January 31, 2021
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On this podcast, Suze takes us to “Suze School” on what happened in the Stock Market last week, with respect to GameStop and Robinhood. We also get lessons in investing in BitCoin and what’s going.
January 31st, 2021. Can you all believe that tomorrow's gonna be February already? This February, almost a year ago, when all of this craziness really happened. But here we are, we're still here and craziness is still happening, if you ask me. And this craziness that I'm talking about isn't necessarily the covid because we're kind of used to that now and everything that's going on and not going on with it, now we're dealing with another kind of craziness which happened this week in the stock market. You know, I think I'm gonna have to call this podcast, this was the week that was because something happened this week that has never happened before. Really, in the history of the stock market. And a lot of you are writing me and saying, Can you just explain to us what happened last week? Why did some stocks go up? Why did they go down? Why is everybody so upset? Why is everybody talking about something called Game Stop, Robin Hood, What is all this? Can you explain it to us? And normally I would say, You know what? I think that's just a little bit too complicated for a podcast like this. But then I started to think how intelligent all of you must be that you're even listening to my podcast and that if I could try to just explain this to all of you very slowly that I really think you could understand what just happened in the stock market is really for some people, so dangerous I can't even tell you. So we're going to go to Suze School and we're going to go to Suze School about three or four things today. We're going to go to Suze School about Bitcoin. We're going to go to Suze School about Robin Hood, Game Stop, AMC and maybe, if I get to it, commercial real estate. Okay, what happened last week is really so dangerous, and some people are going to lose serious sums of money I can't even tell you. But you need to understand what happened and why. So first, let's talk about stocks and how they work, because it's really very simple. A stock is simply an equity investment, where it is a share issued by a company that is traded on the stock exchange. And they put their stock on the stock exchange to raise money for them to keep expanding their business and then their stock trades on the stock exchange back and forth. Every stock has a specific number of shares that are traded, that they have out there to be able to be bought and to be able to be sold. That is known as the float. How many shares are being floated out there to be bought by you and to be sold by you, most of us by stock, because we want the price of that stock to go up. We buy it at 10, and we wanted to go to 20, 30 or 40 or whatever it may be. We want to make money on it, and that's how it normally works. However, there are other investors out there that they look at a stock and they think that the price of the stock is too high, that it has gone up and up and up, and there is no reason that it should go up and they want to place a bet, and it really is a bet. The first thing when you buy a stock is not a bet, It's your investing. And my opinion when you do what I'm about to tell you is done by many. That to me, is you're placing a bet. All right, so there are many people out there when they think a stock price is too high, one of the things that they can do is they can short the stock now. This is where it's going to get complicated. Okay, so you have a stock that's gone. Let's just say from 10 to 20 to 30 to 40 and there are people out there who think 40 is too high. So they do what's called shorting the stock, thinking that it will go from 40 back to 30 back to 20 and all the way down. Now, the difference between you who buy a stock and those who short a stock is you own that stock, you have it in your possession. Got that? Those that short a stock, they do not own that stock, so they have to borrow that stock, essentially from the brokerage firm. They have to pay interest to the brokerage firm, and now they have shorted a stock that they have got to pay back, usually within a period of time. Okay, just that simple. Here's the problem. If you invest $10 and it goes up and up and up, it could go from $10 to $1000. There's no limit on how much money you can make. The most you can lose, however, when you buy a stock and let's say you buy it for $10 a share. The most you can lose really is $10 when you short a stock. Now let's say you shorted a stock at 40. The most you can make is if it goes from 40 to 0. The most you can make is $40 a share. However, if that stock turns around and starts to go up, the most you can lose is unlimited, because if that stock goes from 40 to 80 to 800 to 1000 you're on the hook to have to buy that stock back, possibly at $1000 a share, to repay the brokerage firm that you borrowed it from. Are you following me because you have to understand this to understand what happened with Game Stop. What happened with Game Stop is that the institutions, and they were hedge funds and a hedge fund is an investment group of people who hedge their bets. They buy stock that they want to go up, and