Decades ago, trading was the domain of the wealthy elite, but two innovators would change that. The first made investing accessible to the masses. The second made it fun. On episode three of To The Moon, we meet the disruptors who made the markets ready for the GameStop moment.
This transcript was prepared by a transcription service. This version may not be in its final form and may be updated.
Ryan: Hey, it's Ryan from The Journal. Our daily podcast, will be back on Monday, but this weekend we're coming to you with a third episode in our GameStop Series, To The Moon. Episodes 1 and 2 dropped last Sunday, if you miss those they're in the Journal feed. Last time on the show, the Reddit forum Wall Street bets learned how to Yolo.
Speaker 2: I'm going to get rich or die trying. I'm going to go all in and I'm not afraid of the consequences.
Ryan: This week we've got the story of the innovators who broke down the barriers to investing and let in the masses. Your's producer, Annie Minoff.
Annie Minoff: For decades there was very little chance of regular people banding together to drive up the price of stocks. Something like GameStop couldn't have happened because most people were not in the stock market. In the '70s, only about a quarter of American families owned any stock at all. Stock picking was the province of rich people and their brokers. It was inaccessible, expensive and just a giant pain. What was it like to trade a stock? How would you actually do it?
Jason Zweig: Oh, this is going to sound like a black and white TV show or something.
Annie Minoff: That's Jason Zweig investing columnist for the Wall Street Journal.
Jason Zweig: What you had to do was you had to pick up your phone and if your broker didn't work nearby, you would have to make a long distance call. You would have to wait for the broker to call you back because he, and of course he was a he, was usually busy.
Annie Minoff: You'd finally get your broker on the phone.
Speaker 5: Hello.
Annie Minoff: You'd say, I don't know.
Speaker 6: I want to buy a hundred shares of IBM.
Jason Zweig: Your broker would have to check what the stock was trading for. And that would usually take another couple of minutes while he called the trading desk and they called into New York.
Speaker 5: A 100 shares of IBM please.
Annie Minoff: Finally, your broker would get the stock quote and place your trade.
Speaker 5: That'll do it.
Jason Zweig: Then a few days later, you would get a little slip in the mail that confirmed that you had bought the stock. Everything took hours often days and was extremely expensive and frankly frustrating.
Annie Minoff: For GameStop to happen all of that would have to change. Trading would have to become democratic open to anyone and it did. Today investing is the exact opposite of phone tag with your expensive broker. It is fast, accessible and practically free and it got that way, thanks to two massive disruptions that together would change who saw the stock market as a place to put their money. So today we're going to tell you the story of those disruptions and how they laid the groundwork for GameStop. You're listening to, To The Moon. This is episode three, a people's history of investing. Okay, so I'm going to start with the first disruption to investing and to explain it, I'm going to tell you about a woman named Gayle Cox. Gayle is not a market disruptor. She is a flight attendant. And back in the early nineties, she wasn't thinking much about investing at all, until one day the old school investing industry literally showed up at our door.
Gayle Cox: Somebody knocked on the door, I opened the door and there was a very nice looking man standing there in a suit coat and a tie. And he had a folder in his hand, great facial expression, very approachable. And I opened the door and he just started asking questions about, I represent this company and have you started to invest in college funds for your children? Obviously he knew we had children because we had toys out in the yard and I just thought, "No, well, I haven't." He's asked if he could come in and he was very nice, very slick.
Annie Minoff: The man with the good facial expression told Gayle that he was with a mutual fund company. And if she wasn't investing in the stock market for her kids future, she needed to be, if she invested with him, her money would go into a professionally managed portfolio aimed at saving enough for her kids college.
Gayle Cox: And I just was not even thinking, "Well, how much is this costing me?" I just thought he was there to be really nice and to offer this. Yeah, he got my business right away.
Annie Minoff: Gayle invested in that fund. She just didn't know at what cost, until someone pointed it out to her.
Gayle Cox: It was a neighbor. I had gone down the street and was like, "Hey, we're doing this for our kids and blah, blah, blah." And they said, "Well, can we look at any of that information that you have?" And I said, "Sure, let me go get it." And they went right to the back where it was in the finest print at the bottom. They said, "Wow, you're paying a lot for this." And I said, "No, I'm not." And they said, we're 8%. And that was crazy
Annie Minoff: For the privilege of getting into the stock market. Gayle had paid an 8% fee. At the time this was standard and it was just the start. To stay in these mutual funds investors kept paying fees usually about 1% every year to pay for the portfolio managers who picked their stock.
