what's up my friends it's bob here this entire gamestop news combined with the recent class
action lawsuit against the famous robin hood investment app has truly made this week
unprecedented times in the investment industry okay now raise your hand if you are sick and tired
of the term unprecedented times i sure am so with all of this news on robinhood screwing investors
out of buying gamestop nokia amc stocks among others on january 28th alongside of the new class
action lawsuit you might be wondering should i continue to invest with robinhood or should i cash
out and run away and what am i doing personally that's what i'm breaking down in today's video
i'm going to share some perspectives that you need to know that i don't think we're thinking about
before you go ahead and tell robinhood to go LOL themselves or you decide you want to stay with
robin hood as your investment strategy personally i don't care what your decision is you need to
make the best decision my goal today is to provide you value and some information that you may not
know so that you can make the best informed decision before we talk about the important
points of what robinhood did that you need to know we need to first understand how we even
got to this point so basically a bunch of fat cats from wall street such as melvin capital and a few
other hedge funds decided they were going to game up on gamestop which technically had the same type
of business model as blockbuster in today's world not many people are going to the physical stores
to buy video games so they thought we're going to bet down that that share price is going to go down
gamestop might even go out of business and because they decided to do it in that fashion which is
what we call shorting a stock they were standing to make billions of dollars so the goal was they
were going to borrow the stock to eventually sell it back after the lower price and because
they did that they would earn money as a result of shorting the stock more on how that actually works
in the video linked up above but then you have a bunch of internet chatter with people like you
and i on this forum called wall street bets that decide hey gamestop has some opportunity let's all
get together buy into this which will drive the share price up because we're buying more shares
as a result of that the fat cats have a decision to make they can either get out of their position
because the stock price is going up which is what they don't want or they let it ride but if they
let it ride and the stock price keeps going higher they could actually lose more and more money so
what happens the fat cats quickly cancel out buy back the shares and as a result of buying back
those shares to minimize the amount of money that they're losing the share price of course
continues to keep going up and that's what led us to this last week where gamestop we're seeing an
unbelievable high from what thirty dollars a share up to a peak of four hundred dollars per share
in the middle of this week absolutely crazy guys and then queue up robinhood investment app who
decided at the height of all of this surge to cancel the ability to buy into these high value
stocks such as gamestop amc and a few others now do i think this was right no i don't necessarily
think this was the right thing to do of course because that cancels people's ability to trade in
the free and open market because i think there's something that you and i may be missing here
so i decided to dig a little deeper to really understand what was going on now i asked you on
a recent poll over on the community tab what you were planning to do some of you are staying with
robinhood but over 50 percent of people that voted are transferring their fines to either weeble or
m1 finance or one of the investment apps such as that but did you actually know that gamestop was
also halted on weeble m1 finance td ameritrade and even charles schwab from what i heard
during the course of the day now the difference was on those apps it was anywhere from about 11 30
a.m to 3 p.m whereas robin hood halted the trade all day long on the 28th of january this of course
triggering mass chaos and inducing that class action lawsuit that basically blames robinhood for
halting and trying to protect the hedge funds now some people are linking this toward citadel which
helps robin hood execute trades and pays robinhood very good money for that result citadel also has
an interest in melvin capital you know the hedge fund that lost billions of dollars in the gamestop
craze so was robin hood protecting citadel and melvin capital with this move well honestly i
think we need to let the investigation and the lawyers figure that out but am i leaving robin
hood no i'm not i'm not beeping leaving the show goes on as the wolf of wall street famously said
and here's why buckle up my friends it's about to be a crazy ride this after i research is what i
really think went down on january 28th when you buy a share from your favorite brokerage you'll
typically see the share execute and arrive in your account almost immediately as long as it's
during the trading hours but on the back end there's actually a much longer process that goes
on first you say you want to buy a share of stock your brokerage then uses a clearing house
to execute and buy the share of stock from the seller this process can take anywhere from two
to three days typically now during this time a clearinghouse has to have enough capital to cover
the cost of the share you just purchased indicates that something crazy happens or the company
otherwise known as the seller goes bankrupt now most brokerages use a third-party clearinghouse to
help them execute the shares and the trades that you purchase brokerages such as weibull stash m1
finance all use the same third party clearinghouse known as apex clearing corporation so the reason
that most of these apps halted gamestop on january 28th was actually because apex ask them to do so
and then on the other hand you have robinhood charles schwab e-trade and a few others now what
they do they don't use a third-party clearinghouse they actually self-clear and that is where things
get very interesting during the course of the gamestop surge orders for shares were coming in
