Dividends and ‘Meme-stock’ mania severely tested market system, but did not break it, SEC says

The stock market is technically reachable for everyone, but for a long time it has an institutional basis. Then something happened – meme stocks.

In an article by the Associated Press, the Securities and Exchange Commission (SEC) released a report on January’s trading in meme stocks. The report noted some of the stock market’s plumbing was creaking, but the basic systems and operations remain sound.

If you go back a number of years, it was relatively difficult to open a brokerage account for small investors because of fees, if you had to pay $25 or more to buy and $25 or more to sell a stock, to make money that stock would either need a large capital gain or you bought it to hold it for a long time. (The writer remembers when some mutual funds were priced ona monthly basis, if you needed to sell you had better hope the month was a good one, now funds are priced on a daily basis) Commissions went down, but still brokerage companies made their revenues on number of times you traded your portfolio. Now some them charge a fee for service of 1 to 2% of your holdings. In the past couple of years some brokerage companies made it very easy to open an account and start trading.

In January, the meme stock of GameStop and a few other companies jumped in value and the newspapers were full of stories of people who were making a lot of money in a short time period. Regular people with some money in the bank rushed to open accounts and buy a meme stock in hopes of gaining a great return. Some did, but many bought at high prices and will never be able to recoup their losses. The meme stocks had a significant rally in June and maybe it will happen again.

The report by the SEC examined how the stock exchanges functioned and what improvements can be made given the increased volume of general public in the stock market.

Linking to dividend paying stocks, as an individual investor it is good that there is a wide variety of access to the stock market, but in reality more money is made by buying a profit making company and holding it for a few years than trading on a daily basis. It is important that both exists for when you wish to sell there is a ready market to sell to. It is good that there are many choices in which to invest and the stock market operations is flexible enough to handle the changes which the industry is constantly inventing.

There are more questions than answers, till the next time – to raising questions.

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