Gamestop Stock - Among other bubbles
While there are those who are giggling and loving what "little guy " investors did with Gamestop stock, a little caution is called for in light of the "irrational exuberance ".
A little history. At the beginning of this year , Gamestop was selling for $20 a share . And many analysts thought it was overvalued at that price. Why invest in brick and mortar stores when folks can buy anything they want on line ? Several hedge funds started selling the stock short gambling that it would go down further. A grass roots movement on Reddit and other platforms started buying the stock driving the price up over $300 a share. When I last looked it was already down to $238 a share. And a lot of those short sellers did not own shares . They bought on margin. In fact, more orders were put in than there were shares outstanding. By several million shares. In fact, trading in Gamestop was halted several times over the past few days.
While I recognize the poetic justice of watching hedge funds scramble to cover themselves and lose billions in the process ( $70 billion at least ), this is ultimately a case of winning the battle and losing the war. OK, they drove the price up by more than a factor of ten. They caused conniptions among the hedge funders. Now what ? If they are lucky they were able to sell and get out. Apparently a lot of people are which is why the price has been nosediving. A lot of those "little guys " are going to be left holding the bag if the price drops below where they bought it.
An interesting side note. Schwab , TD Ameritrade and Robin Hood have all suspended further purchases of Gamestop. You can sell but you can't buy. Why ? To limit losses for the hedge funds that have to buy the stock to cover their shorts.
There were other smaller efforts with stocks like AMC where a swarm of little guys bought while hedge funders were selling short but nothing on this scale.
Re: Gamestop Stock - Among other bubbles
People spend money on entertainment.
Re: Gamestop Stock - Among other bubbles
Quote:
Originally Posted by
slowpoke
People spend money on entertainment.
True but they can buy what Gamestop sells in its stores online.
Re: Gamestop Stock - Among other bubbles
By entertainment, I mean manipulating the stock price, not video games.
Re: Gamestop Stock - Among other bubbles
I agree with slowpoke. Were it not for months of uncertainty and having to be more careful with money, I’d totally throw $200-$500 just to do my modest part to say FU and have fun as well. }:D
Re: Gamestop Stock - Among other bubbles
Look how much people will spend for an hour or two at a concert or sporting event. Would they spend an equal amount to buy stock and get days or weeks of amusement?
Re: Gamestop Stock - Among other bubbles
Quote:
Originally Posted by
slowpoke
Look how much people will spend for an hour or two at a concert or sporting event. Would they spend an equal amount to buy stock and get days or weeks of amusement?
Extremely good point.
Re: Gamestop Stock - Among other bubbles
Out of curiosity, Eric, are you a hedge fund client?
Re: Gamestop Stock - Among other bubbles
Re: Gamestop Stock - Among other bubbles
The theoretical justification for short selling is, they make the market work efficiently. By putting short pressure on a stock, the short sellers force over valued stocks down to a more realistic level. However, that was not the case with Gamestock (GME). The stock was trading at a value reflecting just how poorly run the company is and what management's prospects are for making the retailer work. No short selling needed for GME. Instead, the short sellers were speculating. Some people got together and bid up the stock to force the short sellers to cover. Big losses. I would feel a lot worse for the short sellers had this been a manipulation of an over-valued stock, or a manipulation by management to "pump and dump" the stock. It wasn't. So, they get hoist on their own petard. That's tough, but capitalism can be tough in some ways.
HTH
Z
Re: Gamestop Stock - Among other bubbles
I'm enjoying all the people trying to herd these buyers into their preferred penny stocks and commodities
Re: Gamestop Stock - Among other bubbles
Quote:
Originally Posted by
StellaRose
Out of curiosity, Eric, are you a hedge fund client?
A. None of your business But B. Notwithstanding A. - NO . I do my own investing thank you very much.
Nothing wrong with hedge funds or short selling per se imo. As long as they follow the rules and it's a relatively level playing field. What I do NOT like is the way these big hedge funds seem to manage to get bailed out every time they guess wrong or the market turns against them.
Circling back to the original topic , I'm not sure I am buying it but Robinhood has come up with a good argument as to why they halted purchases of Gamestop while still permitting sales. They had to in order to comply with clearinghouse requirements. Anyway that is their story and they are sticking to it.