TFW Robinhood becomes a meme stock

West Coast traders every weekend (Source: Giphy)

In under 4 minutes, you will learn:

  • How to hedge against inflation
  • 5 headlines that pretty much sum up the week
  • Why NYU researchers were banned from Facebook
  • Our rec of the week

How to hedge against inflation

Trading Places is an underrated holiday film about two guys who short the commodities market as a form of revenge

TL;DR

  • Investing in commodities is a way for investors to hedge against inflation
  • Commodities are typically risky investments due to the layers of global interconnectedness and market interactions However, for those with the money and patience to invest, there can be great rewards – in the right circumstances

Investing in commodities

Investors often speak of commodities as a way to diversify their portfolios outside of traditional investments. Some investors trade commodities regularly, but others may join only during times of market volatility to buffer against unwanted stock movements.

There are two main types of commodities:

  • Hard commodities require mining or drilling; this category is further divided into energy and precious metals
  • Soft commodities must be ranched or grown; this category includes livestock and agricultural products

Source: TD Ameritrade

Benefits of commodity investing

  • Diversification: Commodities provide investors a unique chance to diversify out of traditional investments. This, coupled with the fact that commodities often move in opposition to economic instability, can help hedge against economic downturn.
  • Gains: Commodities have the potential to turn a hefty profit in the right situations.
  • Hedge against inflation: Inflation often spells higher prices for commodities – which means that as stocks and bonds lose value, commodities investments gain in value.

Source: Forbes

Risks of commodity investing

  • Volatility and principal risk: Commodities can be extremely volatile, which puts you at risk of losing your principal for factors outside your influence.
  • Foreign market exposure: Many commodities have roots in foreign and emerging markets (especially natural gas, oils, and mined minerals and metals). Thus, investing in commodities automatically exposes your portfolio to foreign markets, which carries its own risks.
  • The chance a company won’t follow through: If the seller (in the case of a futures contract) can’t deliver the goods, whether due to internal or external factors, then a particular contract may plummet in price – even if the price of the commodity is going up.
  • Asset concentration: While investing in commodities can add diversification, investing solely in commodities runs the risk of putting too many eggs in one basket. Any massive shift in the price of a single commodity can wipe out your portfolio, even if you have your risk spread amongst multiple commodity-related securities.

How to invest in commodities

Source: Kiplinger

There are five basic ways to invest in commodities:

  • Commodity futures: Typically for commercial and institutional investors. Offers potential to see huge profits on little capital but also has huge risk due to the inherent volatility of commodities markets. 
  • Commodity pools: When money is gathered from investors to buy a futures contract or option. Good for small investors with less capital who want to purchase a stake in larger contracts to seek larger gains.
  • ETFs: Allows investors to profit from price fluctuations without the risk of signing a futures contract. Tracks a particular commodity or secture using futures contracts as their baseline.
  • Stocks: More liquid than futures but slightly different from playing on the commodities market. For example, instead of investing in gold, you’re investing in the company that mines gold. 
  • Mutual funds: Invests in stocks from commodity-related industries, futures contracts or derivatives and securities that are linked to commodities. Tends to have higher management fees than ETFs.

The bottom line

It’s simple economics; when inflation rises, so do the prices of these commodities. That’s why investing in commodities are a great way to hedge the market against inflation while adding diversification to your portfolio. If you’re interested in adding this to your investing mix, the easiest and simplest way is by investing in an ETF or buying shares of a stock.

Read the full Investing 101 article about commodities

Five headlines that sum up the week

1. Square acquires Afterpay for a modest $29 billion

Source: Yahoo! Finance

You may have noticed when online shopping that you now have the option to pay in 4 payments, each 2 weeks apart. Afterpay is one of many platforms to offer this service, which is essentially a small short-term loan that does not run a full credit check. The company has been making waves as an alternative to credit cards – as well as a way for people to build credit. At $29 billion, this is Square’s biggest deal ever.

2. Biden sets goal of going all electric by 2030 

Source: Statista

We can all agree that electric vehicles are cool, but is it possible for half of all new cars in the U.S. to be EV by the end of the decade? That is the plan for President Biden, who introduced a multistep strategy that aims to rapidly shift Americans from gasoline-powered cars and trucks toward EV. The plan includes tightening laws around pollution and restoring auto-mileage standards that previously existed under President Obama. This all sounds promising, but the elephant in the room still is the global chip shortage.

3. Robinhood turns IPO around by becoming a meta-meme stock

Source: Google

After an IPO that left investors (and spectators) with much to desire, the stock took off on Tuesday and is currently trading over 50% higher than its initial offering. In fact, researchers at VandaTrack reported that Robinhood was the third most-bought stock on retail platforms on Wednesday. It’s no surprise that traders and investors are aggressively buying call options, sending shares higher, as way to bet on the stock’s rise. For those familiar with the meme stock frenzy sparked by GameStop and AMC, the irony of all this is just .

4. Google loosens ad policy and now allows some crypto ads

Apple co-founder Steve Wozniak sued YouTube over not removing ads that used his image to promote a massive Bitcoin scam. He lost the case in June. (Source: CoinTelegraph)

If you are a celebrity and want to endorse crypto on Google Ads, you’re unfortunately out of luck because Google still doesn’t allow that. It also prohibits ads about ICOs and those “promoting the purchase, sale, or trade of cryptocurrencies or related products.” So what exactly does Google now allow? Simply, promoting cryptocurrency exchanges and wallets. Advertisers also need to be certified by Google.

5. Weber Grill IPO debut was lackluster

Source: Google

Despite the $102 billion raised this year, Investors just aren’t as jazzed about IPOs these days. Grill company Weber went public this week and offered shares at $14 a piece with a price range of $15 to $17. This is similar to the strategy Robinhood took last week; setting its price lower than the price range will increase the likelihood of investors seeing gains after its first day of trading. This, however, did not happen for Weber (nor did it for Robinhood!). Weber sold only 18 million out of the 47 million shares estimated, pulling down its valuation to under $5 billion. 

ICYMI: Facebook disables accounts of NYU researchers that were studying Facebook

Source: The Verge

New York University’s engineering school launched a project called the NYU Ad Observatory to analyze political ad spending on Facebook, particularly how the company targets its users. 

Naturally, Facebook wasn’t thrilled to learn that 6,500 volunteers were recruited to use a special browser extension to collect data about the political ads Facebook shows them. 

To be fair, Facebook did ask the NYU researchers to stop collecting data as it is not permitted in the company’s terms of service before disabling the accounts, apps, Facebook pages and platform access associated with the project and its operators. 

Laura Edelson, a doctoral candidate in computer science at the engineering school, says that her team’s work is “vital to a healthy internet and a health democracy” in her Tweet thread.

Source: Twitter

Is Facebook in the wrong here? Looking back at the Cambridge Analytica scandal, which resulted in a $5 billion fine, everything that the company does no longer goes unchecked by the FTC. And under these new FTC guidelines, Facebook claims, they are required to ban the NYC researchers. 

Their justification doesn’t sit well with some privacy experts though. One even called it bogus.

Source: Twitter

Forbes’ seventh annual list of America’s richest self-made women

Source: Forbes

As of this week, Rihanna is now a billionaire – just in time for Forbes’ seventh annual list of America’s richest self-made women. Other women on this list includes Bumble CEO Whitney Wolfe Herd, Dolly Parton – aka the person who helped fund development of the Moderna vaccine – and Anne Wojcicki, the founder of 23andMe.