at a massive rate sending the volatility of the stock through the roof if you have brokerages
sending in orders of a massive amount with potentially limited outstanding shares left
of a company stock the clearing firm has to keep enough capital to pay you back if they're not able
to execute the share correctly so let's give this example let's say you bought gamestop at 200 a
share and the clearinghouse isn't able to execute the share correctly now the price is up to 400
but what they have to do since they couldn't execute that share is pay you back what the
share price is worth at that moment that means you and everybody else that want crazy buying shares
they actually got to front that extra money on top of that you have what they call the dtc this
is the depository trust company now due to the high demands of gamestop and others they told
clearinghouses that they had to have 100 percent cash reserve for any of these fast-moving stocks
so with that limited notice is clearing houses really didn't have that much capital on hand
in reserve in the case that something would have happened this of course forced them to halt new
buy orders to protect themselves because they can't pass those type of requirements and cost
on to the customer you and i because of sec regulations so that means robinhood being its
own clearing house and not using a third-party clearinghouse had to protect itself because if
you think about it robinhood is indeed the most popular investing app at this time if you look
on the app store it is ranked above weeble and everything else ranked number one so they have
a lot of opportunity to potentially have a big problem if they have massive orders coming in
and something crazy happens so the robin hood ceo he attempted to explain this but
i personally think he did a terrible job yeah he spoke way over everybody's head and made no sense
weeble ceo he did a better job blaming the third party clearing house apex for asking them to
pause from 11 30 a.m to 3 p.m that day on january 28th but with this understanding i can personally
understand why they would want to do that to protect themselves because they can't pass those
costs on if the share price goes flying high to the moon all of a sudden all the shares are gone
or something weird happens and they can't execute that trade that means they're kind of screwed and
all their cash reserves goes away no business wants to lose a ton of money let's be honest
now i can almost see with a crystal clear vision that there's going to be some sec regulation and a
few other things coming out as a result of what happened this week with gamestop this is truly
a historical time and something to keep your eye on because it'll be interesting what type
of regulations come from this if you remember the wolf of wall street jordan belfort and some of the
pump and dumps of 1980 a lot of regulations such as circuit breakers in the stock market became a
thing because of what was happening as a result of stratton oakmont and the jordan belfort scheme but
a lot of you have asked a very important question and that is what if the lawsuits actually hold up
and robin hood has to go out of business or they go bankrupt or something crazy like that happens
what happens to all the money i have in robinhood well very good point here's the good news you are
actually protected by the s-i-p-c they protect up to five hundred thousand dollars that you may have
invested along with up to two hundred and fifty thousand that you may have in cash buying power
so if anything would happen in robinhood stash or any of the other investment brokerages don't worry
you're protected by the sipc because i got to talk about the casino that is gamestop i know some of
you love the diamond hands you want to get in on this and potentially make riches you're hearing
the stories you're getting very excited some of you are buying at the 300 price point you're
buying at the peak all i can say is be careful my friends this is not a strategy i like it's not a
strategy i'm jumping in on because i'm gonna side with the famous billionaire warren buffett warren
buffett says to be fearful when people are greedy and right now there's a lot of greed going on with
gamestop people are getting in hopefully it's going to go from 300 to 400 to 1 000 but there's
a good chance that it could not and then you're going to lose all your money so i even saw a post
on twitter where people were pulling out personal loans they were draining their emergency funds
and putting it in the game stop at the height of 200 or 300 in hopes that it goes up even more and
that's like being in the casino you're putting in all your money all of your hard-earned money and
hope that that little ball lands on the color that you put your money on in the roulette wheel even
the wolf of wall street himself the actual jordan belford not leo dicaprio actually came forward and
said you know this is all fun it's all exciting but when this comes to a halt when it comes to
a crash it's going to be like catching a falling knife it's going to be very difficult to do that
be careful is all i can say what i do personally if you are new to this channel or this is the
first video you have seen here on my channel is i invest for the long term i am building
my portfolio up to one million dollars through a variety of not just robinhood but i'm into
weeble i'm into schwab i'm into stash i'm into a lot of different things and i'm very strategic
about what i do with my money i want to get paid monthly dividends i want to be able to get into
companies that have a lot of value growth gamestop is not one of them to me but there are a lot that
i think are going to go upward over the course of a period of time it's not get rich quick but
when you look back on it it's gonna feel like you got rich overnight so be careful invest regularly
and continue to grow your suite life so with this new perspective that we just talked about today
on this clearing house reserves that they need to have does that change your mind a little bit about
robin hood and your personal investment strategy comment down below and let me know what you think
i'd be interested to find out but until next time and as always continue to live your sweet life
because you my friend are worth it have an awesome day we'll see you next time [end]