It would be understandable if this was preventing people from borrowing money or from shorting a company but someone could have a 10 year horizon on buying Gamestop, it’s crazy you deny the ability to go long a US company.
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It’s this plus, it seems, a gamma squeeze Fri/Mon.
Game stop down 139 points 40% down to 207, guess yesterday was the day to short it.
This was not due to free market though. You literally can’t buy the stock if you wanted to, and can only sell. It’s kind of outrageous.
Thing is, now that people know they can make millions, it’s easy for them to target other stocks to continue bankrupting other hedge funds, and it’ll be even faster and more volatile.
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It’s almost like people will have to pause and think of the potential tail risks when they choose to borrow billions of dollars to short a company beyond it’s entire market cap…
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Nah. I’m sure we can come up with a federal bailout program to protect hedge funds from adverse risks.
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I bought one more share on Fidelity near the dip just to see if I could. It took a bit but I did get it filled at $169. So.
Looks like Robinhood is allowing its users to purchase GME, BB, NOK, and AMC again.
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I’ve read that they only allow people who own fewer than five GME shares to ratchet up to five. For anyone who owns more than five has to stand pat. That was an anecdote from WSB, not confirmed.
What would the masses do without their enlightened trading apps to make financial decisions for them.
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Well, that didn’t quite happen as Reddit had expected. I closed out the last of my position… let’s be honest, my wager. Between GME, BBBY, and BB, I threw in $6,100 and cashed out for $20,200.
Will keep an eye out for Reddit meme stocks, the momentum of millions of investors isn’t nothing. Might do it again, but happy to be back on the sidelines for a bit.
This is what peaked my interest and wet my appetite to learn more about this.
Are there really enough investors with enough capital on reddit that they could actually cause such a movement in the price of a stock? Apparently, but I find that possibility fascinating.
Obviously, the short squeeze played into the run up as well.
Change the baby’s whet diaper and the go play pique-a-boo with her
Picabo Street didn’t last long answering phones at the hospital’s intensive care unit
A “million” Reddit investors with $1000 each is a billion dollars pumping at a stock. I think that could move smaller companies’s prices all over the place. Not Tesla or Amazon, but GameStop? Sure.
I’ll assume that none of these are borrowing to buy, leveraging their position.
Question from me is, why GameStop and why now? What ticked a few people off enough to foment an investor mob? Seems someone had a real beef with short positioners in general or some particular ones. I mean, it’s quite possible that the shorts were right in their estimation, just not their timing. Also, anyone shorting at the top (perhaps those original beef-havers?) is going to win huge.
Couple of things, I’m not the WSB expert but I’ll do my best. WSB was around 1.8M subscribers before the GME pandemonium went viral. I don’t know how many lurk and how many invest, but safe to say it’s at least a few hundred thousand people with skin in the game.
Some trade on margin, and quite a few play options, which has a similar leveraged effect. They call it Wall St ‘Bets’ for a reason, quite a few of these folks are just gambling.
Why GameStop? I’m not 100% versed in the history, but WSB is quite an echo chamber, from what I can tell typically a handful of stocks somehow grab hold and then things get reinforced. TSLA was #1 for a long time, then NIO and NKLA, and in recent months it seems the big ones were BB, GME, BBBY and, more recently, AMC. I think the idea that on top of having some potential as a value stock, plus new leadership with Ryan Cohen, the notion that there could be a short squeeze sent this one to 11 on WSB. Again, not an expert, just my take. I don’t spend hours and hours scrolling WSB for stock picks.
One more thought. Wall St is… mostly smart. Sure, Melvin got caught with their pants down on this one. Long Term Capital Management damn near took down the whole market in the late 90s by leveraging up to something like $4T (oopsie).
So I’m sure they will train their Python code on WSB and begin to adjust, to account for the teeming masses of retail investors. Which isn’t to say WSB won’t change and somehow beat them again… I suppose this will be a sort of cat and mouse game.
Thanks. So, hysteria. Doesn’t seem that anyone thinks GameStop (GME) is really worth its stock price, even at $99 (current). I mean it was up to $329 last Friday, down to $90 on Tuesday. That means some people made money on that down-change.
Wondering who are the main influencers there, who are likely buying (or shortselling) stocks, then posting about them in a smart-sounding way to make their own personal profit.
Not unlike trying to keep up with fashion (or tulips), the latecomers will be first losers.
The story about the shorting of Enron is interesting.
From 2002:
If you don’t have a subscription:
Enron Corp. may be the best friend that Wall Street’s “short-sellers” ever had.
Some of these professional bears bet against the energy company’s stock early last year, smelling a fraud. Yet any monetary gain they reaped could be of modest value compared with the long-term benefit to their image thanks to Enron’s demise.
That’s because the principal lessons Enron has taught investors are about the need to question glowing corporate forecasts of sales and earnings, to dig deeper into companies’ financial statements, and to think twice before affording sky-high price-to-earnings multiples to stocks of businesses heavy on hype and light on specifics.
Those are the hallmarks of professional short-sellers. Though often reviled for the end product of their work–the actual “shorting” of stocks, meaning borrowing and selling shares, hoping the price declines so the loaned shares can be replaced at lower cost in the future–short-sellers may be the last bastion of hard-nosed research left on Wall Street.
“It’s a lot of work to short a stock,” said Bill Fleckenstein, a veteran short-seller who heads Fleckenstein Capital in Issaquah, Wash. “You have to be right.”They aren’t always right, of course. But Enron is a prime example of how short-sellers’ questioning of the conventional wisdom can prove to be spectacularly on target.