they also short stock that they would like to go down there called a Hedge fund and they decided the game stop, which is simply a stock on the stock market. They do arcade games and things like that, that the stock was trading at too high of a share and they started to short it. The problem is, they shorted a 140% of the float. What did I tell you? The float was. The float is how many shares they have outstanding that you can buy and sell. Certain entities shorted Game Stop for almost 40% more than the amount of the shares that were out there because they were leveraging their short. Now I could just see you all now I can see you all just absolutely rolling your eyes. But just stick with me here for a second. So what happened was, there was this kid by the name of Keith Gill, who was 34 years of age who realized, and brilliantly so I just have to tell you, that the hedge funds had shorted Game Stop to the tune of almost 140% of its float, and they started talking about it on a form called Wall Street Bets on Reddit. And what they thought about doing, brilliantly I have to really give it to them, is that if they as a group off investors went in and started to buy game stop stock and started to push the price off the stock up because they were buying it, that eventually these hedge funds that had unlimited risk, like I just explained to you that they would have to close their shorts and the only way they could close the short would be they would have to buy Game Stop back at whatever price it was selling at. And a lot of these hedge funds didn't just have a $1000 worth. They had billions of dollars at stake. So what started to happen is as the people from Wall Street bets started to buy the stock Game Stop and the stock just so you know in January of this year was at approximately $17 a share. Friday, it closed at $325 a share. That's like an increase of almost 1800%. So imagine that these hedge funds shorted it, let's just say at around 17, and now it's going from 17 to 20 to 50 because all these people on Wall Street bets are buying the stock and they're buying it and they're buying it and they're forcing the price up. And now the hedge funds are losing billions of dollars as they're watching it go up. And now they are freaking out because the stock is going up and up and up, and what do they have to do? They have to buy it back. Oh, if they have to buy it back with the amount of shares that they had shorted, it's going to push the price of the stock up even more. So when they came back to buy stock because they had to close their positions, that's when the stock started to absolutely skyrocket. They lost billions of dollars while the investors from Wall Street bets other people. They did this a lot of them made a serious some off money and for the first time in history, the retail investor like you and me turned the tables on the hedge funds by realizing what they were doing. The danger to this, however, affects you in two ways, and it affect some of the people that are now buying Game Stop. So as Game Stop was going up and up and up and these hedge funds had to buy the stock back, they needed to find money to buy the stock back. And remember, I said to you that hedge funds own stock, that they want to go up, and then they have stock that they short because they're hedging their positions to raise the money, to be able to buy the stock back they most likely had to sell stock that they were hoping was going to go up. They're Amazon's their apple, all these stocks that they were also making money on. They had to sell that stock or those stocks in order to raise the money to buy the game stop shorts back. When they sold that quantity of stock to by Game Stop back, it forced Amazon and Apple and all these stocks to go down significantly. Apple, the other day just the other day was that, like $142 a share, they had had a fabulous earnings and everything, and in a little bit they were at 131. Now that not only hurt stocks, that shouldn't be hurt, but you have other entities, such as institutions and pension funds and all kinds of things that own that stock as well. It also hurts their portfolios and it hurts you. It hurts you because you most likely own Apple own Amazon own those stocks. Or maybe you have an index fund and you saw it go down because, you know, we did see for the first time in months, I think it was since last June, where the Dow Jones industrial average went down 2% in one day. So that little action there, where some people made a lot of money. A few people lost serious sums of money but really affected all of us because we're all in this together. So I'll talk about the overall stock market in a second. But I want to talk about game stop for one more minute here because if you do research, they're absolutely our people who made millions of dollars off of this trade. My God, they bought it at 17, maybe they still own it here at, you know, 325 and it could go up even higher than this. But many of the people who are now getting in their average price that they are buying at is right around $320 a share. What you have to think about is how many more people out there are going to have to cover their shorts or be willing to buy Game Stop for it to continue to go up. You also have to know that there are people who made a fortune