The stock market should work for 'everyday people,' say AOC and Reddit founder Alexis Ohanian

The New York congresswoman livestreamed a panel discussion that included the founder of Reddit.

U.S. Rep Alexandria Ocasio-Cortez (D-NY)
Erin Scott | Reuters

The stock market should work for "everyday people," Rep. Alexandria Ocasio-Cortez (D-N.Y.) and Reddit co-founder Alexis Ohanian agree. As the events of this week show, though, there are still some issues to be addressed.

Ocasio-Cortez and Ohanian spoke Thursday on a panel the congresswoman convened on streaming platform Twitch to discuss this week's ongoing GameStop stock market saga. Twitch streamer TheStockGuy also joined the panel.

Their aim: Explain the mechanics of GameStop's meteoric rise on Wall Street this week as well as the market's broader reaction to it.

Much of the increased activity began in a Reddit forum called r/wallstreetbets, where retail investors share tips about stock market trading. Some of those retail investors decided to bid up the prices of stocks, such as GameStop, AMC, and BlackBerry, that institutional investors, particularly hedge funds, had been short selling, or betting against. At one point, GameStop shares were up more than 1,000%.

GameStop's rally has been costly for those professional investing firms: As of Wednesday afternoon, short-sellers had lost a collective $5 billion this year betting against the retailer, according to data from the financial analytics firm S3 Partners.

On Thursday, several investing platforms restricted consumers' ability to trade some of those hot stocks. The move, which appeared to benefit hedge funds at the expense of "the little guy," triggered outrage among commentators as varied as Tesla CEO Elon Musk, Texas Senator Ted Cruz, and former "Daily Show" host Jon Stewart.

Ocasio-Cortez, who sits on the House Financial Services Committee, called the imposed limitations "unacceptable."

On Thursday evening's panel, Ocasio-Cortez said that she wants to capitalize on this unexpected moment of upheaval on Wall Street and use it to broaden legislative reforms.

"We have an opportunity to channel this energy," Ocasio-Cortez said. "And the real questions are, what are we going to build now, and how are we going to reinvent so much of this?"

How the GameStop saga could spark reform

Ocasio-Cortez said that some of her colleagues in Congress are already looking into the events that led to GameStop's stock price surge. Hearings are likely.

"There are fundamental questions that we have to answer," Ocasio-Cortez said. "Not just rules or if you institute rules, but how do you actually shape power back into the hands of everyday people? Because that's ultimately what this is about."

It remains to be seen if the week's events could lead to broader reforms in trading, said TheStockGuy. "Maybe nothing changes from this," he said. "But maybe everything changes from this."

On Friday morning, in what could be a sign, the Securities and Exchange Commission announced it will review recent trading volatility and scrutinize actions brokerages took that may "disadvantage investors or otherwise unduly inhibit their ability to trade certain securities."

The importance 'of institutions we can trust'

All of Ocasio-Cortez's panelists were critical of the hedge funds and investment banks that dominate Wall Street, noting that the markets' drive to deflate the GameStop bubble was as much a way for insiders to maintain their own leverage as it was to protect casual investors. TheStockGuy was particularly skeptical of investing platforms' sudden decision to halt trading on certain stocks, including GameStop.

"I think that they're scared, and I think that they're pulling all the plugs and punches they can right now," he said.

The GameStop phenomenon is another example of the generational divide and younger Americans' distrust of institutions, Ohanian said. Millennials and Gen Zers have become deeply skeptical of analog social and economic structures, he said, but they easily make friendships, build communities, and even fall in love on the internet.

"All these things feel very normal to us as a generation," Ohanian said. "But the idea of institutions we can trust? It's been rocky."

Why Warren Buffett prefers passive investing

Video by Courtney Stith

Only 17% of Americans fully trust the stock market, according to a 2020 MagnifyMoney survey. The primary reason for that mistrust: "confusion about how [the market] works." 

It's not a good idea to give up on the stock market because it can be confusing, though, experts say, since investing is a key component to growing long-term wealth. There are safer and simpler ways to grow your money in the stock market than by trying to pick individual stocks, like participating in a workplace retirement plan such as a 401(k).

Indeed, experts say, most ordinary investors would be better served ignoring the FOMO around speculative stocks like GameStop and betting on the broader market's proven long-term track record.

"The regular person, the individual investor, shouldn't be doing a lot of trading," certified financial planner Carolyn McClanahan, the director of financial planning at Life Planning Partners in Jacksonville, Florida, recently told Grow.

She recommends following the advice of legendary investor Warren Buffett, who said, "Your best bet is plunking your money down in an index fund and letting it go."

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