More commonly known in Canada by their now-absorbed partner, Electronics Boutique (EB Games), GameStop is a brick-and-mortar video game retailer that has been struggling of late. Many comparisons can be drawn to Blockbuster Video. That struggle led them to become the most shorted stock in America as major bets were placed that bankruptcy was looming. This anomalously large short position layered onto a relatively small company set up one of the most phenomenal technical-driven market moves witnessed in recent memory. As recently as April of last year, GameStop shares were worth $2.57. On January 28, the share price peaked at $469.42 before succumbing to gravity and starting a precipitous decline. From a fundamental point of view, there was nothing to support the valuations we witnessed.By end of day Thursday, February 4th the stock price was down to $53.33. The boom and bust was noted on many thinly traded, highly shorted stocks over the past week and brings haunting reminders of past pump and dump schemes.
This was not just a matter of short sellers, the exaggeration of the move we witnessed in GameStop was also due in part to the options market. Options are financial contracts that let you magnify the impact of your bets, up or down. The number of options traded over the past week have shattered records as tens of thousands of new investors have jumped head first into a crash course for these complex instruments. A perfect storm of massive shorts, countless options, new retail traders, stimulus money, social media platforms and stock trading apps led to a squeeze of epic proportions.
Many new investors have found their new form of excitement: trading speculative stocks based on “information” (better described as opinions) disseminated over Reddit and Tik-Tok. Gamified trading apps blink, dazzle and scroll like the slot machines of Las Vegas. While we are optimistic that a new generation of investor is becoming interested in the mechanics of the stock market, it is shocking to see how little due diligence is being performed and how quickly the jump was made into the deep end: using complex derivatives to speculate on high risk companies. We hope that the baptism of fire will teach this new wave of investors that there is value in knowledge, process and analysis. While GameStop has some new board members, it is exceedingly difficult to justify the price action. As tulip bulbs start emerging from the dirt we are once again reminded of historical asset bubbles. In today's connected and convenient world, it is so much easier to start a frenzy. A fear of missing out is fundamental to human nature. With so many new investors piling into the stock market, it will likely be a while yet before that game stops.
The whirlwind does not appear to have cracked the integrity of the stock market. With a legislative committee hearing called and an SEC investigation underway, it is likely that some of the claims of market manipulation will lead to new regulation down the road. While a few hedge funds have publicized significant losses, the industry was quick to point out that proper due diligence should have alerted short sellers to the overcrowded trade. A number of funds were also participating in driving the price up and may have been partially responsible for leading the crowd for retail investors. The insanity around 'meme stocks' like GameStop only reinforce the need for thorough and continual due diligence on the companies you own. In the fast paced world of 2021, news can move markets in an instant. We continue to find supportive data points in our investment thesis around the economic recovery and thematic trends. With this quarter's earnings well under way, we look forward to days ahead. A new Spring is just around the corner.
Work-From-Home Tax Deductions
Preparing your latest income tax return may be on your to-do list, so we want to update you on the new guidance provided by the Canada Revenue Agency (CRA). The updates underscore the monumental pandemic-led changes to working life – among other aspects – over the past 10 months.
Employees who worked from home in 2020 should consider these two options to claim eligible home-office expenses during 2020:
- Temporary flat-rate method – This method allows an eligible employee to claim $2 for each day worked from home (either full- or part-time) in 2020, with a maximum claim of $400 (i.e., 200 workdays). (Workdays do not include days off, vacation days, sick leave days, or other leaves of absence.)
- Detailed method – This method allows an eligible employee to claim the actual amount of home-office expenses that are attributable to employment, provided the employment use of the work space is calculated, documents are available to support the expenses paid, and a signed CRA declaration from the employer is completed
We've posted some key information about who is eligible, what home office expenses are deductible, and how to complete your claim on our webpage, please visit that tab for more information..
Talk to us about your 2020 tax-filing options and how we can help you maximize tax efficiency.
Your To-Do List: Registered Plans and Tax Filing
We would like to take this opportunity to remind you that:
- Your 2021 contribution room for your Tax Free Savings Account is $6,000
- RRSP contributions must be posted by March 1st to count for your 2020 taxes
- T4/T4A/T5 tax slips may be issued and mailed as late as March 1st
If you have any questions about registered plans or your tax package please contact us at your earliest convenience.
Diversion: mRNA vaccines and their potential impact on disease
One of the content creators we track is Joe Scott, a YouTuber who translates complex concepts into digestible videos. His latest post details some of the breakthroughs unfolding with mRNA vaccines. Currently in the news for their utilization as a vehicle for CoViD-19 immunization (both Moderna and Pfizer-BioNTech), mRNA technology has the potential to fight a multitude of diseases, from enzyme deficiencies, to diabetes, and even, yes, cancer.
Chernick & Associates Wealth Management Group
Richardson Wealth Limited
1055 West Hastings Street, Suite 2200
Vancouver, BC V6E 2E9
Toll Free: 1.866.640.0400