in it and they may say, You know what? I'm taking my money off of the table and I'm going to sell. So this is not investing everybody, even though people who did this made a lot of money. But that, in my opinion, is not the investing that you want to do over the long haul or how you're going to make money because you have to get in and out at the right time and most of you are not traders. Most of you are investors, and I love that the kids who made millions of dollars off this and are able to pay off their student loans and everything. Great. But you have to be very careful and you have to know what you are doing, especially after the stock has run up as much as it has run up. Now, there are people out there that once again and go Oh, my God! Game Stop is way too high. We're going to short it again. And maybe Wall Street bets and other people will go. Oh, look. Look how many people shorted it. Let's buy it again and run it up and do it all over once again. Please know what you're doing. I would not be touching this at this point with a 10 ft pole, it's dangerous. Please, I am begging you. Please be careful unless you absolutely know what you're doing or unless you do not care if you lose 100% of your investment. Got that? Next. They not only did this with Game Stop, they did it with AMC, the theater company, many companies. This was done with. So a lot of money was made last week, and a lot of money was lost last week for those who were shorting. But there was also money that was lost with good quality stocks because those stocks had to be sold to do what to cover people's shorts. So what do you do now? Just like a year ago, when I started to talk about this, if you really look just at the stock market and where we are right now, The high of the stock market was 31,272 on the Dow Jones. Currently, we're at 29,982. So that's only about, you know, a 1200 some odd point loss. Yes, I get that's 4% but it's not that big of a deal right now. There's nothing wrong with when the markets run up the way they have been running up for it to take a pause and go back 5% or 10% or so. That's healthy when it doesn't under normal circumstances, these circumstances are not normal. And we don't really know what's gonna happen next week with the games that are going on right now, but hopefully people will look at this and look at the stocks, the good stocks, good quality stocks that have gone down and they'll come in and they'll say, I'm gonna buy those stocks again and hopefully the market will go back up. Please, let me remind you I said to you just a little bit ago. I thought that the markets would be good for the first month two or three of this year, and then we absolutely could go down for a longer period of time. And I still think that at this moment, but we could have something called contagion happening where whatever happened last week, with the shorting and everything, people could get really freaked and start to sell. So, like I told you, if this is money that you need within 12 or three years is not money that belongs in the stock market. I have told you that, however, we're just gonna have to see how this plays out. The other problem is this. Robin Hood. Robin Hood is this brokerage firm that the millennials love, they just love it. And truthfully, to Robin Hood's credit, Robin Hood was the very first brokerage firm that created commission free selling where you could buy and sell stock without any commission whatsoever, which made it easier, by the way, for people to buy Game Stop and all these other stocks because they didn't have to pay commission. And they also could buy, like, one share, hair, little shares. And so all of this has aided to the market going up over the past few years, if you ask me. So what happened with Robin Hood, however, is Robin Hood is not just a brokerage firm. Listen closely to me. They are also a clearing house, and a clearing house is where your trade and I'm just doing this very simplistically, is where your trade clears and there has to be enough money in that account to pay you what you sold for. And what happened with Robin Hood is that they had to close down trading on Game Stop and AMC and other stocks in terms of buying them. You were able to sell, but in terms of buying them, because there are regulations for how much money a clearing house has to have on hand, and Robin Hood needed to sign up a line of credit and make sure that they had enough money. Now, I don't know if Robin Hood is in trouble or not, but this is not easy things to understand. And you've heard me say before, if you wanted open up account at Robin Hood, Okay? But I would absolutely prefer if you were with um or established companies such as a Fidelity or a Schwab who probably would not have had to close down trading on his many stocks is really Robin Hood has had to close down. Now hopefully, Monday will open up and Robin Hood will be great. I'll also tell you, Robin Hood was caught really by surprise because they were the number one downloaded app of all apps, which was never true for them. Which means, as Game Stop was going up, thousands of people were opening up accounts at Robin Hood so they could participate, and Robin Hood got caught in really not having enough money. I think that's what happened there. So I'm just asking