X sells those 100 million shares for $3 a share, betting (and that’s the operative word) that the price per share will go down to $1 a share. Following the GameStop episode, retail traders have also piled into stocks such as AMC, BlackBerry, Express, and even Tootsie Roll. 26. GameStop is a video game retailer headquartered in Grapevine, Texas, that operates more than 5,000 stores. An example of this is the breaker that occurred shortly before close which looked like a 2.3M share market sell to me. Wall Street has been watching GameStop in awe as a band of Reddit-obsessed retail investors managed to push the stock up 1,500% in two weeks, … “If you’re just wrong as a society in terms of where you place your bets about businesses, ultimately that’s pretty bad,” Hong said. Many of them treat trading like a game, which can obviously be dangerous. Biden hasn’t. VIEWS. ), When a hedge fund or investor shorts a stock, they basically speculate that its price will go down. Video-game-related media has conflated the people buying GameStop stock with gamers. Democrats have moved left on Israel. Some analysts have described GameStop and other stocks like it as “meme stocks.” They’re right, in a sense. After a week of news made by Reddit groups impacting Wall Street, here's what behavioral finance experts are saying about the GameStop stock surge. How a bunch of Redditors made GameStop’s stock soar, much to the chagrin of the hedge funds attempting to short it. But it doesn’t really help to hear that the market is imaginary or fake, especially in the context of people making heaps of real money. To add another layer to this, a lot of the activity around GameStop hasn’t been people directly buying the stock, but also buying call options, where they basically gamble that it will go up. There’s a problem with this line of thinking. You’ve missed out on the biggest moves. “Unless they thought there was obvious malfeasance, or they thought that something really bad was going to happen, then you can justify it,” said Harrison Hong, professor of financial economics at Columbia. Who can feel bad about that? So when the GameStop story began to catch the media’s attention, I sought the advice of experts. That made some very obvious sense, because Gamestop is a physical retailer of a product generally sold over the internet. In this article, I try to explain what on earth is going on calling on my limited (Although slightly more than most) experience of the world of finance and trading in order to clarify for the people who it will most affect: Gamers. “It makes sense from an investor psychology standpoint. penned a letter to the acting chair of the U.S. Securities and Exchange Commission, asking: “What steps will the SEC take to ensure that securities markets better reflect prices that are in line with the intrinsic and fundamental value of underlying companies?”. It’s had to call in some help and finally closed out its position altogether. “It turns out Netflix didn’t actually take that much market share away from Blockbuster. However, it subsequently dipped slightly in … The stock slid to under $200 at market close … “Imagine now if Blockbuster suddenly had access to an overpriced stock price and could have extra capital to sustain itself as it bought itself time to sell off its stores. But if the price of the stock goes up, it doesn’t work. When it goes down too much for you to bear, you sell. The company could be trying to protect traders from taking on too much risk (though the accessibility of its platform arguably pushed those traders toward risk in the first place). A few days later, the meme was over, driven into the ground by the zealously online. By choosing I Accept, you consent to our use of cookies and other tracking technologies. Even though the price on the stock has lowered, the frenzy between r/wallstreetbets and hedge funds is still noteworthy. READ NEXT. “Everyone plays by the same rules,” Stylux wrote. But if GameStop achieves 2024 estimates of earning $1.35 per share, that means that the stock's current valuation is a whopping 106X 2024 earnings(!). Manchin’s idea won’t fix America’s democracy, but it could solve some pretty significant problems. The New York Times’s write-up closed with this quote from the wife of a retail investor: “Eat the rich.”, Online traders power up silver as GameStop stock retreats. On Tuesday, January 26, Chamath Palihapitiya, a venture capitalist and the founder of VC firm Social Capital, tweeted that he was buying GameStop calls. Do you think the CEO is smart or surrounded by smart people? This GameStop situation is pretty crazy on the surface, but as you dig into it more and more, it becomes crazier and crazier. Luckily for you, Brianna Parkins, an ex-financial journalist, has taken to TikTok to explain what’s happened — without the complicated jargon. The stock plunged instantly, and when trading resumed it was right back to where it was before that sale. (AP Photo/LM Otero) NEW YORK (AP) — It’s not just you. How will this all eventually end? The internet and stock market are aflame over GameStop, the video game retailer whose stock is suddenly the darling of day traders who are putting the squeeze on Wall Street’s big players. Author: admin Published Date: January 27, 2021 Leave a Comment on GameStop’s Reddit-fueled stock market situation explained. Posted by Samuel Edwards January 29, 2021. At some point, you’ve got to buy the stock back and return it, even when the price is higher and you’re going to lose money. 