GameStop and guerrilla investing

[Mike Barton]

An interesting story is emerging from the US regarding a "David and Goliath" battle between individual investors and the hedge funds.

To summarise there is a movement on Reddit and around such investment vehicles as Robinhood (bit of a clue in the name) to buy up shares in companies that the big investors have shorted, until such times as the investment funds are squeezed and they pull out of their short bets, with as big a loss as possible. It has come to a head with GameStop, a mall-based vendor that the big firms said was dead in the water and due to be finished off but whose stock price through massive investment by, for the want of a better term guerrilla investors, has suddenly soared leaving a couple of hedge funds nursing sore heads.

On the surface it all seems so heart-warming (at least in the way it is reported in the non-financial media) with the little guys standing up to Wall Street and giving the hedge funds a bloody nose and if the story ended there it would make a nice movie. But even the most novice of investor would ask the question, what next? So now the hedgies have pulled out GameStop is, apparently, the darling of the market, but nothing about the business fundamentals has changed. The Reddit forum is full of small investors crowing about how they have made enough money to pay for their college education. Good luck to them, I salute their shrewdness but that clearly means they intend to cash in, sell the stocks, so what happens to GameStock's price then?

My investments (such as they are) are in property and a modest pension pot so I am not personally into trading in stocks but I am aware that many people, especially during lockdown, are piling into day trading and the like. This story, presented in terms of ethical investing, strikes me as incredibly risky and just as prone to bubbles and severe market correction as any other form of market manipulation.

What do others think? Is anyone here involved in this sort of activist investing? How has it worked out for you? Are you comfortable taking long-term positions in this sort of strategy?


How GameStop found itself at the center of a groundbreaking battle between Wall Street and small investors

 

[Ayatollah]

Funny, when I signed on to my account this morning there was a warning about Gamestop.
By the end of trading, the warning had disappeared and the share price for GME had increased 134.84%
or 199. 53 dollars per share.
As the individual investors have shown they can change wall st's attempt at manipulating a stock. However, I think Wall St will take its revenge very soon and the stock will plummet giving wealth to those who like to short.

 

[Mike Barton]

Funny, when I signed on to my account this morning there was a warning about Gamestop.
By the end of trading, the warning had disappeared and the share price for GME had increased 134.84%
or 199. 53 dollars per share.
As the individual investors have shown they can change wall st's attempt at manipulating a stock. However, I think Wall St will take its revenge very soon and the stock will plummet giving wealth to those who like to short.

What investment vehicle are you using, Robinhood or a standard platform?

 

[Ayatollah]

What investment vehicle are you using, Robinhood or a standard platform?

I have a couple of Cash accounts with TD Ameritrade. But I believe if you choose a good solid company you will be safe. An email or phone call pushing a stock (or anything) is no an investment its a con and your best to stay clear.
The main thing to remember is Trading Stocks is a legal form of gambling, and therefore you should never invest more than you can afford to lose.

 

[Mike Barton]

Funny, when I signed on to my account this morning there was a warning about Gamestop.
By the end of trading, the warning had disappeared and the share price for GME had increased 134.84%
or 199. 53 dollars per share.
As the individual investors have shown they can change wall st's attempt at manipulating a stock. However, I think Wall St will take its revenge very soon and the stock will plummet giving wealth to those who like to short.

What was the nature of the warning? Was it that the firm was about to go bust or that there seemed to be some sort of stock manipulation going on? Because no matter how much you might cheer on the hedgies getting their fingers burnt, it still does pretty much smack of manipulation by certain individuals or groups of individuals.

 

[Ayatollah]

What was the nature of the warning? Was it that the firm was about to go bust or that there seemed to be some sort of stock manipulation going on? Because no matter how much you might cheer on the hedgies getting their fingers burnt, it still does pretty much smack of manipulation by certain individuals or groups of individuals.

I can't remember exactly, but I believe it was regarding financials and possible delisting. The notice was removed probably about 2 hours later. As things are I think it is too hot to handle and if I owed it I would get rid of it when the markets open.

 

[Mike Barton]

Interesting development, seems the platform that hosts the Reddit discussion forum has banned it for hate speech of all things. The SEC and White House have also taken an interest. Seems like some very powerful people don't like what's going on.

GameStop's three largest shareholders have gotten $3B richer in rally

Discord Inc, a messaging platform for online gamers, said it had removed the WallStreetBets server from its platform for violating its guidelines on hate speech and spreading misinformation.

www.dailymail.co.uk

 

[LordVonHarley]

More worrying it has shone a bloody bright spotlight on how the US shorting is currently working.

GameStop - 138%!

To put that in context the most shorted stock in the UK is Premier Oil at 11%.

I think GameStop action is only the begining.

 

[Mike Barton]

More worrying it has shone a bloody bright spotlight on how the US shorting is currently working.

GameStop - 138%!

To put that in context the most shorted stock in the UK is Premier Oil at 11%.

I think GameStop action is only the begining.

