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Hello Everyone!

In the last week or so, the financial world was a buzz with the stories behind GameStop, and AMC, BlackBerry, Nokia (remember them??) and then Silver. Yes, Silver the commodity. 

In short, a group of retail traders (meaning regular Joes and Sallys) banded together to buy GameStop ($GME) and those other stocks and drove the stock prices up [6x] in 3 weeks! Along the way, these traders crucified professional hedge funds who took an opposite bet that $GME’s share price would drop in value. Melvin Capital was the victim and had to be rescued by fellow fund managers. Classic David vs Goliath story indeed. 

Power to the people! 

Rewind...power to the people who managed to buy early, sell at the top and keep the profits. Not those who were late to the game and had to nurse wounds as $GME’s price dropped. 

Behind the story 

A lot has been said (and written about it here and here) on the backstory of $GME. There are several characters in the drama from Robinhood the online brokerage (are they really helping ordinary folks out there?), Melvin Capital the hedge fund (and supposed nemesis) and Citadel (who bought the order flows from Robinhood, who later became part of the consortium to rescue Melvin Capital).  

There are of course the SEC, DTCC (the clearinghouse that governs the buying and selling of shares), Sequoia Capital (who invested in Robinhood and Melvin Capital, the latter on behalf of their partners) as well as politicians AOC (Alexandra) and Ted Cruz.   

No wonder Netflix wants to quickly produce the movie for this titillating drama. 

Yet, the underlying plot hasn’t changed for centuries. 

"In the financial market, the combination of risk, reward and mayhem give rise to market bubbles every so often. Greed, hubris, and systemic fluctuations have given us the tulip mania (late 15th to early 16th century), the South Sea bubble in the 1700s, the land booms in the 1920s and 1980s, the U.S. stock market and great crash in1929, and the October 1987 crash, to name just a few of the hundreds of ready examples." Source: Why Stock Markets Crash, Didier Sornette, 2003

Tulip Mania; Image credits: Krause & Johansen 

More recently we have witnessed the Asian Financial Crisis in 1997/8, followed by the dotcom boom and bust in 2000, the Global Financial Crisis 2008 and the 2020 economic recession fueled by the Covid-19 pandemic. Besides those, there were the recent frenzies fueling $GME and cryptocurrencies like Bitcoin, Ethereum and Dodgecoin. The latter is really a joke and people bought into it, despite Elon Musk’s tweet. 

It is definitely (financially) rewarding and thrilling to be part of the mania on the way up and make some profit. However, it can be seen as reckless if you are late to the game and lost your shirt. 

Get ready for the next bubble 

Before you scour Reddit/StockTwits/other online communities for the next $GME or Dodgecoin, it will be prudent to ensure that your personal balance sheet are in order. In the words of Ramit Sethi, you can live a Rich Life by undertaking these steps.

1. List out all your outstanding debts/liabilities, particularly your credit card debts. Craft a plan to tackle them in one of two ways a) pay the debt with the highest rates first or b) pay down those that have the lowest balance. Just pick one and stick to the method. Pay them on time to avoid late fees and further compounding of your debts. 
2. Optimize your retirement fund. In Malaysia (Employee Provident Fund or EPF) and Singapore (Central Provident Fund or CPF), it is mandatory for every employee and employer to contribute towards retirement, paid out monthly. For all other countries you may need to set it up yourself. In this case to target at least 10% of your gross salary. In times of economic recessions, the EPF in Malaysia does relax the minimum contribution percentage to allow more cash in hand to encourage local spending. If you can afford it, maintain the minimum contribution fixed at all times, because the extra savings will do wonders when compounded over time. 
3. Figure out your monthly spending pattern. Based on the discovery, devise a Conscious Spending plan to account for a) monthly expenses (50-60%); b) long-term investments i.e retirement, children’s education (10%); c) short-term savings goals i.e. vacations post-Covid, gifts, emergency fund, charity (5-10%); d) guilt-free spending activities such as dining out, Lululemon gym outfits, taxes/zakat (almsgiving), funny money for stocks trading (20-35%). 
4. The key principle of Conscious spending is to cut out ruthlessly any non-essential expenses and allocate those savings to things you love to purchase or experience. It’s ok to spend on Anime figurines (once you have saved for it) while driving an 8-year-old second hand Honda Civic, if this brings joy to you. Marie Kondo would approve. 
5. Automate your Conscious Spending plan so that it will run on autopilot and more importantly avoid misspending it. The automation can be done through payroll deduction or standing instruction once it is deposited into your bank account. Save for yourself first – this advice is evergreen. 
6. Optimize your savings under this Conscious Plan by allocating them onto investment funds. You can choose from the myriad of active versus passive funds out there. Active funds are typically mutual funds where the fund manager will pick stocks in order to generate high returns (most fail to do so). Passive funds a.k.a. Exchange Traded Funds (ETFs) on the other hand just let the computer to pick the same stocks that an index holds to match the market.   Active funds charge higher fees versus passive funds. Challenge is, in some South East Asian countries, ETF might not be readily available. You may need to set up an account with international brokerage to buy these funds. This will add complexity. Your best bet in this case is to research the best performing funds, with the lowest charges available in your country and invest them. 
7. Set aside some % for charity. It is always a good policy to assist those who are in need if you’re in a position to help. And you will definitely feel good in doing so too. 
8. If you are fortunate to have a bit more money, consider investing in yourself. Enroll into a coding course and impress your colleagues and Boss by creating an app that can track if everyone pays attention during a Zoom call. Or buy a course on making leather. Who knows, you’ll be able to create a new line of handbags to challenge Louis Vuitton. 

Since you already allocate some funny money, you can now scour the stock market to bet (opps invest) in the stock(s) of your choice. Or whatever the most talked about stocks on WallStreetBets. The funny money you set aside would be enough to give you the thrill of investing into arts, startups that will turn into a unicorn someday or chase the next GME. Yet it won’t be too large to wreak havoc on your finances if these investments go south. 

Boom and bust will be here to stay. What we can’t forecast is when and how long it will persist. In the past, financial forecasters wrote and mail physical newsletters to promote certain stocks. Then the Internet took over allowing folks to congregate in online communities to hype up certain shares.   

All the while Amazon Web Services (AWS) enables the democratization of everything by allowing coding prodigies to create Reddit/Robinhood and many more ventures in the future to get everyone on the trading bandwagon.  

Yet you will be different. You will get your personal balance sheets in order. You will allocate your capital intelligently using the Conscious Spending plan to build the foundation to ride the next bubble and live a rich life. 

Power to you! 

Be great,

Reez Nordin

Ps: I dedicate this post to my daughter, Rania, who is celebrating her eighth birthday. May you grow up to be a pious, kind, and live a rich and thoughtful live. Your mom and I love you so much.  

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