7 min read. Damn. Scion Asset Management, the hedge fund run by Michael Burry, who you might know from The Big Short, revealed he had a position in the company, which inspired some confidence, and then Ryan Cohen, the co-founder of the pet e-commerce company Chewy, disclosed last August that he had a big stake in GameStop. The stock value of GameStop has soared more than 300 percent in the past week with the price at the moment of writing standing at $347.. How did a company, which was once described by an investor as “a failing mall-based retailer”, end up there?. Brandon Kochkodin at Bloomberg recently laid out how GameStop, which isn’t expected to even turn a profit until 2023, has seen its market skyrocket, and what Reddit has to do with it. What you need to know about GameStop’s stock price chaos. Last week, the conventional wisdom that had overtaken Twitter was that the market was all fake and not reflective of the real economy. Ultimate as a medium. “What they’ve done is target large short positions,” Cramer said on CNBC on January 25. The underlying assumption is that the market as a whole generally goes up, so if you buy a diverse enough set of stocks, over time you are bound to make a profit. By Clay Falls. Millions turn to Vox to understand what’s happening in the news. The traditional, econ 101 approach to smart investing is to look at fundamentals — the core facts about a company you might invest in. American stock markets are in a lather. GameStop has become a popular play among short sellers, who are basically investors who think a stock will go down. GameStop’s stock price has skyrocketed from where it was at the start of the year, at under $20, to nearly $350 at market close on January 27. What you need to know The U.S. government is monitoring the situation with GameStop's stock, which has … The anti-Semitism. On r/wallstreetbets, the Reddit forum that sparked GameStop’s explosive growth, you’ll find tons of posts about growing up with little and a near-Zen comfort with losing it all just to stick it to the hedge funds. The GameStop episode is a mix of factors serious and silly — part retail traders demonstrating some actual power in the market, part accepting that some of this just makes no sense. More traditional investors (and those with a lot of money) have wagged fingers. Reddit, social media, and now Elon Musk are involved. Leading hedge funds in the US have been calling on … GameStop’s stock price has skyrocketed from where it was at the start of the year, at under $20, to nearly $350 at market close on January 27. That’s been interpreted as positive for GameStop. Between malls dying out and the pandemic, if you forgot the company existed, that would be fair. Robinhood raised $1 billion from investors overnight on Thursday, January 28, and drew on bank credit lines to shore up its operations and make sure it has enough money to let people keep trading. Lots of hedge funds and investors are shorting GameStop, but at the center of the current saga is Citron Research, which is run by famed short seller Andrew Left. “But when it happens, it’s spectacular.”. It’s a captivating David vs. Goliath story, where David — at least on some fronts — appears to be winning. Again, dying malls plus pandemic. The reasoning for clamping down on trading is unclear; Robinhood’s stated mission, after all, is to democratize finance. And Tesla’s Elon Musk, whose tweets often move stocks, tweeted, “Gamestonk! Some brokerages, such as Robinhood, have been accused of encouraging amateur investors with little experience in or understanding of the market to use the app. There’s a continuum of outcomes when it comes to mispriced stocks. We were neutral the last time around. But the people who have driven GameStop’s stock up — those amused by the prospect of buying stock in a store with an annoying-to-bad reputation among gamers, those who wanted to get into the communal aspect of investing with their friends, and now those, like my sister, who simply want to get rich — don’t view the market in those terms. It looks to me that institutional money is now moving against the short sellers. Financial contributions from our readers are a critical part of supporting our resource-intensive work and help us keep our journalism free for all. (Don’t worry, we’ll explain what that is. For one thing, it seems like the WallStreetBets crowd has learned a tactic that it can replicate in orchestrating short squeezes. GameStop stock is on the rise, and a Reddit group called WallStreetBets is at the heart of an unusual meteoritic rise in price. One of WallStreetBets’ moderators addressed the impression that the community