If the big players use their weight to force the situation such that they turn a loss into a win by controlling the market, that… seems incredibly fucked up, and somebody should be investigated by the SEC and probably go to jail, too.
It would be a reasonable time to remind our nation that “stocks” used to have another meaning:
Yeah, I keep hearing this, but for some reason, the implication always seems to be that the value was correct last month and is wrong now. Nobody, including you, seems to consider that the opposite might be true. Maybe the $2 was very, very wrong and the $300 is correct. Or maybe it’s $400 this morning and $266 is the correct number.
Why don’t you throw out a number and tell us why your valuation is correct. Base it on something…anything…other than what the price is or was.
I’m sure this isn’t the first time that a fund found itself in an exposed position and was taken advantage of by other investors.
This is just the first time that these investors were common folk, and not other funds.
Unfortunately, the SEC mostly exists to keep people from stealing from the rich. I don’t know that I would count on it here.
idk maybe the fundamentals, the broken financials and revenue? The way it’s normally done?
Nobody is “sticking it to Wall Street” here. Yes, a few overexposed hedgies lost a few billion dollars. Investment bankers are making an f’ing killing. Incompetent GameStop executives are going to get compensated light-years beyond anything their achievements deserved, and will probably cash out and move on.
I don’t want to let Mervin et al off the hook… they were overexposed and brought this on themselves. But this is not some kind of David & Goliath scenario. A few small players got shanked, but actual Goliaths are profiting heavily on it and would love to see it happen again.
Isn’t now the perfect time to short Gamestop? The price has got to tank soon.
Think you’ll get a lot of buyers?
I don’t know. I don’t need a lot. Could you expand on your response and ELI5?
I don’t think it has to tank soon, if a large group of investors has committed to holding the stock indefinitely no matter what the fundamentals. That’s what I’m seeing on Reddit. For them it’s a pure spite play for the lulz, and nobody cares if they gain or lose.
I do think it has to go down eventually. Eventually greed will get to some of the GS longs. GS didn’t get to be a shorting target by having a gangbusters business model with a crack management team. They would have to increase their revenues like a 1000x to justify the stock price.
Eventually the internet will find another shiny object to chase, and GSE will glide back to a level more in line with the fundamentals. The only question is when. I briefly considered opening a short position, but with so many irrational actors purposely distorting the market, I just don’t feel comfortable making that call. I have no interest in paying margin interest to rent shares that end up taking months or a year to normalize.
Right. This isn’t some up and coming small player with a new business model or cutting edge technology that was targeted for a hostile takeover by the big boys. This is more like Blockbuster video before it finally went under. It’s my understating that Gamestop itself only benefits from the stock price if they use it to raise money by offering more stock at these inflated prices. If that happens that just puts more pressure on the redditers trying to keep the price artificially elevated.
Yeah, like most things in the stock market, by the time the retail investor has thought of it, the market has already moved to clean up the opportunity. For example, if you read a Citywire article that ABC plc had good results - great, city traders read about it before the market opened and billions of dollars has changed hands to move the price accordingly. I haven’t even bothered to look into the cost of put options for GameStop because I assume the market for such has priced in their altered value (i.e. they will now be a lot more expensive than they were a week ago) long before I get there.
The old saying goes “the market can stay irrational for longer than you can remain solvent”.
The reason the hedge funds covered their shorts at enormous losses is not because they think long term the stock will be selling at these prices. It’s because their losses mounted to the point where they can’t risk further short term exposure.
So let’s say you short GME at $300. Let’s further stipulate that there is a 100% likelihood that the stock will eventually decline to $15 or lower. But what happens if sometime before that happens - say, next week - the stock goes to $1,000. Now you’re exposed to huge losses, and you get a call from your broker that unless you transfer a lot of money into your account they will buy the stock at $1,000 to cover your short. What do you do then?
Oh, fundamentals, huh? OK. Please let me know why Tesla is $800 billion. It’s not fair. Is there a way I can get the brokers to halt trading for everyone but me so I can buy it at the correct price of $250/share?
Here I am offering to pay $250 and yet these people that actually own the shares are demanding $820+. What right do they have to do this to me?! I should contact the SEC, see if there’s anything they can do to fix this situation. By fix, I mean repair, of course. Not rig…heavens, no.
There’s their business model. They’re essentially Blockbuster Video except with video game cartridges. I don’t see a long term future for the company.
