Former TD Ameritrade CEO Fred Tomczyk told CNBC on Friday that he believed investors in the retail stock market had never had a better time competing against Wall Street professionals.
“When you think about what the retail investor has today, they have free trade, free research, free education for investors, and they have faster and better business execution than ever before,” Tomczyk said in an interview with Squawk at Street”.
“The playing field between the retailer and the institutional investor is flatter than I’ve ever seen,” added Tomczyk, who ran the brokerage firm as president and chief executive from 2008 to 2016. He is now on the board of Cboe Global Markets.
Tomczyk’s comments came a day after the U.S. House Financial Services Committee held a hearing focused on GameStop’s brief coup that began in late January. The trading frenzy traded by Reddit was another turning point in a long-running debate about equity in the stock market and whether popular investors have equal access to generate returns.
One of the participants in Thursday’s hearing was Keith Gill, a Reddit user and YouTuber, who played a key role in promoting GameStop’s actions. In his testimony, Gill defended his decision to publicly promote his investment thesis at GameStop while pointing out what he considered long-standing imbalances for retailers.
“Hedge funds and other Wall Street companies have teams of analysts working together to gather research and analyze corporate stocks,” said Gill, whose latest post on Reddit showed he was making $ 7.8 million. of dollars on GameStop. “Individual investors don’t have those resources. Social media platforms like Reddit, YouTube and Twitter are leveling the playing field.”
In August, Gill posted a video on his YouTube channel arguing that the video game retailer’s shares were undervalued and vulnerable to a small squeeze due to so many bearish bets against him.
Tomczyk said he finds the success of individual investors during the meteoric rise in GameStop shares (which went from less than $ 20 in early January to an intraday high of $ 483 on Jan. 28).
“The ironic part, when you fall behind and focus on all of this, is the party that seems to have lost the most in this GameStop trading actually in a hedge fund. It wasn’t a retail investor,” Tomczyk said. “A lot of retail investors did very well, so in my opinion, they’ve done very well and never had a better time based on smart regulation and the use of current technology.”
Other participants in Thursday’s committee session were Gabe Plotkin, who runs the hedge fund Melvin Capital, and Ken Griffin, the billionaire founder of market maker Citadel Securities. Griffin is also CEO of a hedge fund of a similar name, Citadel.
Melvin Capital suffered a heavy loss during the GameStop frenzy after closing out its short position on January 26th. Short sellers borrow one-share shares and sell them quickly, with the goal of repurchasing them at a lower price. They then return the borrowed shares and make money with the difference. But when the opposite happens, as with GameStop, short sellers could buy stocks at their current current price to try to minimize losses.
Plotkin told Congress Thursday that his hedge fund will adjust its short-term selling approach now that the impact social media can have when retailers take advantage of them has been observed. “That was a risk factor that, until recently, we had never seen,” he said.
In an interview Friday on CNBC, Griffin was asked by “Squawk Box” co-host Andrew Ross Sorkin if he and individual investors had “the same opportunity” to make money on the stock market.
“It all comes down to a matter of horizon and strategy,” Griffin said. “It’s like asking myself,‘ If I were to play golf this weekend with Tiger Woods, would I win? Of course not, but there are several ways to compete with Tiger Woods off a golf course and do very well. I’m not going to play him in his game in his course. “
For example, Griffin said people who are tech experts can see opportunities to invest in publicly traded companies that are altering a particular industry. Or, he said, someone who bought shares of Tesla five years ago with the belief that electric vehicles were the future of the auto industry “would have made a lot more money than we earned at Citadel.”
Tesla shares have risen more than 2,200% in the past five years.
“I never underestimate the ability of the American retail investor to understand emerging trends where real wealth is being created and their ability to take advantage of this wealth transformation,” Griffin added.