Holly's Blog: This week I'm an evil hedge fund boss

By Mike Narouei, Content Producer at Boring Money

29 Jan, 2021

Strange scenes on global stock markets this week as retail investors club together to create carnage

Strange scenes on global stock markets this week as retail investors club together to create carnage. The now famous GameStop has been used as a shell for money wars between the ‘little guys’ and the vultures of Wall Street, and its share price has gone from $19 on 1st January, to a high of $480 at the open yesterday and $190 at the close. Huh?

Welcome to yet another financial story which starts with the complex world of derivatives. I’ve written the synopsis of a little morality play to illustrate what’s going in, in which I play an evil hedge fund boss; GameStop is Gavi di Gavi and the new trendy online brokers like RobinHood are played by Majestic.

Act One

Imagine you give me £15 and ask me to buy you a bottle of wine. Sure, sure I say… I can deliver that next week… and promptly pop around to my neighbours to borrow a bottle of Gavi.

I sell this borrowed bottle for £15 down the market because I’m pretty sure that there’s a sale coming up next week and Gavi will be reduced to £5. Cunning, n’est-ce pas? I’ll buy the bottle for a fiver, deliver it to my client, give my neighbour a pound to say thanks for the loan and I’m quids in.

Trouble is, lots of meddling kids get together on Reddit and extol the virtues of Gavi di flippin’ Gavi. Next thing you know, the wine is flying off the shelves, people can’t get enough of the stuff and and the price has shot up to £30 a bottle.

Act Two

OMG! Suddenly I have to spend £30 to get that bottle back, not the £5 I’d factored in. And then just when I though it couldn’t get worse, bloomin’ Elon Musk wades in and tweets about how gorgeous Gavi is!

By now the damn wine costs £50 a bottle ‘cos all those teetotal millennials can’t get enough of the Boomer Juice!

I am gnashing my expensive teeth. I have done this wine deal with thousands of people across town and suddenly it hurts. Time to cut my losses and buy the damn wine and close down all these ‘short’ positions. Thankfully, just when it’s looking really ugly, Majestic suddenly agree to ban the little people from buying Gavi!
Next thing you know that irritating Alexandria Ocasio-Cortes is taking on Majestic, reminding them that it’s a free market and anyone can buy plonk. Not just hedge fund bosses. Enjoying their taste of blood, the Reddit gang reassembles to look for other wine producers which have vultures like me betting on their downfall.

And so (shapeshifting from hedge fund boss to normal ole me)

One to watch from the sidelines. This is greed, fear and gambling. Our local market is not immune – have a look at Cineworld’s share price today. The only long-term beneficiaries from this saga will be The Worldwide Robin Hood Society in Nottingham whose online shop crashed yesterday as confused investors looking for US broker RobinHood flocked to their site :0

And now, from RobinHood to robots

I’ve often written about ‘robo advisers’, a fast-growing online financial solution which serves up ready-made portfolios for the confused, the anxious, the busy and the can’t-be-bothered amongst us.

There is a lot written about their charges and their websites/apps – but less about their performance as investors. As these guys are a relatively recent addition to the financial landscape, any meaningful track records by which to judge performance are only just emerging. Three years ago, I set up 15 accounts with some of the main players, allocating £500 to 15 ‘medium risk portfolios’. Those portfolios which had about 60% in shares, and 40% in less risky stuff.

In mid-January we recorded all the balances to give us a view of how they have performed after all charges. Here’s the results.

Note: To be fair to Barclays and Fidelity, they have minimum monthly fees which clobber the small £500 accounts – on a performance-only basis they hold up better.

If you’re interested to read more, check out our full article and all the details.

  • The headline message is that the average provider has turned my £500 in £552 over three years (after all charges).

  • The diversification they offer at low prices to smaller retail investors is meaningful – had I invested my £500 in the homegrown FTSE100 over the last 3 years, I would have lost £70.

  • It’s worth checking what lies under the bonnet every so often – today our medium-risk portfolios have diverged and Moneyfarm is nearly 80% in shares and Wealthify is 43%

A final call

This is time of year when the Boring Money are hard at work reviewing who will get our annual Best Buys awards. As we grow, we are able to allocate an increasingly high weighting to your views. This is a call out for you to add to voice – if you can , and if you like what we get up to, please will you review your provider here (https://www.boringmoney.co.uk/isas-pensions/isas-pensions/)? It helps us and it helps other investors and it’s hugely appreciated. Cut-off for voting is February 14th – winners announced on Thursday 24th Feb.

That’s it from me for this week. I hope you manage to find something fun to get up to this weekend! A touch of Gavi??.....

Holly