Over the past several weeks, many retail investors—particularly the new and novice—received a crash course in the stock market, and expect to face heavy losses over the Gamestop situation. New estimates are clocking short-seller losses at roughly $20B, while hedge fund Senvest Management LLC, made $700M. This context is where things get interesting.
Facebook celebrated their 17th birthday on February 4th. Google is 22 years old. Reddit is 15 years old. Why do we still act like the virtual world is a silly game with no bearing in real life? The digital realm has incited genocide in Myanmar, influenced US elections and radicalized millions of Americans—software has a powerful influence in our real world.
For decades we’ve heard how tech democratizes access to investing, research, education, and so on, but Gamestop demonstrated how retail investors can harness digital power via social collusion. The ensuing whiplash may have sent financiers running to the Feds, crying to (undoubtedly) get the rules changed further in their favor, but retail investors have learned a new trick that they’re most likely going to use again. All bets are off.
The truth is often uncomfortable, but it’s necessary to make informed decisions. While reports indicate that most novice Gamestop investors will likely take a bath, their stunt certainly publicized the complicity of the capital markets. Big tech, business elites, Wall Street and the Feds have been in bed together for so long that their business models are interdependent; and Robinhood has been revealed as the wolf in sheep’s clothing.
These intertwined, deeply entrenched power structures have become so prominent they’re practically screaming in our faces. Look to the 2008 recession as proof of how deeply connected these structures are under the surface. The collapse of one investment bank kicked off a domino effect that nearly took down the entire US economy and sent shockwaves across the globe. When set against the backdrop of the Great Recession—which millions of Americans will be forced to reckon with for the rest of their lives—is there any wonder why 99% of Americans are out for blood, anyway they can get it?
Don’t let penny stocks fool ya—the OTC is good for you and me
Wall Street isn’t teeming with financial savants, the default structure is simply designed to enrich them. Comparatively, the OTC market lacks the staggering power imbalance of Wall Street, as it’s decentralized and uses a system of market makers. The OTC facilitates the trading directly between two parties. Companies whose securities trade on the OTC are most often microcap or nanocap stocks and are generally (sometimes inaccurately) referred to as penny stocks.
Industry snobbery likes to scoff at the OTC market as ‘less worthy’, but when 92% of gains on Wall Street are owned by 10% of Americans, for the rest of us, the game of Wall Street is like playing Monopoly against the banker holding Park Place and all the cash: another miserable turn around the board. This structure is unlikely to change anytime soon, but the OTC market, however, offers intriguing opportunities for both retail investors (new and novice) and young companies.
For us, by us
Wall Street has a pitiful 8% of ownership up for grabs that it loathes to share with the 99% of Americans to begin with. The OTC market however, offers investors a different flavor of the pie. In this market, retail investors have the ability to own public equity in early stage companies, which could become the next big name on a listed exchange (Nasdaq, NYSC, etc), and entrepreneurs can secure the funding necessary to propel their business forward. One of the best features of the OTC market is that in current day, it’s principally independent from traditional Wall Street—ergo, egalitarian.
While the internet has profoundly shifted society, it isn’t a magic bullet to solve the structural imbalances that exist. We know that the little investors aren’t dumb, they just lack power.
And that’s what the OTC market offers: a chance to keep the American Dream alive with practical options geared towards the 99%, whether an entrepreneur or investor. Sounds like the perfect antidote to the financial fallout from the pandemic and the unforgiving yoyo of Wall Street.