And that does happen from time to time. Problem is, it’s not just one fund that shorted the stock, it was a whole lot of them. So while Melvin stood to lose the most, many of them stood to lose if they started a bidding war between them.
This is probably a good part of it. There are probably a whole lot of people who are going to end up losing what they put in. But, that’s kinda the thing, it’s a whole lot of people, and that didn’t put in that much individually.
If you can say that your $200 helped bring down a giant trust fund, isn’t that worth $200? Is it worth $200 to donate to your local congresscritter to take down the opposing party’s candidate?
For many, this was a donation, not meaning to get any personal reward, but to in some small way, try to affect something bigger than themselves.
If a bunch of hedge funds had colluded to take advantage of another’s short position, that would probably be illegal. But, if I got on the news, and said, “Hey, this company is exposed in this position, buy it up!”, then that is public knowledge that anyone can use, and probably is not.
It actually makes me wonder how much of Gamestop that Redditors and other “diamond-handed” retail investors have actually acquired - is it actually a significant % of the company? I read that the majority shareholders in Gamestop were institutional investors - would those companies have sold most of their holdings of GME during this run-up, or would they still mostly be holding on to it? Is there any way to know this?
There it is again, this apologetic nonsense that just assumes people who buy stocks are all idiots who don’t understand anything, don’t know the risks, and only the high priests are capable of understanding the sacred texts. Meanwhile, people who play the lottery, people who gamble in casinos, people who bet on sports are just “having fun” and “know exactly what they’re getting into.” Because they’re just so smart, right? They just want to have a little fun. But those people buying stocks are just so dumb, huh? They might lose money, and we can’t have that chance. Gotta protect those idiots and make sure they stick to blackjack.
Naturally, though, all anyone will talk about is the bagholders at the right side of the curve. Nobody will give any credit to the left side, who bought low and sold high. No credit to the people who checked u/DFV’s math and went “Jeezus, he’s right.” No credit to people like me who went “y’know, Walmart poured money into a web presence and sales took off. Best Buy prioritized online shopping and it’s up 4-fold in 5 years. If Gamestop gets valued at even 1x present-day sales, that makes it a $70+ stock even before you consider the next-gen console releases that are so difficult to find, there’s an entire subreddit devoted to finding them.”
Nope, we’re just silly ol’ retail investors, don’t know a damn thing, only good at going to casinos where we know exactly what we’re getting into.
Some do. Some don’t. Some stay glued to a slot machine because “it’s due.” Some lose money and decide to stay until they make up their losses. Some win money and think they will just keep playing because if they lose it again, hey, they broke even. The average person does not understand the risks. To paraphrase, casinos are a tax on people who are bad at math.
I’m guessing at this point, they hold almost all of it. If I was an institutional investor and I was holding some shares that normally sell for around ten dollars and the selling price suddenly rose up over three hundred dollars, I would sell all my shares and be happy to collect the windfall. Institutional investors avoid the high risk games. If I really wanted to have those shares in my portfolio, I’d wait a couple of months and buy them back when they drop back down to ten dollars.
Here’s one thing that makes me very suspicious… the general opinion among the more optimistically minded redditors seems to be, based on what some of them are posting, that the more stocks they hold, the more squeezed the short sellers will be, and the more the stock will keep going up and up. “To alpha centauri” is a phrase they keep using. And, goes this logic, the short sellers used their nefarious influence to stop the redditors from buying more shares, hoping to scare them into selling, and prevent this turn of events from happening. But this doesn’t make sense. Because if the strategy the redditors was employing was anywhere near as simple and correct as they’re making it sound, then you know who else would be buying and holding GME stock? Literally everyone. All the other big ruthless wall street funds and investors and so forth have no reason to go easy on the short sellers. So if there was money to be made by buying and holding GME stock, there would be very little point to be stopping apps from selling to retail investors, because the other sharks would be in on the action.
All of which suggests that there is NOT money to be made with the “hold and it will go to alpha centauri” plan, at least no dependably. At which point, the next question is whether the people proposing this on reddit are consciously and deliberately hoodwinking their fellow redditors, likely hoping to profit themselves… or whether they’ve convinced themselves their logic is sound. (Or, of course, I could be totally wrong…)
(None of which is to say that redditors shouldn’t be doing what they’re doing… but it can’t be as likely to make them money as at least some of them seem to be convinced it is.)
The other question I have is the extent to which anyone actually knows how much money the short-sellers have lost, if any. How did we “know” that yesterday was some important day? How do we “know” they didn’t just sell all their shorts at a loss a week ago, and now are shorting it again at the new price?
This is the avowed view of some of the people on WallStreetBets and perhaps the sincere view of a subset of them at least. The risk for them though is that at some point, the people being squeezed will be fully dried out. Once the short sellers have closed all their positions, there is nothing more to get out of them. More hedge funds are jumping in and shorting more stock but that just means that their potential upside is even greater than that of the people who thought GME was overpriced at $16. And once GME’s price is in triple digits, it takes a much bigger commitment of capital for them to keep buying up all the shares being sold by short sellers and by buy-and-hold investors who figure they’ve held long enough.
I still haven’t seen any reporting on exactly how the short sellers influenced Robinhood and TD Ameritrade from allowing accountholders to buy more shares. I’m not saying it didn’t happen, and I wouldn’t be surprised if it did, but I would like some evidence of it. And then, I’d like to figure out whether anyone actually did anything wrong in the process.
I suspect it’s a mix of both. And some are probably trolls promoting the stock at absurd valuations even though they won’t benefit at all.
There are articles linked above that show early short sellers lost a few billion. I’m sure that as some short sellers unwound their positions, new ones were coming into the market with fresh short positions at higher valuations. Eventually, some of those short sellers will prove to be correct and they will make a killing in the end. We won’t ever see a full accounting of who lost and who won in this debacle.
I’m certain there are some people in this camp too.
There is a wall. All of the redditors who are hoping to make money off this situation have one requirement; they need to have Melvin Capital buy their stock.
But if they push too far, they will kill the golden goose. Melvin Capital will declare it can’t fulfill its obligations and close its doors.
If that happens the redditors are screwed. They will no longer have a buyer for all of the shares they’ve bought.
No one seems to be commenting on a point I think is important. Supposedly this was all possible because the shorted stocks equaled 140% of all outstanding stocks. This made the squeeze worse because they could not just buy the stocks to close their shorts.
This should be illegal. It’s known as a naked short. Current US law says every short needs to have a contracted stock. When the inevitable investigation comes, the hedge funds need to be investigated and penalized for however they managed to make so many shorts.
That link clearly says the exceptions are for market makers or broker-dealers, not hedge funds. At the very least, the intent of the law was to protect against this kind of trading.
I don’t disagree, but … may I present (hypothetically) the hedge funds’ argument:
As banks step back from some traditional roles, hedge funds and other non-bank entities are stepping forward as market makers, enhancing liquidity and market efficiency.
Would it fly ? No earthly idea. But these are ridiculously slippery creatures with The Best Lawyers On The Planet.