The war between Reddit's GameStop enthusiasts and Wall Street hedge funds was billed a David vs Goliath struggle. Last week's crash in GameStop shares was a reminder that declarations of victory were premature. As Ritholtz Wealth Management's Josh Brown noted, David doesn't beat Goliath in real life.
Sure, a few hedge funds were bloodied, but others profited from the chaos. And while some retail traders will have cashed out, large numbers will have been left holding the bag.
Ponzi schemes
These kind of games inevitably morph into Ponzi schemes, ensuring big losses for uninformed amateurs who get caught up in the frenzy and buy at the top.
The fact that many people are angry isn't the point. As Bloomberg's John Authers noted, the answer to today's ills is not to "empower poor people to bankrupt themselves with margin accounts and derivatives".
Wall Street will always have better data, better software, better information; why play a zero-sum game you can’t win? You beat Wall Street by buying cheap index funds and ignoring the markets. As Brown notes, David wins not by fighting Goliath, but by avoiding him.
