Grow your dough the no-fun way
Wealthsimple’s CEO recoils from high-risk investment antics, despite being a boon for the firm. And he says you should, too
Michael Katchen has one word to describe his approach to personal investing: “boring.”
That’s why the CEO of Wealthsimple, the Toronto-based financial management system for young people new to investing, watched the recent trading frenzy in the stock market with some alarm. This approach, buying and selling shares of somewhat random stocks in the hopes it might sink a few hedge funds, was anything but boring.
“Unfortunately, there are some folks who are misinformed, who are in the market because they think it’s a getrich-quick scheme and so they decide to take outsized risks,” Katchen told the Star.
“It’s those people, that see information online that is inaccurate, that trade stocks on that information — that’s the kind of thing that makes me nervous.”
Wealthsimple’s membership has exploded in recent days. Their phone app reached number one overall on the Canadian Apple App Store after beginning the year ranked 39th. The company says it’s doubled its trading volume and has seen a 50 per cent increase in sign-ups since the GameStop frenzy began.
The pandemonium of the past few weeks — the Redditors, the “meme stocks,” the short squeeze, the rocket ship emojis — has been a boon for
brokerages like Wealthsimple. The Reddit forum where users were first encouraged to buy shares of GameStop, called WallStreetBets, now has 8.6 million members, up from two million less than a month ago. MGM Studios has already bought the film rights.
The process of day trading is especially straightforward for users of Wealthsimple Trade, the app the company launched in 2019 as Canada’s version of user-friendly trading apps like Robinhood. Members can buy and sell stocks at zero commission. With some extra cash to spare — say, a stimulus cheque from the federal government — they can buy a few shares in a stock they believe in and hope for a nice return.
This surge in investment interest is not a problem, says Katchen, all the obvious reasons aside. He’s adamant that interest in investing at an early age is a good thing so long as you’re responsible.
“Most people doing this are taking small bets in stocks and playing along with the market, having some fun,” he said of the Reddit traders. “If that’s the way people get inspired and interested in learning about investing and participating in the capital markets, then that’s great.”
What’s important, he says, is that traders don’t take outsized risk. “If you’re going to play the stock market as a trader, which is different from investing for the long term, do it using the money you can afford to lose.”
There is, after all, an element of gambling to day trading. Traders roll the dice on the stocks they believe will succeed, and can easily leave with less money than when they began. Betting on GameStop is a textbook example.
David Halpert, a trader from North Toronto, said he made $2,000 betting on BlackBerry. Others, like Redditor “toronto1999” — who wished to remain anonymous — lost big.
“I honestly just thought I could make a quick buck,” the 21-year-old told the Star, after losing $12,700 from GameStop shares. “I lost a good chunk of change instead.”
Keith Gill, the Reddit user who helped inspire the rally around GameStop, said he lost more than $13 million on Tuesday but still hasn’t sold any of his 50,000 shares.
Katchen, unsurprisingly, wouldn’t recommend jumping into trading frenzies like the ones surrounding GameStop, AMC, BlackBerry and others.
“I think what you would call last week is speculation, not investing. And speculation is a very hard game to win,” he said.
“My approach to investing is very boring. I buy the Wealthsimple portfolio, and I hold it for the long term. I own a small number of shares that I believe in, and I hold onto those for the long term, as well.”
He says he takes a twopronged approach to investing that seeks to mitigate risk. He thinks of his personal portfolio as “two buckets.”
In one bucket, “I have my play money. This is the money I can afford to lose. With this, I might take outsized bets on something like GameStop because it seems fun and I don’t want to miss out on the opportunity. But I don’t have enough money in this account to get myself into any real trouble. It’s an amount of money I’m willing to lose if it goes to zero.”
In the other bucket, “I have my investments. It’s all the money that’s important to my financial future, that I’m not prepared to lose, where I have a long-term perspective on how it’s going to perform. It’s not about getting rich quick, it’s about capturing good returns over the longterm, which is what smart investing is all about.”
“I own a small number of shares that I believe in, and I hold onto those for the long term.”
MICHAEL KATCHEN
CEO OF WEALTHSIMPLE