In today’s “cancel” culture, “hot” takes, and always “on” mentality, we can look at some of the lessons we have learned from this GameStop episode.  In a sense, it demonstrates how important controlling the narrative is.

When Robinhood first restricted trading in GME, the immediate assumption was that they were doing the direct bidding of firms like Citadel, or otherwise trying to help the hedge funds that were short.

Dave Portnoy, a prominent sports-bettor-turned-day-trader with a large online following, even said he thought Robinhood’s actions were criminal and that the CEO should go to jail.

In reality, Robinhood more or less panicked because of a firm-wide margin call. Robinhood didn’t have the necessary clearing capital on hand to handle the incredible volume of GME call options and shares being purchased, with financial risks being amplified by the two-day settlement process known as “T+2.”

But Robinhood couldn’t admit to its margin call state of affairs outright — at least not at first — for fear that the billions in new capital they need to raise would not be available if investors were scared off. (The best time to raise capital is when you don’t really need it; if a financial entity is seen as desperately needing capital, there is a fair chance it dies.)

Big problems certainly existed in the way Robinhood handled things, and upcoming congressional hearings will likely shed some light on that. But the narrative that dominated the headlines, and the hot takes of the politicians on both sides of the aisle, was wrong.

In a complex system with a swirling mix of variables, and especially when many of those variables were never before seen — like zero-commission trading, trillions of dollars in stimulus, the gamification of online trading apps, and so on — it can be very hard to see what is coming.

The thing is, it is also hard to see what just happened. Not only can complexity create an impenetrable fog of war in terms of upcoming future events, it can do the same with events that already happened.

Take the assumption, for example, that the hedge fund shorts won and the Redditors lost. This is somewhat accurate in certain respects, but in other respects it isn’t true at all.  My personal opinion is that this GameStop is not done yet but we will see in the next few months.

There’s a saying, “If you’re going to bet the farm, have two farms.”

The translation is, sometimes it really does make sense to bet big; and yet, it rarely if ever makes sense to bet so big one’s financial and psychological well-being are at stake.

Those who never take bold risks run the risk of leading “quiet lives of desperation,” as Thoreau put it, having never truly tried for something.

Those who take risks they can’t actually afford, on the other hand, can put their own future, and the well-being of their family, in danger.

The better path, in our view, is to learn the art of the selective big bet, while coupling the rare “bet the farm” move with the science of smart risk management.

Some risks are worth taking, but only to the extent they can be safely done. One way to handle this is to think clearly about what’s at stake and to always have capital in reserve.  Keep in mind though and figure out who is controlling the narrative and whether you need to take a critical look at what is being reported or said.

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