Gayle Cox: So everybody got their cut before I got my cut and wow, that was a great education for me.
Annie Minoff: Gayle got out of that mutual fund, but she was at a loss about what to do next. She couldn't find a way to invest without paying high fees. And then in the late nineties, some internet research turned her on to our first disrupter. A guy who would make it cheaper than ever for the gales of the world to invest. His name was Jack Bogle. Jack Bogle was the founder of the Vanguard Group. One of the biggest investment companies in the world. He was a dapper jowly man, a straight talker. And he hated how expensive it was for people like Gayle to invest in the stock market. Jason interviewed Bogle many times over the years.
Jason Zweig: Jack Bogle was bothered by the fact that investing had been the province of the wealthy elite. He didn't like that you were supposed to be upper middle class or wealthy if you were going to be able to participate in the markets at all. And he would get very agitated about the way the financial industry was taking too much of investor's money away from them. And he would frame things in terms of good and evil.
Annie Minoff: When Bogle would talk about this stuff, what did he sound like?
Jason Zweig: Sounded a lot like a preacher talking about the end of the world.
Jack Bogle: I think sooner or later fund investors will see the light. I think the industry has got to adjust to a different era. The fees are too high and that's all there is to that.
Annie Minoff: The fees are too high. That was Bogle's message. And he would fight those fees by encouraging people to invest differently, to put their money in index funds. A stock market index fund is a portfolio of all the stocks in a given stock market index. So say I have an S&P 500 index fund. That fund includes stocks for every company in the S&P. The idea is that the index fund acts as a mirror, reflecting the ups and downs of the overall stock market. If the market goes up, my index fund goes up. If it goes down, my index fund goes down. This was a radically different approach to investing. Traditionally, the way to invest was by picking stocks of individual companies and hoping that those stocks go up. But Bogle's view was that trying to pick stock market winners was a fool's errand.
Jason Zweig: Why try to pick winners when you know if you own the entire market, the winners will be in there. And I used to joke with Jack Bogle that his idea of index funds was a lot like a commercial for Prego spaghetti sauce on TV.
Annie Minoff: This commercial ran in the eighties and a father and son debate the finer points of tomato sauce.
Speaker 9: That was a whole semester of college food. Ooh, homemade spaghetti sauce.
Jack Bogle: This is Prego.
Speaker 9: Sauce from a jar. Well, what about all that great stuff mom puts in her homemade sauce?
Jack Bogle: It's in there.
Jason Zweig: And he says onions, carrots, peppers.
Jack Bogle: Herbs and onions then garlic, it's in there.
Speaker 9: Oh, what about homemade taste?
Jack Bogle: Look professor, it's in there.
Jason Zweig: It's in there. It's in there. And so an index fund is like a jar of Prego spaghetti sauce if it's in the market, it's in the index fund.
Annie Minoff: Index funds were cheap. Usually mutual funds have to pay fancy money managers to pick stocks for their portfolios. But with index funds, there were no stocks to pick. No fancy portfolio managers to pay. So Bogle's overhead was low and he made index funds even cheaper by doing something unheard of in the financial industry, he made his company Vanguard, a nonprofit.
Jason Zweig: That was really Bogle's genius idea. And the simplest way to think about it is Vanguard is an investing commune. It's this strange almost socialist form of organization at the very heart of American capitalism.
Annie Minoff: All of this meant that when Gayle Cox eventually took her money out of those old school funds and put it into index funds, her fees were super low. How much did it cost you to invest the Bogle way?
Gayle Cox: Well, the fees on $10,000 is 0.04. So about $4 for every $10,000 you put in, it's so low.
Annie Minoff: The upside of index funds is that they were dependable, but they were not exciting like picking stocks, investing in index funds, Gayle would never feel the thrill of being in the right stock at the right time, watching it go to the moon, she would never get rich quick. The idea was to get rich slow. Patiently riding the market's ups and downs for decades. And that was fine with Gayle, slow and steady felt doable to her.