is “disorderly and reckless” in a post on January 24, while pushing back against any suggestions there is an organized effort among moderators to promote or recommend any stock. Trump’s signature Israel policy had a key flaw. The real situation around GameStop is looking out to be a little confusing. “When you put on that big of a trade, you have to pretty much expect on the short seller side that news is imminent. There’s also been some speculation about Robinhood’s relationship with a major investment fund being a factor. The Jewish angles to the GameStop stock saga, explained Epic trading war pitting hedge funds against individual investors features Jewish billionaires … If you want to know where your money will go the furthest, check out these four charities. Plenty of hedge funds, short sellers, billionaires, and institutional investors treat investing like a game, too. On January 27, the Securities and Exchange Commission said it was “monitoring market volatility.” Two days later, it put out a lengthier statement warning that “extreme stock price volatility has the potential to expose investors to rapid and severe losses and undermine market confidence.” It also said it would “protect retail investors when the facts demonstrate abusive or manipulative trading.”. Let’s back up a bit to go over the basics of what is going on here. That evening, Robinhood announced it would reinstate limited trading on those stocks the next morning. Its subject: “Bankrupting Institutional Investors for Dummies, ft Gamestop.”. What you may not understand, is how, what, or why. MAGA, Stephen K. Bannon, GamerGate and Occupy Wall Street have all been raised in an effort to explain the situation. In other words, individual investors haven’t worked together to impact specific stocks like this before, at least not to this magnitude and with this level of technology. To help explain the GameStop stock situation, Reddit user u/Double_Gunz has recreated the situation using Super Smash Bros. GameStop Stock Explained: Robinhood, Short Squeezes, And Reddit. So it will be (probably) with GameStop. This made the price … “how can i buy stocks i wanna be rich,” she wrote. Even before the pandemic made shopping malls a bio-hazard, consumers were done with Gamestop, which was … GameStop is one of the most heavily shorted stocks on Wall Street. GameStop shares have levitated alongside the market. As the Biden administration ramps up, sign up for our essential weekly policy newsletter, This story is part of a group of stories called, Joe Manchin’s surprisingly bold proposal to fix America’s voting rights problem. Last summer, some of them piled onto bankrupt Hertz, for which there was really no good case. But giant banks and hedge funds aren’t exactly a bastion of responsibility — take a look at the role they played in the 2008 financial crisis. So, how did Gamestop or GME become the trade du jour? One moderator, Stylux, suggested there wasn’t much mystery. But the problem is, they have a large store footprint and a large fixed-cost base. The White House said it was monitoring the GameStop situation, and the Federal Reserve and Sen. Elizabeth Warren weighed in as well. A reassessment of that paper in 2013 was even more critical. That was weird enough, but the story behind it was even weirder. Please consider making a contribution to Vox today from as little as $3. On January 12, GameStop's stock price began its meteoric rise to historic highs, blasting past its meager $15 share price in mid-December to a peak of $467 per share at the time of writing. https://open.spotify.com/episode/7dEj5NUNJaYtkqfwjoLYD6?si=v2v9vH_TTUKBmRMKiW36fw Little-guy investors are supposedly cratering billion-dollar hedge funds. American stock markets are in a lather. In the GameStop saga, at least, the answer is yes. There’s a reasonable business case to make for (some of) the game retailer’s valuation; there’s also a case that this whole thing has just been quite fun for everyone — the possible trolls of Reddit, market watchers, commentators, and certainly GameStop — except for the short sellers, who have been in for a pretty miserable ride. Gill convincing posters on wallstreetbets to invest in GameStop isn’t materially different from Warren Buffett saying that he likes a stock, with individual investors taking that as a signal to buy. Does the business have long-term prospects? But of course, on the legal front, reasonable minds might disagree. Famously, the market can stay irrational longer than people can stay solvent,” said Harry Mamaysky, professor at the Columbia Business School. Social Media. 