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How The Meme Stock Revolution Can Help Explain Wall Street

by Simon Constable 6 months ago in wall street
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This story screams “David versus Goliath,” only not in the holy land thousands of years ago, but rather on Wall Street recently and with a twist.

U.S. cover Copyright Penguin

Former top-rated Wall Street stock analyst Spencer Jakab has done it again. He's produced a book that tackles a complex piece of recent history, and yet makes it understandable and entertaining for those not familiar with the ways of Wall Street. It's hard to recommend this book enough especially for new investors.

"The Revolution that Wasn't: GameStop, Reddit and the Fleecing of Small Investors," published recently, deals with the period when a group of small investors communicating via Reddit pushed up the value of some stocks of beleaguered companies and inflicted huge losses on seasoned Wall Street professionals who made bets that the shares would drop. Eventually the pros got hit with massive losses.

This story screams "David versus Goliath," only not in the holy land thousands of years ago, but rather on Wall Street recently. It's clear the Jakab also knew that recounting and decoding the events would be a suitable lens through which to explain the weird inner workings of American finance.

It's like an insiders guide for those who never worked in the field. That's important because if you haven't worked in the field there's plenty you don't know about what really goes on. Like Jakab I worked on Wall Street and came to a greater understanding that theory and practice aren't always aligned in banking. Sometimes they are diametrically opposed.

Although it is well-known that finance is a performance based field. It is also an ego filled profession. In many cases that's necessary in the investing business because following the herd generally leads to mediocrity or subpar returns.

Jakab takes us through some of the egos in this particular episode by providing snapshots of the characters involved in the events of 2020 and the beginning of 2021. These include :

  • Keith Gill, a.k.a. "Roaring Kitty" and "DeepF*ckingValue."
  • Vladimir Tenev, billionaire behind investing platform Robin Hood
  • Gabriel Plotkin, founder of Melvin Capital Management
  • Ken Griffin, founder of hedge fund Citadel.
  • Steve Huffman, cofounder of Reddit

While the story will keep you gripped, it'll also soften readers up for some sound advice on how to make money on Wall Street, as did his last book, "Heads I Win, Tails I Win." And to me, that dedication to helping investors not get scammed is an important contribution to the world, and one that leaves a positive legacy.

Take for instance the following snippets which impart much wisdom.

"[A University of California Berkley study] showed that, even without the effect of commissions, the more people traded, the less they earned on average comapred with just being passively invested in stocks."

"In the 1990s, dentists were the stereotypical retail investors who learned the hard way that they couldn't translate their general smarts to making smart investments and outwitting Wall Street."

Technology and competition have made Wall Street a much friendlier and more profitable place than in the bad old days for individuals as long as they play a different, less exciting game."

UK cover, Copyright Penguin

Or to overly simplify Jakab's message: Investing isn't for entertainment. A buy and hold strategy generally beats frequent trading, and if your know-how isn't in Wall Street savvy, forget trying to beat the house.

If you do those things, then you stand a chance of winning. But if you don't, the house will. At least that's what I takeaway from the book. I've already given copies to friends who have an interest in learning more about investing and have no doubt that they will come away enlightened.

This is an edited version of a story first published on Forbes.com on February 8, 2022.

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About the author

Simon Constable

Simon Constable | Author | Broadcaster | Journalist | Commentator | Speaker

You'll find his work in The Wall Street Journal, Barron's, Time Magazine, Forbes, Fortune, TheStreet.com, the NY Post, NY Sun, and the South China Morning Post.

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