Gayle Cox: Money in general is such an emotional topic for so many people, and especially women. Unfortunately, society tells women that we're not smart at math. We can't figure out finances. And for many people, especially my age and older, the spouse, the husband was expected to do all the finances. When I finally figured out how to invest using Jack Bogle's way, I was so empowered. I realized I can do this. I can figure it out.
Annie Minoff: And for Gayle and her husband index funds worked. She says, she feels good about her plans for retirement and her husband retired at age 61. It took a while for people to catch on to the Bogle way, but by the 2010s Vanguard and Bogle's cheap and easy funds had taken off. Vanguard was managing trillions of dollars of investors money for minuscule fees, and Jason says that forced the entire financial industry to change. Bogle's competition began offering their own index funds also at low fees.
Jason Zweig: Once Vanguard made mutual fund investing, particularly index fund investing as close to free as you could possibly get. It did end up putting pressure on all other areas of the financial markets to get costs down. And there was actually a term for it. People called it the Vanguard Effect, which is if Vanguard competes with you sooner or later, you have to compete, not just on quality, not just on service, but on price. And if you don't Vanguard will destroy you.
Annie Minoff: The cost of investing just about everywhere, dropped precipitously. From 1975 to 2019, Jason estimates, it went down 90 to 95%. As costs fell, the number of regular people jumping into the market went up. Remember how in the seventies, only about a quarter of American families were in the stock market. Today it's more than half. When Bogle died two years ago, he left behind an investing industry transformed. Investing was cheaper and easier than ever, for more people than ever. But Bogle's work to democratize the financial system, it wasn't the end. It was the beginning. As you were sitting in the middle of the GameStop maelstrom, were you thinking of Bogle?
Jason Zweig: Yes, I was. Often revolutionaries are shocked at the way the world adopts their ideas even better than they originally intended. Jack Bogle drove the financial industry to the point where investing has become almost cost free. That has made the whole GameStop revolution possible. That's not what he had in mind, but it is the ultimate logical consequence of what he did.
Annie Minoff: Bogle democratized investing, but for a very specific kind of investor. He did it for the long term, get rich, slow investors. The people saving for retirement, the Gayle's. But another pair of entrepreneurs was about to expand on Bogle's legacy. And they'd throw up in the doors to the markets to a very different kind of investor, not the get rich slow kind. The get rich quick kind, the GameStop investor. Coming up, Robinhood. The year was 2013, an investor Howard Lindzon remembers taking a meeting in the bay area. He was intrigued by a pitch he'd gotten for a new startup.
Howard Lindzon: I flown up as I tend to do this when I'm very interested in something. I sense that I have to meet the founders. I don't have much time to decide.
Annie Minoff: Those founders were Vladimir Tenev and Baiju Bhatt. The serial entrepreneurs behind a new trading app called Robinhood.
Howard Lindzon: I remember them both showing up at the meeting wearing Google Glass. I really thought it was a stupid, Google Glass. That was probably not in their favor.
Annie Minoff: What was in their favor was the idea. The founders app promised to make trading and investing easier than ever.
Howard Lindzon: They had designed this interface of being able to just tap, swipe, and buy a stock. Instead of picking up a girl, you could buy a stock and you could do it for free.
Annie Minoff: It was tinder for the stock market.
Howard Lindzon: Is tinder for the stock market, but you can't get rejected, if you have money in your account you get a stock.
Annie Minoff: What did you think?
Howard Lindzon: I said, this is a billion dollar company. I immediately looked at them. I said, I'm in for a $100,000 if you can build this they will come.
Annie Minoff: Bhatt and Tenev had sensed an opportunity, because of Bogle, longterm investing was now cheap, easy, and accessible. But stock trading, not so much. By the 2010s individual investors could trade stocks online, but the websites were clunky, boring, and intimidating, especially for novice traders and investors still paid a fee for every trade they made, usually about 10 bucks, which made no sense to the Robinhood founders. Here's Bhatt in a 2018 interview.
Baiju Bhatt: Having worked previously in finance, Vlad whose my co-founder and I, had asked the question of why does this cost so much? And we'd basically figured out that, that was an artifact of the days gone by before markets had become electronic. And we're like, "We were pretty sure we can make this free."