There’s the stability of the low share price (I know, you wanted me not to mention the price in a discussion of the share price.) It’s been hovering down below twenty dollars for months. If the value was actually hundreds of dollars, somebody would have noticed this in all that time.
As I noted in my previous post, GameStop hasn’t made any serious changes this month. It’s still the same company that was selling for $18.47 a share three weeks ago. The only new factor is that outside companies began shorting the stock.
So the idea that investors are buying GameStop shares at $300 because they believe that price is justified based on the value of the company is ridiculous. They’re buying shares at $300 because they think they’ll be able to resell them to those short sellers at a higher price.
Tesla is also overvalued. Does that help clear it up?
I’d say that most stocks are overvalued. Back in 2000, right before the crash, I kept hearing investment advisors saying that P/E didn’t matter anymore. P/E’s went through the roof, then the whole market collapsed.
P/E is pushing 40 for the S&P 500, meaning that it would take 40 years to get your investment back, and a quick google shows me that this advice is being repeated by many investment advisors once again.
Same trends on price to book can be found in the leadup and aftermath of crashes. Price to book on the 500 is a bit over 4 right now.
Stocks are worth exactly what someone else is willing to pay for them, that is the market price, and the market price reflects exactly what someone is willing to pay for it. It’s no different than a rare baseball card or comic book in that way. If stocks were based on what the companies that they represented were actually worth in terms of assets, revenue and profit, the DOW would be less than half of what it is today.
I don’t see many people in this thread discussing the fact that u/DeepFuckingValue saw legit value in GME after the cofounder of Chewy gained a board position. Their digital sales are up like 300%…I’m not saying the value of GME is concurrent with the price, I’m just noting there are ton of videos and essays praising GameStop for making hard changes…closing stores to reduce overhead while increasing the remaining stores’ sales…Reddit just really liked the stock. And once they saw 140% shorting, they just encouraged each other to HOLD. All the radical fluctuation and hyper-inflation of GME’s $ is due to the mechanics of the market (IMO). “We like this stock.” ‘US FAT CATS WANT TO KILL THAT COMPANY FOR PROFIT.’ “Naw, we’ll just hold on to what we have.” [Chaos ensues].
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Anyway–
I downloaded Stock Trainer and bought 60 shares of GME for around $15k. Right now if I were to cash out, I’d make about $6k (this is fluctuating between 4-6k at any moment).
Since this is all just a toy/game/experiment, would you suggest I continue to hold onto that stock, or cash out when I see some high-tide around $6 or 7k? Before two days ago I had zero interest in the stock market and considered it an elusive and mythical creature, so it’s kind of fun to be “virtually” dipping my toe into trading. Reddit’s prevailing advice is to be diamond-fisted and not sell, but I kind of like a 40% return in the short term.
The question I was responding to is “who says (a random stock) is worth its price?” There are deterministic metrics to figure out how long it will take to get your investment back. It’s not voodoo. You can go by the book and look at present fundamentals. If you want to get a little riskier you can add some business analysis and try to predict where the fundamentals will go in the future. Of course, many people go YOLO for no better reason than “I like it because I like it”.
If the market happened to pick a winner, the fundamentals may eventually catch up to the price. This is more likely with a company like Tesla, an early dominant player in the electric industry where most incumbent automakers are destined to follow. In a case like Gamestop, a struggling retailer that stayed in a dying segment for too long, it’s more likely that the price will settle back closer to what the fundamentals reflect once the squeeze has run its course.
Fundamental difference between a stock like Tesla and GME is that the people who are buying Tesla at $800 are doing so because they think the company’s prospects are such that it’s worth $800. They may be wrong and they may be right, but that’s the basis of that price. In the case of GME, the people who are buying it at $350 are not doing it because they think it’s genuinely worth $350. They’re doing it because there’s an artificially created short term run on the shares.
[I remember the early days of Amazon.com, when it first became worth more than Barnes & Noble, and people spoke about it in the same manner as people speak of Tesla vs the other automakers today. It would have been a very worthwhile bet to have bought the shares back then. Of course, there are any number of comparable companies back then which were not worth their sky high valuations, and investors in those companies paid the price. Investing in high growth companies is a high risk high reward proposition. But the point again is that there is a basis for rationally believing that such companies are actually worth their sky high valuations. It’s not pure market conditions, as is the case with GME currently.]
Re P/E, one big reason for the recent increase in P/E ratio is that interest rates are being kept low. So the ROI for all sorts of competing investments decreases in line. (Another reason is market hubris due to a very long term bull market. But part of it is rational as above.)