It’s this sort of thing that turns young people into socialists.
I am a big believer in free markets and capitalism. They work… if they are allowed to work. But what we increasingly have isn’t capitalism at all. It’s increasingly becoming an oligarchy where rich people get all the benefits of capitalism while poor people pay all the costs. The GameStop situation where trading was repeatedly shut down to prevent ordinary people from buying and selling stock so as to protect rich hedge fund owners is a perfect example, and the thing is, it’s not even the one hundredth worst example of this sort of thing.
I don’t know how anyone can be surprised when some college kid says “fuck capitalism.” The capitalism they’re witness too isn’t a well regulated free enterprise system of the sort that SHOULD exist, the sort that helped create and spread around truly mind boggling amounts of wealth and lift millions out of poverty. What they’re seeing is a system whereby financial pirates can crash companies, mortgage bonds and whole economies, screw people out of their homes and savings, and walk away with a new yacht and no one who did it goes to prison. I’m surprised the 2008-2009 crisis didn’t cause a revolution. The next one might.
If some hedge fund managers lose every penny and end up living in a van down by the river because of the GameStop thing, I for one won’t shed a single goddamn tear. That’s capitalism, assholes. Maybe you should eat less avocado toast. Try working a second job. I hear GameStop might be hiring.
“In a few years people are going to be doing what they always do when the economy tanks. They will be blaming immigrants and poor people.” - Mark Baum (Steve Carell) - The Big Short
Yes, exactly as I mentioned in the rest of my post that you did not quote.
And as I said, the “big players” aren’t going by those either. So, in the end, as I said, the person who says a random stock it work its price is the person who is willing to pay that price for the stock.
That’s a valid reason to buy a stock. Maybe you just like a company, and want to be a part of it, and don’t care whether or not it makes you money. Not everything that people buy is to make them money, in fact, the vast majority of things that people spend their money on are because they like it, not because it is financially beneficial to own.
And then there are some who make their market moves because they plan to manipulate the market in the process.
Which may mean that someone has to pay more than $350 per share to buy it from them. Just because it’s an artificially created short term run doesn’t mean that they may not actually have that value. The scarcity of diamonds is almost entirely artificial, and yet, people pay thousands of dollars for these tiny little pieces of pretty carbon. What is the actual worth of a 1952 Topps Mickey Mantle card, can you explain the market fundamentals that made it sell for nearly 3 million dollars?
Right, there are no very good investments to be made in small businesses or startups, so the only place for people to park their money is in the stock market, driving up the price. It’s not really that these companies are becoming more valuable, it’s more that everything else is becoming less so.
I am not contradicting you, there is no need to get snippy. I am just trying to reinforce the fact to people in this thread that stock valuations aren’t always whimsy-driven, and it’s a direct response to people who challenge why GameStop was a short target.
There were good fundamental reasons to think the company would decline, and the stock only went up because people are always butthurt about contrarian bears, but this time the butthurt-ees happened to spot a weakness and spin up a viral campaign to go after it.
There is no comparison between a consumer product like diamonds or Mickey Mantle cards and investments like stocks.
People buy consumer products because the enjoyment they get out of having those products is worth the money they’re paying for it. People don’t buy investments because they get enjoyment out of having them; they buy them because they think they will earn them a financial return. So the only thing that counts is whether it will earn that return, and if so, on what basis.
Matt Levine is possibly the finest finance columnist in the US today and he has a number of pieces about Gamestop. This one does a really good job of explaining what is happening. He uses three stories: fundamental, technical and what he calls YOLO which is good way of looking at the whole saga.
Right now they’re enjoying being part of this Big Thing and sticking it to the shorts, and the price is still up there. Question is if the price settles down and the story dies down and the Redditors are quietly looking at a lot of their hard-earned money gone, will they think the amount of enjoyment they had at the time was worth it?