0. “If GameStop was able to raise additional capital and reposition the company, especially with the help of its activist board members, and reposition the company in a stable position to justify the stock price, then it could be a self-fulfilling, positive prophecy.”, The example of Blockbuster is instructive, Wu said. !” with a link to r/WallStreetBets. In a January 25 post titled “An open letter to CNBC,” one WallStreetBets Redditor pointed out that much of the network’s audience is composed of the retail traders who are now being criticized. There’s no insider information here,” he said. Our mission has never been more vital than it is in this moment: to empower through understanding. Scott Galloway, the podcaster/professor/thought-leader/influencer, tweeted that the situation indicated that young men weren’t having sex. That sell signal can come from anywhere, at any time. Does the business model make sense? GameStop’s share price, which closed on Tuesday at $147.98 (it’s gone over $300 today) isn’t any reflection of its health or value as a company. Little-guy investors are supposedly cratering billion-dollar hedge funds. What is a stock? It’s a recognizable name, there’s some business case for it, and it’s turned into a meme. I think there’s a tendency where there is heavy retail interest for those types of traders to think about stocks differently than institutional investors in terms of what they’re willing to pay.”, Day traders are hardly a monolith, including the ones at WallStreetBets, which boasts nearly 3 million members, or as they refer to themselves, “degenerates.”. And one big question amid the frenzy has been how much the little guys really matter. Diddy Kong is used to represent WallStreetBets, and by extension GameStop stock, … Prominent examples, like that of Volkswagen in 2008, are taught in econ courses. Stonks and /wallstreetbets: An Explanation of the GameStop Situation. On Inauguration Day, everyone got a kick out of Sen. Bernie Sanders’s mittens. And it’s far from certain GameStop’s stock price will stay high forever. IMPORTANT DEFINITIONS Hedge Fund - A hedge fund is an investment fund that trades in relatively liquid assets and is able to make extensive use of more complex trading, portfolio-construction and risk management… Still, the people who aligned with the former view, believing the stock was primed to go down, bet heavily on that outcome, in overwhelming numbers usually associated with companies at imminent risk of failure. Disclosure: All opinions presented here are purely my own and do not represent my firm or anyone associated with it. (This is the simplest explanation.). … The stock is finished.”. Last week, Citron announced on Twitter that it would be hosting a livestream event laying out the short case against GameStop and arguing people buying the stock were “suckers at this poker game.” They predicted shares would go back to $20. “[The bet] has to work pretty quickly, because what you don’t want is your short stock at $10 and it goes up to $100, because you can lose more than 100 percent of the capital that you put down.”. … I think when it all ends, it’ll be very, very obvious to everyone how it should have ended.”. As of Feb. 8, the current value of GameStop stocks has gone down to $60.00 per share. The simplest answer is that its stock price has skyrocketed — by somewhere around 8,000 percent over six months. There are new kids on the block and they’re ready to squeeze you out. I would be very skeptical of anyone who tries to tell you that retail is making GME move at this point. On GameStop, the answer is probably a mix. It’s what happened with GameStop’s stock. “What I think is happening is that you guys are making such an impact that these fat cats are worried that they have to get up and put in work to earn a living,” the moderator wrote. And there's no way GameStop stocks are worth their current price, it's a failing company with losses (it's not the falling stock price what caused the losses, it's the other way around) they need to come up with a plan that revert their current business results and so far there isn't one. The Security and Exchange Commission (SEC) is also conducting evaluations regarding the situation with Robinhood. Damn. In 1988, three academics from MIT and Harvard found that only about one-third of fluctuations in stock returns can be traced to specific news about a stock or company. 0 Shares. Even though the price on the stock has lowered, the frenzy between r/wallstreetbets and hedge funds is still noteworthy. Though the buying frenzy around GameStop hit in January, this one has been in the making for a while. How do people decide what to invest in? The price of GameStop shares closed at US$347.51 on January 27, which gave the stock a market cap of over $23billion. Close There has been a lot of interest in the stock market this week after investors from the Reddit message board managed to … The Reddit forum briefly went private on January 27, and the messaging platform Discord shut down the WallStreetBets server in its app the same day due to “hateful and discriminatory content.” The Verge reports that Discord is now working with WallStreetBets to help moderate its content. Left, the Citron short-seller, announced his shop would stop publishing “short reports,” ending a practice it’s undertaken for 20 years. In Wall Street terminology, these investors are bearish on a stock’s prospects. We can’t go on TV and make attempts to manipulate millions to take our side of the trade. 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