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TD Ameritrade Chief Market Strategist JJ Kinahan joins Yahoo Finance Live to discuss latest Investor Movement Index (IMX) score, which soared amid unprecedented activity by retail investors in January – including the most popular stocks bought and sold by investors – as well as news that Tesla has invested $ 1.5 billion in bitcoin.
Video transcript
JJ KINAHAN: Let’s go back to what we saw last month, quite incredible, and how we’ve seen our customers gain more market exposure than we’ve seen in a long, long time. We released our Investor Movement Index, which measures our clients’ exposure to the market as a whole. Our clients rocked out the door, so to speak, in 2021, buying a lot of stocks that you expect from them.
Apple hits all-time highs, AT&T, AMV. But a few of them maybe interesting, you know, Lemonade run by our millennial clients, the insurance company. So I thought this one was really interesting. You know, GameStop, AMC, of course, the ones everyone wants to talk about, they really didn’t show up for the month, because you have to remember it started the last week of January.
So while the trading for two weeks was absolutely amazing, overall it is not enough to somehow hurt the overall monthly survey. But of course, you know, our clients were very interested in trading these two names, which is not surprising to anyone.
What I would say is that even though they were a bit more of net buyers of AMC than GameStop, and I think that has a lot to do with the sheer price of the stock, but a lot of turnover. , so to speak, not like people just get long and stay a long time, which I also think was obviously in hindsight, a really good thing.
BRIAN SOZZI: JJ, Tesla is still a top name on your platform. How should it evolve in light of this new Bitcoin? Should he trade with Bitcoin prices? Should he trade with cash flow for Tesla over the next five years? Should it be traded when they come out with a new car? Because I would say Elon Musk just made the story much more complicated for the average investor.
JJ KINAHAN: I totally agree with you, Brian. I think it gets very complex because, let’s face it, I think one of the big issues that we’ll see that a lot of people had to solve was having to trade Tesla as a tech company? Should I treat Tesla like an auto company? How must. I think about this in the future?
And I think now, as a Bitcoin investment, I thought you wisely pointed it out, it changes, in my opinion and obviously in yours, the way you look at Bitcoin itself in terms of its place in them. balance sheets of big companies like everyday life.
And the other thing is, I think a lot of us thought of Tesla more as a tech company in a lot of ways because if you think about it, their real strength was in batteries that no one else could replicate. They were a little ahead of the length of their batteries. They made cars around these batteries. But the strength of the business seemed to be there.
So now what does this mean globally? I think it will take a little while to figure out. And again, going back to what you were saying earlier, how does their board and the like feel about this? It will be interesting to see all of the parties that have a voice over the next few months, when they step in, and if that philosophy changes for Tesla, some more.
But then again, in a lot of ways I think people will say that’s why they’re investing in Tesla, that’s why they’re investing in Elon Musk. Sees that there is nowhere else to really get a good return on his capital and finds one and sends it to a new high. So it’s going to be a really interesting story as it unfolds over the next few weeks.
JULIE HYMAN: And you could say, JJ, that Elon Musk probably understands the memorization kind of investing as well, if not better, than anyone out there. I mean, he was making memes and watching this stuff long before this sort of GameStop frenzy.
How are the memes stocks going on your platform? I know you mentioned GameStop and AMC in particular. But I’m just curious, more generally it’s a theme that you were looking at collectively, as a group. Are you trying to find these stocks as they emerge?
JJ KINAHAN: Yeah, I think, Julie, you have to do it, because you owe it to your customers, to the business, and even to the industry, to make sure the risk is appropriate for all of this. We were thrown into a group of companies that had restricted trade. We have never restricted trading.
Now we have raised some negotiating requirements. But if you had the capital, you could still go in and buy it. You could sell what you were long ago. The only reason you can’t sell short is because we have to be able to borrow the stock so that a retail client can sell it short. This stock was difficult to borrow. We just couldn’t borrow it in the market as a whole.
And in terms of options, we were allowing people to buy calls, buy puts. We didn’t allow people to sell short calls. And that’s the kind of thing you need to be careful about. Why? Because at its peak when GameStop, if you look at when it was trading at $ 300, it’s one standard deviation that the expected 40-day move was $ 500.
It’s very hard to put risk metrics around that when you say the stock could more than double, or go, you know, in theory, no stock can go below zero, but less than zero. So we have to watch the risk. So with these types of stocks a system of risk is everywhere, so make sure, like our competition, to make sure the risks are in the right place.
Our biggest concern, I think there’s a narrative out there that, oh, you know, they’re just spinning around their customers. It is very difficult to go out and get accounts. So when we have them, it’s not in our best interest that these people don’t succeed.
So we spent a lot of time there with education, et cetera. So I guess that was a long and long answer to your question. The straightforward answer is absolutely, we are monitoring these stocks because we want to keep the appropriate risk parameters in place for people and allow them to interact with the market.
JULIE HYMAN: Right. You want to make sure that people actually have the cushion here, in terms of the trade around it. T plus 2, if this was compressed how would it affect the market?
JJ KINAHAN: Well, what that would do is that some of the money overnight wouldn’t have to be invested as much as you wait for the stocks to sell. We went from T plus 3 to T plus 2. I’ll say 2 and a half years ago, I know the margin of error of me saying this. I don’t remember the top of my head. But again, this is a huge plus for many businesses.
You have to remember that when you get there, every company involved in the market, in terms of brokerage, needs to update their systems. And so, there are some small businesses that it’s a bit of a capital requirement for them.
So overall there is a push to go to a T plus 1 or a T plus 0. And that’s good. I will let the regulators decide what they think is the best thing for the market. But it can avoid some of the capital requirements that we saw for businesses a few weeks ago, because with stocks settling, you can get the money much faster and be able to put it in place for it. moment the positions of your customers.
MYLES ABROAD: All right, JJ Kinahan, Chief Market Strategist at TD Ameritrade. JJ, always great to have your opinion. Thank you very much for coming this morning.
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