t sell short is that we have to be able to lend the stock to a retail customer to sell it short. Those stocks were hard to borrow. We just couldn’t borrow it from the general market.
And in terms of options, we were allowing people to buy call options. We weren’t letting people sell short calls. And this is the kind of thing that you should watch for. Why? Because at the height, when GameStop, if you look when it was trading $ 300, the expected move from a standard deviation in 40 days was $ 500.
It is very difficult to put risk metrics around when you are saying that the stock can more than double or go to, you know, theoretically, no stock can go below zero, but below zero. So we have to look at the risk. So with these types of stocks, there is a risk scheme everywhere, so be sure, like our competitors, to make sure the risks are in the right place.
Our biggest concern, I think there is a narrative out there that, oh, you know, they’re just turning their customers over. It is very difficult to go out and get accounts. Therefore, when we have them, it is not in our interest if these people are not successful.
So, we spent a lot of time there with education, etc. I think that was a long-winded answer to your question. The direct answer is absolutely, we are watching these actions, because we want to maintain the appropriate risk parameters for people and still allow them to interact with the market.
JULIE HYMAN: Right. You want to make sure that people actually have the cushion here, in terms of negotiating around it. T plus 2, if it is compressed, how would it affect the market?
JJ KINAHAN: Well, what would allow it to happen is that part of the money overnight would not have to be invested as much as you are hoping to sell the shares. We went from T plus 3 to T plus 2. I will say 2 ½ years ago, I know the margin of error for me to say this. I just can’t remember the top of my head. But again, this is a huge increase for many companies.
You have to remember, when you go for it, each company involved in the market, in terms of brokerage, has to update its systems. And so, for some smaller companies, this is a bit of a capital requirement for them.
So, in general, there is an impulse to go to a T plus 1 or a T plus 0. And that’s okay. I will let the regulators decide what they think is the best thing for the market. But it can save some of the capital requirements that we saw happening to companies a few weeks ago, because with the shares being liquidated, you can get the money in a much faster way and be able to place the positions that your customers have.
MYLES UDLAND: Right, JJ Kinahan, chief market strategist at TD Ameritrade. JJ, it’s always good to hear your ideas. Thank you so much for joining this morning.