Some of the reason for the uptick, that started this whole thing, are based on possible fundamentals. It is under new management, that has been changing their business model, and it’s entirely possible that it will end up doing well in the future. Video games are a $134 billion market. If they are able to stay a part of that industry, then they can very well end up being a very valuable company again. It’ll probably never be worth the current asking price, but there is no reason to be assured that it won’t be worth more than the $10 or so that it was at.
That is, of course, as long as it is not destroyed by short sellers trying to make a quick buck.
As far as scarcity is concerned, there is. The scarcity may be artificial, but it was created by the funds who shorted it by 140%. That means that there is more demand for the stock than there is supply.
The difference is here is that people don’t have to buy diamonds or baseball cards. However, these funds have put themselves into a position where they do have to buy shares of GME. If they are obligated to buy it at any price, then it is worth whatever the lowest price that someone is willing to sell it for. Right now, that’s $281 a share.
As the whole point of the WSB subreddit is people using their hard earned money to gamble on the stock market, knowing that it is unlikely to pay off, I’d say that this disruption alone, even if they lose everything that they put into it, would be considered to be worth it.
I’ve seen people at casinos blowing more money in less time, not being a part of a national debate, not fucking over billionaires, just playing a game they’re guaranteed to lose in the long run. It’s not my scene, but people seem content to do it.
People in casinos know exactly what they’re getting into. It’s likely that a lot of the Reddit people don’t fully appreciate what the inevitable end-game is in this case, and this influences their decision-making.
WSBs is one of the few subreddits that I follow, pretty much just that and “that looked expensive”, and for pretty much the same reason.
They like to brag about how much money they lost on their bets almost as much as they like to talk about how much they made.
I’m sure that there are those who got suckered into this that didn’t know what they were getting into, but the regulars on WSBs, not so much.
I’d say that those who chose to overshort GME are the ones who don’t fully appreciate the end-game. If you take long positions, you can only lose what you put into it. If you take short positions, your losses can be much higher.
But from the point of view of the hedge fund, it doesn’t really matter whether they’re outmaneuvered by a group of online investors or a rival hedge fund. If this was normal occurrence that happened when hedge funds tried short selling a stock, then they wouldn’t try it.
When Melvin Capital began shorting GameStop’s stocks, they must have believed nobody would jump in and try to drive the price up.
Hedge funds see situations where they can make money by shorting a stock. So they short the stock.
If you could make money by buying up a stock when a hedge fund shorts it, then hedge funds would be buying up stocks every time they saw another hedge fund shorting that stock. This would just be normal business; one company tries to make money by shorting the stock, another company tries to make money by countering the short.
So when Melvin Capital began shorting GameStop stock, why didn’t they expect somebody would start buying that stock? They may have been surprised that it was individual investors rather than a rival company, but why weren’t they expected the buy up?
One possibility is an informal agreement exists. Companies agree not to interfere with each other’s short sales. I don’t counter your short sales this month and you don’t counter my short sale next month.
Another possibility is that it’s not a good strategy. We’re still in the middle of this situation. Maybe those individual investors are all going to lose their money in the end. Hedge fund investors know that’s what happens when you try countering a short sale so they don’t try it.
A third possibility is something I read. That article suggested that there are regulations against doing this in an organized fashion. So hedge funds don’t counter short sales because they would be targeted by regulatory agencies. The unusual circumstance this time is that it’s a decentralized group of individuals buying up the stock.
The ability to create a short squeeze depends a lot on how big the buyer is relative to the size of the float and average trading volume. Frequently it’s too big for even a big player to singlehandedly create a short squeeze.
When Bill Ackman shorted Herbalife, Carl Icahn and some other big players took long positions. But that was simply a matter of disagreeing with Ackman about it and taking advantage of the dip in price created by Ackman’s PR war to get some shares on the cheap. That itself didn’t have the potential to create the type of short squeeze that we’re seeing here because the size of Herbalife was too great for that.
That makes sense. You probably don’t encounter too many situations where a company whose shares are being sold for around fifteen dollars gets shorted.