you to be careful here. Again you can stick stick with Robin Hood if you want, but if you also remember a while ago I told you that the only reason I didn't like Robin Hood was last year when everything was going crazy and everything or a while ago, they also had to stop trading because they were just figuring out how to do it. I personally, like more established brokerage firms that are really huge and could handle things when these markets go crazy. But I hope Robin Hood, for the sake of everybody you know, pulls it out because they didn't mean harm to anybody It's just how the markets work now. Are we clear here that hopefully you are not going to participate in game stop at this point? And I don't care if it goes from 325 to 1000 or $5000 a share. You are playing with fire right now and somebody is going to get burned because there will come a day when it does probably go all the way back down again to what it was truly valued at, which was around $17 a share at the beginning of this year and about $4 a share last year. Okay, ya got to be careful here. Bitcoin. A lot of you are writing me and you're saying Bitcoin is just like Game Stop Suze, you told people I heard you say that you like Bitcoin as an investment. That is the worst advice you have ever given Suze Orman. You've always told everybody Do not invest in something you don't understand. And that's true. If you don't understand it, stay as far away from it as possible. But do not compare Bitcoin to What happened in game stop? First of all, to be clear on what I said about Bitcoin, I happened to like Bitcoin and I am investing in Bitcoin. How much am I investing in Bitcoin? A $1000 here. A $1000 there. Not a lot of money. So I am doing it little by little. And if those of you who want to do it, I don't have a problem with that. But $100 here, $100 there but with money that if you lost every single penny of it, it would not matter to you. I personally believe as time goes on that something is going to have to change with the way that we do currency. And I think it is very possible that Bitcoin can play a big role in that Now, as I speak, Bitcoin is back up again at around $34,000 a Bitcoin. And after I was talking about it because it was up at 42,000, at one point went all the way down to 29 or whatever it was. And now it's back up again. You are not buying Bitcoin for a trade. You're buying Bitcoin for one day in case it happens to go to $300,000 a Bitcoin. Now it's it's likely to go to $300,000 a Bitcoin, as it possibly is for it to go to $300 a Bitcoin. So you are only to put money in there to see what happens, The place that I really love buying Bitcoin is right now through PayPal, and I understand that it's an approximate 1.5 or 2% commission to do so. All right, but at least you have access to buy and sell, and it's easy. But if you don't understand it, don't do it. I don't care. And do not do it with a lot of money on any level. Do you hear me everybody? So I just want you to be clear about that. Next. I just want to talk to you about real estate because I'm starting to see things happen here that I find very, very interesting. Recently, they're in, this is in Nevada everybody okay? In Las Vegas, Nevada, there was a fashion outlet mall and it was called the Prim, and it was auctioned off last week. On Wednesday, this entire mall for $1.5 million you would think that was great, right? But do you know in July that mall was appraised at $28.2 million $28.2 million. Now, why am I telling you about that? Because commercial real estate is starting to take a hit. It's taking a hit because people aren't going to malls. Who knows why else it's taking a hit. But I'm just asking you, Can you just pay attention? Now even the building that I live in in Florida, I don't really live there because I live in the Bahamas. But there are out of 76 I think condos in this place there's, like 14 on the market for sale, and they've been on sale for a long time now, one just sold. But after 180 days, so we are now entering a different period of time. We're done with the election. But we still have a whole lot of controversy out there. A lot of fighting. A lot of anger. We now have a lot of uncertainty with the stock market because of what happened last week. We're just gonna have to see what happens. Bitcoin really doesn't play a big deal one way or the other in any of our lives, I'm sure, but make sure that that's true. Do not go gambling here. And this is the period of time that I just want you to stay focused and we'll take it week by week again, and we'll see what happens. But that is your Suze school, I hope, just on a very minute level, I was able to explain this to, because it's really I have to tell you 10 times more complex than what I told you. But at least you haven't understanding of why this happened. That's what I wanted to talk to you about this week cause I don't want you to get caught in doing something just because everybody else is doing and everybody else is making money. And it's just the latest thing. Just go slow. Be smart. Invest. Because, remember, the goal of this podcast is for you to be strong for you to be smart, for you to be secure and going to Suze School today, I hope made you all just a little bit smarter.
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