Apparently cinema chain AMC is also on the radar.

 

[LordVonHarley]

Apparently cinema chain AMC is also on the radar.

There are lots of sites that track shorted stock (with public information).

It's not really a well know subject for the general public, which is why GameStock is an anomaly. It's a blend of internet meme, reckless shorting and opportunist investors (and manipulation).

Will retail investors continue to operate in this market now that they know about it?

Will this cause a snow ball effect as everyone piles in?

Most Shorted Stocks | Financhill

Short selling for dummies: To sell a stock short means to borrow shares from your broker using a margin account and sell stock hoping that prices will fall.

financhill.com

 

[LordVonHarley]

The big boys have all sold out (probably earlier in the week).

 

[Sixty]

What was the nature of the warning? Was it that the firm was about to go bust or that there seemed to be some sort of stock manipulation going on? Because no matter how much you might cheer on the hedgies getting their fingers burnt, it still does pretty much smack of manipulation by certain individuals or groups of individuals.

^On Trading 212.

I should add that the order executed underneath the warning is NOT a purchase of Gamespot but is significantly more vanilla. The bubble has largely been burst by trading apps no longer allowing purchases from retail investors.

It's interesting as they aren't actually authorised to give investment advice so may have left themselves open to FCA action.

Equally, it has been unusual seeing most of the media (social/new and mainstream) trying to explain how derivative contracts work to their readers.

 

[offog]

The big boys have all sold out (probably earlier in the week).

My little boy sold his yesterday at 300 and tells me he made 7k. He said that if he waited another 30mins he would have made another 1k but decided it was time to cut and run.

 

[LordVonHarley]

^On Trading 212.

I should add that the order executed underneath the warning is NOT a purchase of Gamespot but is significantly more vanilla. The bubble has largely been burst by trading apps no longer allowing purchases from retail investors.

It's interesting as they aren't actually authorised to give investment advice so may have left themselves open to FCA action.

Equally, it has been unusual seeing most of the media (social/new and mainstream) trying to explain how derivative contracts work to their readers.

I understand that a number of DNC Senators are not happy to that retail investors have been blocked from buying it. Maybe we might get a senate hearing sans coffee.

 

[LordVonHarley]

My little boy sold his yesterday at 300 and tells me he made 7k. He said that if he waited another 30mins he would have made another 1k but decided it was time to cut and run.

I am happy he has gamed the system. Is he going to treat himself with an expensive toy celebrate?

 

[theinventor]

And when the music stops someone will be left holding expensive junk...

 

[LordVonHarley]

And when the music stops someone will be left holding expensive junk...

I am not sure I would call GameStop junk, far from it.
Is it worth $270 a share? The free market would say so. Will this price hold?
Unlikely, but the stock is in high demand as it is heavily shorted and retail investors have a point to prove.

 

[Mike Barton]

I understand that a number of DNC Senators are not happy to that retail investors have been blocked from buying it. Maybe we might get a senate hearing sans coffee.

Robinhood banned trading in GameStop on its app, leading to outrage from the small traders. Alexandria Ocasio-Cortez condemned the move, Ted Cruz agreed with her.

When Cruz and AOC agree on something you have to feel attitudes are changing.

 

[offog]

I am happy he has gamed the system. Is he going to treat himself with an expensive toy celebrate?

He has not had a lot of work to do over the last year as the company he works for (IT related) have been working from home and had a lot of time on his hands. He has done rather well dipping into the market on a very small scale.

When he told me how much he had made over the last year I was impressed and his mother was terrified that he had a gambling habit.

For my birthday he sent me an expensive fruit cake through the post. When I heard how much he made I said "you cheapskate. You got £X and only got me one cake, wait till next year then you'll suffer",

I have reached the age now when a large bar of chocolate and a nice fruit cake are more than enough.

 

[LordVonHarley]

Robinhood banned trading in GameStop on its app, leading to outrage from the small traders. Alexandria Ocasio-Cortez condemned the move, Ted Cruz agreed with her.

When Cruz and AOC agree on something you have to feel attitudes are changing.

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This whole saga has opened up a big can of worms. Market manipulation is a big no no and can lead to prison and big fines.

However who is manipulating who?
The Hedge funds for shorting the stock 138% crashing the price and damaging the companies reputation and ability to raise credit/capital or traders on Reddit who are pumping up the price to hurt the hedge fund and to make profit.

Without the manipulation of Reddit or the hedge funds, what would the price of the stock be? $10-$20-$25?

Part of the manipulation is bigging up what will happen when the hedgefund can't hand back X amount of GameStop stock. Only the hedge fund knows what the penalty clause is and that is not being made public.
The due date is next week(?), can this date be extended until things blow over or do the lenders want to cash in on the high stock prices?
If the stick can't be handled back is the equivalent market value paid instead?

This whole thing is odd and is driven by both the aim to make money and by ideological reasons.
With the interaction of AOC will this become a digital occupy Wall Street. If enough politicalised retail investors own enough stock in a company can they change things?