One of the few voices raised against Enron a year ago was that of James Chanos, a well-known research-intensive short-seller who heads Kynikos Associates in New York. Chanos publicly questioned other analysts’ assumptions about Enron’s true profitability and made the argument that the company was merely a disguised “hedge fund"–a high-risk trading operation that didn’t deserve the huge valuation investors had given it.
But Chanos got little publicity, and most institutional money managers were far more interested in hearing the upbeat pronouncements coming from then-Enron CEO Jeffrey K. Skilling and from the army of brokerage analysts covering the company.
Still, Chanos’ warnings belie the line heard most often on Wall Street today, as big investors and analysts try to explain why they didn’t see Enron’s collapse coming. The line is, “We were totally snookered–the company deceived the government, its auditors, and us.”
Baloney, says James Grant, editor of Grant’s Interest Rate Observer newsletter in New York and a longtime ally of the short-selling community. “I do not buy for one minute” the idea that anyone paying close attention to Enron’s finances wouldn’t have seen the same warning flags that Chanos did, Grant argues.
“And if it [Enron] was so opaque, why did people own it?” he asks.
Led by a handful of professional skeptics, more investors did short Enron stock as 2001 wore on. But those bets rose relatively slowly, and even by September–after Skilling had resigned and the share price was crumbling–a modest 13.8 million Enron shares (less than 2% of the total outstanding) had been shorted, according to New York Stock Exchange data.
In November, as bankruptcy neared, short-selling of Enron stock soared. But the big money would have been made by shorting the stock at $80 early in 2001, and holding that bet, rather than shorting it at $10 in November. (The profit on a short sale, after all, is the difference between the price at which borrowed stock is sold and the price at which shares are bought back to repay the loan. Enron shares were trading Friday at about 51 cents.)
Short-selling of stock in general was at record levels as of mid-December, the latest data available from the NYSE and Nasdaq. Yet professional short-sellers say those figures are misleading. Most shorting is connected with strategies other than betting on an overvalued stock’s collapse, they say.
Many short sales are made to hedge “long” bets–for example, an investor may short one stock in an industry to protect against a decline in a rival stock the investor owns, should the entire sector take a sudden hit.
The community of money managers who are actively researching stocks to short is tiny, Fleckenstein said. In all, he estimates there may be less than $1 billion committed to short-selling funds such as his own. The funds’ clients typically are institutional investors and wealthy individuals.
Short-sellers have never been a huge group on Wall Street, but they enjoyed a higher profile–and endured substantial public wrath–in the late-1980s, after the 1987 market crash.
Many of the famous short-sellers of that era, in particular the Feshbach brothers of Palo Alto, were accused of spreading lies about stocks to knock them down and thus profit from short sales.
Then came the great bull market of the 1990s. Shorting stocks, which, at a minimum, always smacks of being un-American, turned fatal for many practitioners.
The blue-chip Standard & Poor’s 500 index produced a total return of more than 20% for five straight years ending in 1999. Worse for many short-sellers, the S&P; was led by its technology stocks, a sector that some short-sellers believed had become overvalued by 1998.
As tech shares continued to climb, a bet against a stock because it was overvalued by traditional standards meant certain failure for many short-sellers, as the overvalued simply became more overvalued.
Some short-sellers learned the hard way just how risky the strategy can be. If you buy a stock outright, the most you can lose is your entire investment.
But a short-seller’s losses are potentially unlimited: If you short a stock at, say, $50, and the market price then rises instead of falls, your losses mount until you buy back the stock on the open market and repay the loaned shares (which usually are lent by brokerages).
Now, even in the wake of the deepest and longest bear market in a generation, most of the remaining short-sellers say that, so far, there is no rush of new money coming their way from investors.
David Tice, a Dallas money manager who heads the $200-million Prudent Bear mutual fund largely dedicated to short-selling, says the amount of money he has attracted after each major market sell-off of the last few years has declined sequentially. His fund was up 7.4% last year even as the broad market plunged.
Tice remains a raging bear. He sees “tons” of stocks to short, he said, given his outlook for the economy to remain troubled and his belief that many stocks are drastically overvalued relative to companies’ earnings potential in the next few years.
If any event draws more investors to consider trusting professional short-sellers with at least a portion of their portfolios, it ought to be Enron’s rise and thunderous fall.
For now, however, Fleckenstein considers the relative lack of interest in short-sellers to be a sure sign that the bear market isn’t over, because most people believe otherwise. “I find it comforting,” he said.
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For others who are a little dyslexic like I am…the date on that is January twentieth of the year two thousand and two.
Thanks for posting.
Are there really a million redditors? Are they really that big of a group?
Oh, I guess they are. Wow. I’m too used to the AO/GoA community of such few posters in comparison
Thanks for the insight, Mathman.
Yep, somebody is going to be left holding the bag on this one. Quite a few folks on WSB were still piling in when it was $300+ because they thought it was going into the thousands. Pigs get fat and hogs get slaughtered and all.
I go back and forth on short selling. I think having short sales in excess of the total number of shares, or the number of float shares, is dangerous. But you can achieve the same outcome with options/synthetics, so it could be tricky to regulate. Who is to stop you and I from writing up a contract between us to bet on a stock price? I have seen some people, like this Enron story, that are short because they genuinely believe something is amiss, and that seems like a reasonable part of the whole price discovery mechanism.
How about that German company that was fraudulent and became heavily shorted and then the German regulator sued the short seller 
they dropped the suit when the fraud was discovered