Annie Minoff: So in a Bogle's move, they did. When Robinhood launched in 2014, users could buy and sell stocks commission-free. The companies said they did it to remove systemic barriers that kept everyday people out of the market. But commission-free trading wasn't even Robinhood's biggest innovation. Its biggest innovation was making stock trading fun. Bhatt and Tenev brought a silicon various aesthetic to their app. The colors were bright. The lines were clean. It felt more like Facebook than fidelity. And that was on purpose. Robinhood's head of design has said that they wanted the app to feel different from other brokerages. They wanted it to feel delightful an ad Robinhood put out last year, really captures the vibe. In it, a young guy sits at the dinner table while his dad drones on about whatever.
Speaker 11: … and I was right. It is so comfortable. I feel like I can…
Annie Minoff: All of a sudden there's a burst of green confetti. The guys just made a trade.
Speaker 12: A new kind of investor is changing things up with an app that's changing the way we do money, join us.
Annie Minoff: On Robinhood, you could trade anywhere at any time. At dinner, at a coffee shop, at work. Trading on Robinhood was fast, free and fun. Maybe too fun. Robinhood's critics have argued that the apps design subtly nudges people to make more and riskier trades. They say the app turns investing into a game. Robinhood has denied this. In a statement a spokesperson said that the company is quote, proud to have built a simple elegantly designed platform that's brought new people to the stock market. One of the people attracted to Robinhood's elegantly designed platform was Chris Maresca. He discovered Robinhood last year.
Chris Maresca: Going to Robinhood, I felt like it was really easy to trade. I felt like trading felt more fun. The color schemes, the user interfaces on Robinhood was just a lot better in my opinion.
Annie Minoff: In many ways, Chris Moresca is the prototypical Robinhood user. He's young, 24 and a guy, with the good job and some money to burn. He says trading on Robinhood felt instant.
Chris Maresca: Because they were like, "Oh yeah, buy five shares." Boom you bought them, you know what I mean? That's it. Right? And then if it's like, "Okay, how much money did you have?" I have a thousand dollars. Okay. Buy $1,000 of Apple, boom. You know what I mean? It's not like I want to buy Ted shares. It's like how much money do you have? Let's… you know what I mean?
Annie Minoff: Robinhood was so easy to use. It gave Chris the confidence to try something new, options trading. Options are a high risk, high return trading strategy. When you make an options bet, you're saying you think a specific stock will hit a specific price by a specific date. If you're right, you can make many times your initial investment, but if you're wrong, you lose everything you put in. You get zero. Chris knew that options were risky and he'd always been a little too nervous to try them on his old brokerage. But on Robinhood, he says options felt different. They felt simple. He filled out the questionnaire the app requires to start trading options, and he got approved.
Chris Maresca: When you apply for options trading on Robinhood, instantaneously you're able to do it, literally whatever you want to do.
Annie Minoff: Did you feel like you just got handed like the keys of a very expensive sports car?
Chris Maresca: Yeah, exactly. Right. Or imagine your dad buys a Porsche and the keys are hanging there and you're like beat up cars sitting next to that Porsche. And he's like, "Don't drive it, but I'm going away for six months." That's really how it felt, you know what I mean? I felt like the possibilities were limitless.
Annie Minoff: One of Chris's very first option's plays was on an electric truck company called Nicola. Last September, Nicola got into some trouble. An investment research firm called Hindenburg claimed that the company had lied about the state of its technology. It also claimed that Nicola had faked a promotional video. The video showed one of Nicola's trucks, seemingly driving down a desert road, backed by dramatic music.
Chris Maresca: And so the viewer would assume, "Hey, Nicola has a vehicle that's not a production but works." Right? Well, the Hindenburg report comes out and they say the truck didn't work. And what Nicola did was they towed the semi up a hill and they let it go.
Annie Minoff: Nicola fought the report. It said the claims were false, though the company did admit that in that video, the truck was rolling downhill. Regardless, this was not great press for Nicola. Chris felt pretty sure that the company stock would plummet, and so we made an options bet. Chris says he bet 200 bucks that Nicola's stock price would fall below 20 bucks a share within a week. And at first it looked like he'd be right.
Chris Maresca: Of course, Nicola crashed after that report.
Annie Minoff: Could say, it rolled down the hill.
Chris Maresca: It rolls downhill from there.
