Fred Tomczyk, former CEO of TD Ameritrade, on retail traders, GameStop insanity
Former TD Ameritrade CEO Fred Tomczyk told CNBC on Friday that he believes retail exchange investors have never been better off competing against Wall Street pros.
“If you think about what the retail investor has today, you have free trading, free research, free investor education, and you have faster and better trade execution than ever before,” Tomczyk said in an interview on Squawk on the Street.
“The playing field between retail and institutional investors is more even than ever,” added Tomczyk, who led the brokerage firm as President and Chief Executive from 2008-2016. He is now on the board of directors of Cboe Global Markets.
Tomczyk’s comments came a day after the U.S. House Committee on Financial Services held a hearing that focused on the GameStop Short Squeeze that began in late January. The trading frenzy fueled by Reddit was another focal point in a long-standing debate about fairness in the stock markets and whether mom and pop investors alike have access to making returns.
One of the participants in Thursday’s hearing was Keith Gill, the Reddit user and YouTubers, who played key roles in promoting the GameStop approvals. In his testimonial, Gill defended his decision to publicly promote his investment thesis on GameStop by noting what he viewed as longstanding imbalances for retailers.
“Hedge funds and other Wall Street companies have teams of analysts who work together to compile research and analyze company shares,” said Gill, whose most recent post on Reddit showed he made $ 7.8 million from GameStop. “Individual investors don’t have these resources. Social media platforms like Reddit, YouTube, and Twitter level the playing field.”
In August, Gill posted a video on his YouTube channel claiming the video game retailer’s stock was undervalued and vulnerable to brief pressure due to so many declining bets.
Tomczyk said he found the success individual investors had during the soaring GameStop stock – which rose from less than $ 20 in early January to an intraday high of $ 483 on Jan. 28 – remarkable.
“The ironic part, when you step back and look at it all, is the party that apparently lost the most to this GameStop deal, with a hedge fund. It wasn’t a retail investor,” said Tomczyk. “A lot of retail investors have done very well, and in my opinion they have done very well, and they have never had better today based on smart regulation and the use of technology.”
Other attendees at the committee hearing on Thursday included Gabe Plotkin, who runs hedge fund Melvin Capital, and Ken Griffin, billionaire founder of market maker Citadel Securities. Griffin is also the CEO of a hedge fund of the same name, Citadel.
Melvin Capital took a huge loss during the GameStop frenzy after closing its short position on January 26th. Short sellers borrow shares of a stock and then sell it immediately with the aim of buying it back later at a lower price. You then return the borrowed shares and make money on the difference. However, when the opposite is the case, as with GameStop, short sellers can buy stocks at their current higher price to minimize losses.
Plotkin told Congress Thursday that its hedge fund will adjust its short-selling approach now, as it assesses the impact social media can have when used by retailers. “That was a risk factor that we hadn’t seen until recently,” he said.
In an interview on Friday on CNBC, Griffin was asked by Andrew Ross Sorkin, co-host of Squawk Box, if he and individual investors had “the same opportunity” to make money in the stock market.
“It all comes down to the horizon and the strategy,” said Griffin. “It’s like asking, ‘If I played golf with Tiger Woods this weekend, would I win? Of course not, but there are several ways you can compete with Tiger Woods from a golf course and do really well. I’m leaving not playing him at his game in his place. “
For example, Griffin said that people who are tech savvy might see opportunities to invest in public companies that disrupt a particular industry. Or he said that someone who bought shares in Tesla five years ago, believing that electric vehicles were the future of the automotive industry, “made a lot more money than we did at Citadel.”
Tesla’s shares are up more than 2,200% in the past five years.
“I never underestimate the ability of American retail investors to understand emerging trends that create real wealth and their ability to take advantage of that wealth conversion,” added Griffin.