Annie Minoff: But the stock price didn't roll down quite enough. Chris had been right that Nicholas stock would fall, but not how far, how quickly and with options that stuff matters. His bet was totally wiped out. He lost every dollar he put in which in this case he says was fine. It wasn't that much money. And he still trades options. But stories like Chris's show that democratizing investing it can be a double-edged sword. Thanks to Robinhood investors like Chris now have access to tools they never had before. They're trading for cheap on their phones. They don't need a fancy broker or Wall Street expertise. If they want to take a risk, they can. And they are. I've talked a lot about the Reddit forum Wall Street bets in this series that forum is full of screenshots of risky options bets. Showing huge life-changing gains and equally huge losses. It cuts both ways and for better or worse more people are getting access to those powerful investing tools. Years ago, Bogle got so successful. He forced change on the entire investing industry. Now Robinhood is doing the same thing. Wall Street journal reporter, Peter Rudy Garrett covers Robinhood.
Peter Rudy Garrett: So when they started, they were the only big brokerage to offer commission-free trading about two years ago, all of the other big ones followed suit. So Charles Schwab, TD Ameritrade, E-Trade. All of them announced that they were getting rid of commissions and I think they would not have done that, had it not been for Robinhood.
Annie Minoff: Call it the Robinhood effect.
Peter Rudy Garrett: So today it's much easier to buy and sell a share of stock and much more inexpensive, not even at Robinhood but across the industry than it was even three or four years ago.
Annie Minoff: In some ways Bogle and Robinhood's revolutions were very different. Jack Bogle preached a gospel of getting rich slow, buy and hold. Robinhood made jumping in and out of stocks as simple as tap swiped buy a stock, but both had thrown open the door to new generations of investors. And some of those investors were about to force Wall Street to take notice and take cover.
Speaker 14: Seems like a social movement at the time where the kids were fighting back against the boomers.
Speaker 15: The losses were just melting.
Speaker 14: I was down $10 million and I couldn't feel very good.
Annie Minoff: That's next time onto The Moon. This show is part of the Journal Podcast, which is a co-production of Gimlet and the Wall Street Journal. I'm your host, Annie Minoff. Our producers are Josh Sandborn and Chris Neary. Our associate producer is Willa Ruben. We were edited this week by Catherine Brewer, Gerard Cole, Brian Knutson, kateline Baugh and Annie Rose Strasser. With help from Colin Campbell, Charles Ferrel, Pia (inaudible) Karrie, Anthony Galloway, Martin Kessler, and Lydia Polgreen. Special thanks to Jeff Rogo and Josh Sandborn for all his help on this episode. Our engineer is Griffin Tanner. Our theme music is Biso Wiley. Additional music this week from Catherine Anderson, Marcus Begala. Audio network, epidemic sound and extreme music. Show art by a Neal Lindoff. Fact-checking and research by Nicole Basilica. Thanks for listening. The Journal Daily Podcast. We'll be back on Monday. We'll be back with the next episode into The Moon next Sunday.
Kate Linebaugh is the co-host of The Journal. She has worked at The Wall Street Journal for 15 years, most recently as the deputy U.S. news coverage chief. Kate started at the Journal in Hong Kong, stopping in Detroit and coming to New York in 2011. As a reporter, she covered everything from post-9/11 Afghanistan to the 2004 Asian tsunami, from Toyota’s sudden acceleration recall to General Electric. She holds a bachelor degree from the University of Michigan in Ann Arbor and went back to campus in 2007 for a Knight-Wallace fellowship.
Ryan Knutson is the co-host of The Journal. Previously, he spent more than four years in the newsroom covering the wireless industry, and was responsible for a string of scoops including Verizon’s $130 billion buyout of Vodafone’s stake in their joint venture, Sprint and T-Mobile’s never ending courtship and a hack of the 911 emergency system that spread virally on Twitter. He was also a regular author of A-heds, including one about millennials discovering TV antennas. Previously, he reported for ProPublica, PBS Frontline and OPB, the NPR affiliate station in Portland, Ore. He grew up in Beaverton, Ore. and graduated from the University of Oregon.

Affiliate Marketing As A Business


/ Uncategorized

Leave a Reply

Your email address will not be published. Required fields are marked *